One Big Beautiful Bill Act: What You Need to Know
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), a comprehensive tax and spending package that reshapes numerous areas of U.S. fiscal policy. Here, we break down key items that clients and taxpayers should understand.
Individual Tax Rates & Standard Deduction
- The 2017 Trump-era tax brackets, including the 37% top rate, are now permanent.
- The standard deduction remains elevated, effective for tax years beginning in 2025.
Child & Senior Deductions
- The Child Tax Credit increases to $2.2K (from $2K), indexed for inflation.
- Seniors (65 and older) qualify for a $6K deduction ($12K for married couples), which phases out above income thresholds, through 2028.
SALT Deduction Relief
- The SALT cap increases from $10K to $40K for tax years 2025–2029 (indexed ~1% annually), then reverts.
- This applies to taxpayers with AGI ≤ $500K and phases down for higher-income earners.
Itemized Deductions & Limits
- High earners in the 37% bracket receive a reduced itemized deduction value capped at 35% of income.
- Charitable deductions are now subject to a 0.5% AGI floor
- Educators can claim qualifying expenses if they itemize their deductions.
New “Below-the-Line” Deductions
These one-time provisions expire in 2025–2028:
- Up to a $25K deduction for tips, subject to strict conditions. Phaseouts start at $150K for single filers and $300K for joint filers.
- Up to a $25K deduction for joint filers and $12.5K for all other filers for overtime. The deduction applies to the amount of overtime compensation paid above an employee’s regular rate.
- Auto loan interest deduction for U.S.-assembled vehicles can reach $10K. Phaseouts occur at $100K for single filers and $200K for joint filers.
“Trump Accounts” for Children
- New tax-advantaged IRA-like accounts receive:
- $1K seed deposit per child born in 2025–2028.
- Parents can contribute up to $5K annually starting in 2026; these accounts are limited to funds that track a qualified index, defined as the S&P 500 or any index composed primarily of U.S. equities.
QBI Deduction (Section 199A)
- The 20% pass-through deduction is now permanent.
- Phaseout thresholds widen in 2026 for business owners.
- A new minimum deduction of $400 applies if at least $1K in active QBI is from non-specified service trades or businesses.
Energy Credits Rollback
OBBBA eliminates key clean-energy tax incentives set by the IRA, including:
- The clean vehicle credit (up to $7.5K for new EVs; $4K for used) expires September 30, 2025.
- Energy Efficient Home Improvement Credit of up to $1.2K for energy-efficiency improvements (e.g., windows, doors, insulation, or heating and cooling equipment, and home energy audits) ends on December 31, 2025.
- Alternative Fuel Vehicle Refueling Property Credit of up to $1K for electric vehicle charging equipment installed at a taxpayer’s residence, expires June 30, 2026.
- The Residential Clean Energy Credit, which allows up to 30% of the cost of purchasing or installing solar panels, wind power, geothermal heat pumps, or fuel cell equipment, expires December 31, 2025, regardless of when the property is placed in service.
Other Provisions Overview
- Alternative Minimum Tax (AMT): reduced exemption phaseouts.
- 529 Plan and 529A ABLE account expansion.
- Qualified Opportunity Zone and small business stock gain exclusions remain in effect.
- Bonus Depreciation of Business Property: permanently restored 100% bonus depreciation for business property placed in service after January 19, 2025.
- Section 179 Deduction Limits are increased.
- The Reporting Limits for Business Payments increase the threshold of $600 to $2,000, adjusted for inflation, starting in 2026.
- U.S. Research Expenses permanently allows 100% expensing of research and experimental costs incurred for research in the U.S; this can be applied retroactively.
- Gains on Qualified Farmland Sale allow a gain from the sale of qualified farmland to be spread over four annual installments if it is sold to a “qualified farmer” (i.e., not a developer).
- Expanded Eligibility For HSA Contributions now includes “Bronze” and “Catastrophic” plans, which previously did not meet the minimum deductible and max out-of-pocket requirements. Additionally, individuals can maintain HSA eligibility while covered by a direct primary care arrangement.
Bottom Line
The OBBBA redefines the American tax landscape, locking in many Trump-era tax cuts, adding family- and senior-centric benefits, and boosting planning complexity. While it offers meaningful opportunities (especially for tip earners, business owners, and residents of high-tax states), its temporary provisions require timely action and professional strategy. The key now is strategic implementation before 2029 and positioning for what comes next. For more information on the items noted here, please refer to Michael Kitces’, industry expert, Nerd’s Eye View blog post here.
If you need help navigating this new legislation, connect with us today to understand how the One Big Beautiful Bill Act applies to you.
Please consult with your financial advisor and/or tax professional to determine the suitability of these strategies. All views, expressions, and opinions in this communication are subject to change. This communication is not an offer or solicitation to buy, hold, or sell any financial instrument or investment advisory services.