The One Big Beautiful Bill Act
This legislation presents both opportunities and challenges for investors, but its impact on your financial situation may vary depending on who you are and how you earn your income. Understanding the new law’s implications can help you make informed financial decisions and make the most out of the potential opportunities presented by the bill.
There are five primary areas covered in the bill:
- Individual tax rates
- Changes to deductions and credits
- Estate planning and wealth transfer
- Tax breaks for businesses
- Investment incentive programs
Here are the two most common changes that may impact you:
Individual Tax Rates
One of the most significant aspects of the OBBBA is the permanent extension of the TCJA’s individual tax cuts that were due to expire at the end of 2025. These brackets will continue to be adjusted with inflation over time, potentially preserving a favorable environment for income earners.
What this means to you: If you’re planning for retirement, the OBBBA provides clarity around future tax rates so that you can plan for your financial future with confidence. If you’re a high-income earner: You might want to consider income-smoothing strategies to better position your tax brackets over time.
Deductions and Credits
The 2017 TCJA eliminated or limited many popular deductions and credits with the goal of simplifying the tax code overall, but many of those changes were temporary. The OBBBA makes many changes from TCJA permanent, but adds a few temporary provisions, including tax breaks for certain types of income and short-term changes to deductions.
Highlights of TCJA changes made permanent by the OBBBA include:
Increased standard deduction ($15,750 single / $31,500 joint) effective as of January 1, 2025 and adjusted with inflation in subsequent years
Increased child tax credit to $2,200 per child with future inflation adjustments
Mortgage interest deduction limited to the first $750,000 of indebtedness
Home equity loan interest deduction is disallowed, unless the loan used to improve the home
Permanently eliminates clean vehicle and energy credits for both individuals and businesses after 2025
Additional temporary OBBBA tax breaks (all subject to income limitations):
No tax on tips up to $25,000 per taxpayer (available 2025-2028)
No tax on overtime up to $12,500 per taxpayer (available 2025-2028)
Car loan interest deduction for new purchases of U.S.-assembled passenger vehicles (available 2025-2028)
Enhances standard deduction by $6,000 for seniors age 65+ (available 2025-2028)
Expands the limit on the itemized state and local tax (SALT) deduction from $10,000 to $40,000 with an annual adjustment (available 2025-2029)
In addition, the OBBBA makes a couple of permanent changes to charitable deductions:
First, it creates a charitable deduction for non-itemizers of up to $1,000 for single filers and $2,000 for joint filers. Secondly, it limits the charitable deductions for taxpayers who itemize, such that contributions may only be deducted to the extent that they exceed 0.5% of a taxpayer’s income, and the tax benefit of those deductions is limited to the 35% income bracket.
What this means to you:
Depending on who you are, and how you earn your income, these changes may have a smaller or larger effect on your ultimate tax bill.
