The One Big Beautiful Bill Act (OBBBA) - Individuals

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, introduces key changes, including the permanent extension of certain expiring provisions from the Tax Cuts and Jobs Act, updates to the international tax framework, and the reinstatement of favorable tax treatment for specific business provisions. The act has staggered effective dates, with some measures starting in 2025 and others rolling out through 2027. Below is a summary of the major individual provisions:

Individual Tax Rate

• What’s Changing: Permanent extension of current individual tax rates:   10%, 12%, 22%, 24%, 32%, 35% and 37%.  Bracket thresholds continue to be adjusted for inflation, with a technical change to the inflation adjustment for the 35% and 37%. Also adds an additional year of inflation adjustment to the end of the 10% and 12% brackets.

• Who’s Affected: Individuals

• When: Effective 2026

Standard Deduction

• What’s Changing: Permanently increases the standard deduction.

• Single & MFS: $15,750 (indexed)

• HoH: $23,625 (indexed)

• MFJ: $31,500 (indexed)

• Who’s Affected: Individuals

• When: Effective 2025

Extra Deduction for Seniors

• What’s Changing: Additional deduction for seniors (age 65 or older) or blind of $6,000 per eligible filer. Available to both itemizers and non-itemizers. Reduction at a rate of 6% by which AGI exceeds $150k(MFJ)/$75k(Single). Phases out completely for MAGI more than $250K (MFJ)/$175k (Single).

• Who’s Affected: Seniors and visually impaired individuals

• When: Tax years from 2025 to 2028

Personal Exemptions

• What’s Changing: Suspended for 2018-2025. Permanently terminates deduction for personal exemptions.

• Who’s Affected: Individuals

• When: Effective 2026

State and Local Taxes Limitation (SALT Cap)

• What’s Changing: Temporarily increases the limit on the federal deduction for state and local taxes (the SALT cap) to $40,000 (from the current $10,000) and adjusts it for inflation retroactive for 2025. In 2026, the cap will be $40,400, and then will increase by 1% annually, through 2029. Starting in 2030, it will revert to the current $10,000.

• Phaseout of SALT deduction for MAGI greater the $500,000. Phasedown will reduce the taxpayer’s SALT deduction by 30% of the amount the taxpayer’s MAGI exceeds the threshold, but the limit on a taxpayer’s SALT deduction could never go below $10,000.

• Who’s Affected: High-income taxpayers in high-tax states.

• When: Effective 2025 and sunsets after 2029.

• Other: Does not change the pass-through entity tax option that many states have created for partnerships and s-corporations.

IRC Section 199A – Qualified Business Income Deduction (QBI)

• What’s changing: The deduction was set to expire as of December 31, 2025 but OBBBA has now made the deduction permanent. In addition, starting in 2026 the QBI deduction provides a minimum deduction of $400 with at least $1,000 of QBI and increases the phase-in limitation range from $100,000 to $150,000 for joint filers and $50,000 to $75,000 for other filers.

• Who’s Affected: Individuals with pass-through income or REIT Dividends.

• When: Permanent with no sunset and new provisions effective for 2026.

Mortgage Interest Deduction

• What’s Changing: Permanent $750,000 acquisition indebtedness (the principal amount used to buy, build, or substantially improve a first or second home) (TCJA) limitation for loans originated after December 16, 2017.

• Reinstates a provision allowing mortgage insurance premiums to be deducted as interest.

• Grandfathered Mortgage Debt: Mortgages originated before December 16, 2017, may fall under the old rules, allowing deductions on up to $1 million.

• Home equity loan interest remains non-deductible, continuing the limitation from the TCJA.

• Who’s Affected: Taxpayers with mortgages over $750k.

• When: Effective 2025 and forward, subject to renewal

• Reminder: Some states do not conform to the $750,000 limit and are still at $1,000,000.

Charitable Contributions (non-itemizers)

• What’s Changing: Permanent above-the-line deduction reinstated for cash charitable contributions for non-itemizers. Charitable contribution deduction of $1,000 for single filers or $2,000 for MFJ for certain charitable contributions. The deduction is not temporary but has been made permanent.

• Who’s Affected: Taxpayers who take the standard deduction

• When: Effective 2026

Charitable Contributions (itemizers)

• What’s Changing:  Limit charitable deduction for itemizers by providing a deduction only for charitable contributions to the extent that they exceed a new floor of 0.5% of adjusted gross income (AGI). The 60% limit for cash contributions is made permanent, extending a change from the Tax Cuts and Jobs Act (TCJA). Deductions disallowed by the 60% limit can be carried forward for five years, but there is no carryforward for amounts below the 0.5% floor if the total contributions do not reach the 0.5% floor limit. 

• Who’s Affected: Taxpayers who itemize deductions

•  When: Effective 2026

• Planning: Keep in mind that there is also an overall itemized deduction limitation for taxpayers in the top 37% bracket that is new as part of the OBBB. Those individuals who are at retirement age can do a qualified charitable distribution out of a taxable IRA account and those distributions are not subject to the 0.5% floor. In addition, any charitable contribution carryforward from 2025 is not subject to the 0.5% floor.

Miscellaneous Itemized Deductions

• What’s Changing: Permanently terminates deduction for miscellaneous itemized deductions that first started in 2018. This means expenses such as unreimbursed employee expenses, tax preparation fees, and investment expenses are still not allowed as itemized deductions. However, unreimbursed employee expenses for eligible educators is removed from the list of miscellaneous itemized deductions and eligible educators can deduct up to $300 (or $600 if both spouses are educators).

• Who’s Affected: Taxpayers who itemize deductions

• When: Effective 2025

New Itemized Deduction Limitation for 37% Tax Bracket

• What’s Changing: Permanently repeals the PEASE limitation phase-out and replaces it with a new limitation on itemized deductions that applies to all taxpayers in the 37% tax bracket. All itemized deductions (SALT or otherwise) yield a $0.35 tax benefit per $1 (limited to a 35% tax benefit), and explicitly excludes the Sec. 199A pass-through deduction from this limitation.

• Who’s Affected: High-income individuals at 37% bracket

• When: Effective 2026

• Planning: Consider accelerating deductions in 2025, for example a taxpayer who is in the 37% tax bracket makes a $100,000 charitable contribution in 2025 the Federal tax savings would be $37,000, however in 2026 the tax savings would decrease to $35,000.

Car Loan Interest Deduction

• What’s Changing: New above-the-line deduction for personal vehicle loan interest. Limitation of $10,000 total car loan interest deduction. Must be US-assembled passenger vehicles with the vehicle serving as security for the loan, must be for personal use, loans for campers and RVs do not qualify, and applies to cars purchased after 12/31/2024.

• Reduction by $200 for each $1,000 by which AGI exceeds $200k(MFJ)/$100k(Single). Phases out completely for MAGI more than $250K (MFJ)/$150k (Single).

• Who’s Affected: Moderate-income taxpayers with auto loans

• Effective Date: Effective for tax years from 2025 – 2028

Deduction for Tip Income

• What’s Changing: Above-the-line deduction for qualified tip income. This means eligible taxpayers can deduct tip income directly from their gross income, reducing taxable income even if they don't itemize deductions. Employees can deduct up to $25,000 in reported tip income ($50,000 for joint filers). Phase out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $300k(MFJ)/$150k(Single). Phases out completely for MAGI more than $350K (MFJ)/$175k (Single).

• A transition rule will allow employers required to furnish statements enumerating an individual’s tips for tax year 2025 to use “any reasonable method” to estimate designated tip amounts.

•  Who’s Affected: Lower to mid-income workers. Workers in hospitality (food/beverage), service industries (hair, nail, esthetics, spa).

• When: Effective for tax years from 2025 – 2028

Overtime Wages Deduction

• What’s Changing: Above-the-line deduction for qualified overtime compensation. This means eligible taxpayers can deduct overtime pay (extra 50%) directly from their gross income, reducing taxable income even if they don't itemize deductions. "Qualified overtime compensation" refers to wages paid at a rate exceeding the regular hourly rate, as mandated by the Fair Labor Standards Act (FLSA) Section 7.  Employees can deduct up to $12,500 in reported qualified overtime compensation ($25,000 for joint filers). Applies only to W-2 reported overtime pay, no self-reported cash overtime. Phases out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $300k(MFJ)/$150k(Single). Phases out completely for MAGI more than $350K (MFJ)/$175k (Single).

• Who’s Affected: Individual taxpayers who meet the requirements.

• When: Effective for tax years from 2025 – 2028

• Reporting: Additional reporting by employers will be needed to identify overtime wages. Some employers may restructure compensation to take advantage of the rules.

Trump Accounts

• What’s Changing: New Sec. 530A tax-preferred savings accounts for children under age 18. Account holders can use the funds once they turn 18 for "qualified purposes" including paying for college, starting a business, or buying a first home, as the accounts essentially convert to traditional IRAs. Contributions will be capped at $5,000 per year (indexed), including up to $2,500 (indexed) tax-free from a parent's employer (These contributions will not be included in the employee’s income). Pilot Program: A new Sec. 6434 creates a Trump accounts contribution pilot program that provides a $1,000 tax credit for opening a Trump account for a child born in 2025 – 2028. This contribution does not count towards the $5,000 limit. Bill states that “further refinements to the text included in the House-passed H.R. 1 with respect to the Trump accounts program continue to be developed and finalized in coordination with the Trump Administration.

• Who’s Affected: Parents saving for children’s future education or needs.

• When: The $1,000 credit for children born from 2025 – 2028

Child Tax Credits

• What’s Changing: Increased Child Tax Credit (CTC) from $2,000 per child to $2,200 per child, with $1,700 refundable with inflation adjustments.

• Requirements for Social Security numbers (SSNs) are expanded to also require for the child and the person claiming the CTC. However, if the taxpayer is married, only one spouse needs to report their SSN.

• The full child tax credit amount is available if your modified adjusted gross income (MAGI) is $400,000 or below for MFJ or $200,000 or below for all other filers. The credit amount is reduced by $50 for each $1,000 of income above these thresholds until it phases out completely.

• Who’s Affected: Families with qualifying children under age 17

• When: Effective 2025

529 Plan

• What’s Changing: Expands qualified expenses to include more K-12 expenses including tutoring, fees for nationally standardized test, certain therapies, and homeschool expenses, and post secondary credential programs including licenses issued by state or federal agencies, and certain credentials and certificates. An increase beginning 2026 for 529 withdrawals on K-12 expenses from $10,000 to $20,000.

• Who’s Affected: Individuals with 529 plans

• When: Effective July 4, 2025 and effective 2026 for the increased K-1 expenses limitation

Wagering losses

• What’s Changing: Beginning January 1, 2026, gamblers will only be able to offset their winnings by 90% of their related gambling losses.

• Who’s Affected: individuals who are professional gamblers or recreational gamblers

• When: Effective 2026

Estate and Gift Tax Exemption

• What’s Changing: Permanent extension of increased estate tax and gift tax exemption amounts, with an increase in unified estate and gift tax exemption to an inflation-adjusted $15 million per person or $30 million for a couple (indexed annually).

• Affected: High-net-worth individuals and estate planners

• When: Effective 2026

Tax Credits

• What’s Changing: EV tax credits and the solar tax credit have been repealed

  • Section 25E: Up to $4,000 credit. Previously owned clean vehicle credit terminates for expenditures after 9/30/2025.

  • Section 30D: Up to $7,500 credit. Clean vehicle credit terminates for vehicles acquired after 9/30/2025.

  • Section 25D – Residential Clean Energy Credit: Credit of 30% of qualified costs with including solar. Terminates for property placed in service after 12/31/2025.

• Who’s Affected: EV car buyers and homeowners who want to put solar panels on their home

• When: EV credit terminates September 30, 2025 and solar property must be installed by December 31, 2025.

Bonus Depreciation

• What’s Changing: Restore and permanently extends the Section 168 100% first year bonus depreciation deduction for qualifying assets placed in service on or after January 19, 2025.  OBBB allows an additional first-year depreciation deduction equal to 100% of the adjusted basis of “qualified production property.” Qualified production property is generally nonresidential real property used in manufacturing.

•  Who’s Affected: Small businesses and rental properties that acquire depreciable assets eligible for bonus depreciation

• When: Effective for assets placed in service on or after January 19, 2025

Qualified Small Business Stock

• What’s Changing: Liberalizing the qualified small business exclusion by increasing the gross asset test from $50 million to $75 million, increasing the gain exclusion from the great of $10 million or tens times basis, to $15 million or ten times basis (indexed for inflation), and introducing a tiered holding period where if the stock is held for 3 years the gain exclusion is 50%, 4 years is 75% and 5 years is 100%. The previously holding period was a flat five years.

• Who’s Affected: Individuals with stock in certain corporations

• When: Effective for stock issued after July 4, 2025

IRC Section 461(l) - Excess Business Loss Limitation

• What's changing: The EBL limitation, previously set to expire after 2028, is made permanent. Any excess business loss of a noncorporate taxpayer is carried forward as a net operating loss (NOL). The TCJA's NOL provisions remain unchanged. NOLs can be carried forward indefinitely but are limited to 80% of taxable income per year.

• Who’s Affected: Noncorporate taxpayers, including individuals, trusts, and estates with business losses exceeding allowable thresholds.

  When: Effective 2025