The One, Big, Beautiful Bill Act (OBBBA) has officially become law, and it's bringing some of the most significant changes to individual taxation we've seen in years. From expanded deductions to brand-new tax breaks, this comprehensive legislation affects everything from your state and local tax deductions to how you save for your children's future.
If you're wondering what these changes mean for your tax situation, you're not alone. The OBBBA makes some existing tax breaks more generous, creates entirely new deductions, and makes permanent many provisions from the Tax Cuts and Jobs Act that were set to expire. Let's break down exactly how these changes will impact your tax planning strategy.
Major Changes to Existing Tax Breaks
State and Local Tax Deduction Gets a Boost
One of the most talked-about changes involves the state and local tax (SALT) deduction. Starting in 2025, the OBBBA increases the limit to $40,000 ($20,000 for married couples filing separately) through 2029, with a 1% annual increase thereafter. This is a significant jump from the current $10,000 limit.
However, there's a catch for high earners. When your modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for separate filers), the cap reduces by 30% of the amount over the threshold. The good news? It can't drop below the original $10,000 limit.
If you're close to these thresholds, consider strategies to reduce your MAGI. Increasing retirement plan contributions or making qualified charitable distributions from your IRA could help you secure the full SALT deduction.
Child Tax Credit Becomes More Generous
The Child Tax Credit receives a permanent upgrade under the OBBBA. The $2,000 credit increases to $2,200 for 2025, with annual inflation adjustments moving forward. The refundable portion also gets a boost, increasing from $1,400 to $1,700 in 2025.
Perhaps most importantly, the $500 Credit for Other Dependents becomes permanent. This credit applies to qualifying dependents who don't qualify for the Child Tax Credit, such as dependent children over the age limit or elderly parents.
New Education and Student Loan Benefits
Expanded 529 Plan Uses
The OBBBA significantly expands what you can use 529 plan funds for without tax consequences. Starting immediately, qualified expenses include post-secondary credentialing expenses and various elementary and secondary school costs beyond tuition.
For K-12 expenses, you can now use 529 funds for books, instructional materials, online educational content, tutoring, and certain testing fees. The annual limit for these expenses doubles from $10,000 to $20,000 beginning in 2026.
Student Loan Relief Provisions
The law addresses student loan challenges in multiple ways. The exclusion for employer-paid student loan debt (up to $5,250) becomes permanent, with inflation adjustments starting in 2026.
For forgiven student loan debt, the rules tighten after 2025. Beginning in 2026, only debt forgiven due to death or total permanent disability will be excluded from income, though this exclusion is permanent.
Brand New Tax Deductions
Charitable Giving Changes
The OBBBA creates a new nonitemized charitable deduction of up to $1,000 ($2,000 for joint filers) starting in 2026. This means you can claim this deduction even if you take the standard deduction.
However, if you itemize deductions, a new 0.5% floor applies to charitable donations beginning in 2026. Only donations exceeding 0.5% of your AGI will be deductible when itemizing.
Temporary "Campaign Promise" Deductions
The OBBBA introduces several temporary deductions for 2025 through 2028, partially fulfilling campaign promises:
Tips Deduction: Employees and independent contractors can deduct up to $25,000 in qualified tips if they work in occupations that customarily received tips before 2025. The deduction phases out when MAGI exceeds $150,000 ($300,000 for joint filers).
Overtime Pay Deduction: Qualified overtime pay is deductible up to $12,500 ($25,000 for joint filers). Only the premium portion of overtime pay counts—if you normally earn $20 per hour and get $30 for overtime, only the extra $10 qualifies.
Auto Loan Interest: Interest on qualified passenger vehicle loans originated after December 31, 2024, is deductible up to $10,000. Vehicles must be assembled in the United States and meet specific weight requirements.
Senior Deduction: Taxpayers age 65 or older can claim a $6,000 deduction, regardless of Social Security benefit status. This deduction phases out when MAGI exceeds $75,000 ($150,000 for joint filers).
Investment and Business Opportunities
Qualified Small Business Stock Incentives
The OBBBA provides new exclusions for qualified small business (QSB) stock held for shorter periods. You can now exclude 75% of gains for stock held four years and 50% for stock held three years, in addition to the existing 100% exclusion for stock held over five years.
The asset ceiling for qualifying businesses increases from $50 million to $75 million (with inflation adjustments after 2026) for stock issued after July 4, 2025.
Trump Accounts for Children
Starting in 2026, families can open Trump Accounts for children under 18. These accounts accept up to $5,000 in annual contributions until the child turns 18, with earnings growing tax-deferred.
U.S. citizen children born between January 1, 2025, and December 31, 2028, may qualify for an initial $1,000 government deposit. Withdrawals generally aren't allowed until age 18.
Tax Cuts and Jobs Act Provisions Made Permanent
The OBBBA makes permanent most TCJA provisions that were scheduled to expire after 2025:
- Individual tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- Higher standard deductions (slightly increased for 2025)
- Higher alternative minimum tax exemptions
- The $750,000 limit on mortgage debt deduction
- Elimination of personal exemptions and miscellaneous itemized deductions
These permanent changes provide valuable certainty for long-term tax planning, though "permanent" simply means no expiration date—future legislation could still modify these provisions.
What This Means for Your Tax Strategy
The OBBBA's complexity requires careful planning to maximize benefits. High earners need to monitor MAGI thresholds across multiple provisions. Families with children should evaluate education savings strategies and consider the expanded 529 plan benefits.
Business owners and investors should explore the enhanced qualified small business stock provisions and consider the temporary deductions for tips and overtime pay.
The permanent nature of most TCJA provisions provides stability for long-term financial planning, while the new temporary deductions offer short-term opportunities through 2028.
Don't let these opportunities slip by. The OBBBA's provisions are complex, and the optimal strategy varies significantly based on your individual circumstances. Professional guidance can help you navigate these changes and develop a comprehensive approach that maximizes your tax benefits while avoiding potential pitfalls.
SECURITIES AND ADVISORY DISCLOSURE:
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DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
HYPOTHETICAL DISCLOSURE:
The examples given are hypothetical and for illustrative purposes only.
