One Big Beautiful Bill Act Summary & Key Provisions

The “One Big Beautiful Bill Act” tax bill (a/k/a the OBBBA, a/k/a the 2025 United States budget reconciliation law) was passed by the Senate on July 1, 2025, followed by the House on July 3, and signed into law by President Trump on July 4. What’s more American than celebrating Independence Day with fireworks—and a brand-new tax bill? This legislation includes provisions retroactive to 2024, others that take effect in 2025, and some that won’t kick in until 2026 or 2027. A few changes are marked as “permanent,” while others are set to expire in three or four years. From our 100-foot view, this is less a major overhaul and more a continuation of the existing tax code—with a handful of enhancements. It’s worth noting: if you don’t qualify for any of the new provisions, your situation remains unchanged relative to 2024. You’re not worse off—you just won’t benefit from the enhancements.

Tax Brackets

The marginal tax brackets we’ve come to know since the Tax Cuts and Jobs Act of 2018 (TCJA) have been made permanent with seven different brackets ranging from 10% up to 37%, and we expect cost of living adjustments to continue being made annually to those brackets’ income thresholds. For tax year 2026 only, there will be an extra inflation adjustment for just the bottom two brackets – 10% and 12%. Below are the 2025 tax brackets for both Single and Married Filing Joint taxpayers.

The Standard Deduction:

The Standard Deduction, the deduction largely available to all taxpayers, has been made permanent at current levels – $15,750 for single taxpayers and $31,500 for married filing joint taxpayers. Prior to the Tax Cuts and Jobs Act bill in 2018, the standard deduction amounts were $6,350 for single taxpayers and $12,700 for married filing joint taxpayers. As a reminder, a taxpayer can reduce their adjusted gross income by the higher of the standard deduction or the sum of their itemized deductions – the higher the standard deduction, the more difficult it is for most taxpayers to claim their itemized deductions.

Itemized Deductions are a group of specific expenses which, added together, give a taxpayer the ability to reduce their income to the extent that the sum of these deductions exceeds the standard deduction threshold noted above. Most commonly, these expenses are out-of-pocket or otherwise unreimbursed medical & dental expenses to the extent those expenses exceed 7.5% of your Adjusted Gross Income (AGI); state & local tax paid (SALT) – income tax, property tax; gifts to charitable organizations; mortgage interest; and investment expense (to the extent you have taxable investment income), among others. There are some nuances around several of these but most notable is that the TCJA capped the state & local tax deduction at $10,000. Also worth noting, effective 2026, for those in the 37% marginal federal tax bracket, the sum of your itemized deductions can only offset income at a 35% rate – not 37%, which is the current reality.

• Medical & Dental Expenses: Unchanged
• State and Local Tax Deduction (SALT): Prior to the TCJA, the SALT deduction was largely unlimited, although subject to phase-outs known as the Pease Limitations (“permanently” removed from the tax code). This was one of the hotly debated provisions where many constituents from high tax states (CA, NY, CT, NJ, etc.) were advocating for a higher ceiling than the $10,000 limit. What ultimately made its way into the bill was a $40,000 SALT cap, which does phase out above $500k of Modified Adjusted Gross Income (MAGI) and is completely phased down to $10,000 at $600k of MAGI. It is effective in 2025 but ends in 2029 – reverting back to the $10,000 cap.
• Mortgage Interest Deduction: Made permanent with interest deductible at $750,000 of indebtedness. That indebtedness must be recorded and used to purchase or improve the home which the loan is secured against. Mortgage Insurance premiums will also be deductible effective 2026.
• Charitable: Some subtle changes where only charitable gifts in excess of 0.5% of your AGI are deductible – this is effective beginning 2026. This 0.5% floor is not in place for tax year 2025. Example – $1 million of AGI with a $100,000 charitable gift means $5,000 of the $100,000 gift is not deductible (0.5% of $1m AGI) and the remaining $95,000 is deductible. Remember, cash contributions are deductible, in the year they were made, up to 60% of your AGI; gifts of long-term capital gain stock are deductible up to 30% of your AGI. Does this set the stage to gradually increase that 0.5% floor over time?

New Deductions

There are a handful of new deductions that will appear “below the line” on your personal tax return. “Below the line” refers to deductions after your AGI has already been calculated (deductions that cannot reduce your AGI). Itemized Deductions noted above are also “below the line,” but these are deductions not part of the group of deductions mentioned above.

• Non-Itemized Charitable Contributions: Only available for those not itemizing. $1,000 for single taxpayers; $2,000 for married filing joint. It is our understanding to qualify for this deduction the gift must be made in cash (sorry, appreciated stocks) and also cannot be directed to a donor-advised fund.
• Senior Tax Deduction: Available to those 65+ for $6,000. Phased out if MAGI exceeds $75,000 for single taxpayers or $150,000 for married filing joint. This is a temporary deduction and will go away after 2028. This deduction was likely added into the bill since the idea of not taxing Social Security did not pass the final cuts. 
• Auto Loan Interest Deduction: Interest on auto loans used to purchase a personal-use car can be deductible if that car was assembled in the U.S. (sedans, vans, SUVs, trucks, and motorcycles). It is only applicable on loans taken out after 12/31/2024 and is capped at $10,000 worth of deduction. This deduction also phases out at MAGI of $100,000 for single taxpayers and $200,000 for married filing joint. 
• No Tax on Tips: Qualified tip income is deductible up to $25,000 and is effective for tax year 2025 through 2028. There are several requirements here, and the deduction gets phased out at MAGI of $150,000 for single taxpayers and $300,000 for married filing joint. If your profession or job does not customarily receive tips, then your creative ways to reclassify your income won’t work. The tip income must also be paid voluntarily. Income must also be reported in order to deduct it and is still subject to self-employment tax
• No Tax on Overtime: Similar in spirit to the “no tax on tips,” there is a deduction for qualified overtime pay up to $25,000 ($12,500 for single filers) that will get phased out at $300,000 of MAGI ($150,000 for single filers). The phaseout will be $100 for every $1,000 of MAGI above these phaseout zones. Like tips, you still have to report the overtime to get the deduction. For those who have a base pay rate and a separate overtime pay rate, only the spread of overtime pay over the base pay rate is eligible for deduction. There are other nuances around what qualified overtime means, which we won’t dive into here.

Other Important Features:

Pass Through Entity Tax: The election for pass-through entities to pay state income tax within the partnership was made permanent. This is a big win for those getting phased out of the $40,000 SALT limit within the itemized deductions. Paying state income tax in the entity allows the business to deduct those payments as an expense, therefore reducing taxable pass-through income. Deducting the full amount of state tax paid in the partnership is a superior outcome than trying to deduct all those state taxes on a personal return subject to the phaseouts.

Estate Tax Exemption: The lifetime exemption amount per person was increased to $15m and made permanent. The 2024 estate tax exemption amount is $13.99m and would have been scheduled to increase to somewhere in the low $14m range absent the change in this tax bill. For those of you worried about the estate tax exemption amount sunsetting back to Obama Era levels – approximately $7M to $8M of exclusion per person individual – you can breathe a little easier.

QBI: The 199A Qualified Business Income (QBI) deduction was made permanent, with some minor changes. This is a business deduction available to small business owners to help balance out the corporate tax cut made in the 2017 Tax Cuts and Jobs Act. The deduction was 20% as part of the TCJA and remains at this level despite the House’s attempt to increase the deduction to 23%. We won’t go into greater detail here on all the QBI nuances; we just want to note it is now permanent.

Child Tax Credit: Effective 2025, the child tax credit is made permanent at $2,200 per qualifying child. This had been $2,000, and was set to be $1,000 in 2026 before the bill passed. This credit will also get inflation adjustments for the first time ever. Phaseouts of this credit begin at $200,000 of MAGI for single taxpayers and $400,000 of MAGI for married filing joint taxpayers.

Final Thoughts:

The One Big Beautiful tax bill introduces a range of changes—some helpful, some not, some temporary, and others that will matter to only a small group of taxpayers. While the headlines are attention-grabbing, the practical impact will depend on your specific circumstances. Now is the time to revisit your financial plan, review your tax projections, and consider what opportunities or adjustments may be available to you. Your tax preparer will be a great partner to ensure your tax plan is well crafted. As always, the key to making the most of any tax law change is proactive, personalized planning—not reacting after the fact.

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