2025 Tax Law Changes Explained: What the One Big Beautiful Bill Act (OBBA) Means for You

Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) updated key tax thresholds and introduced new tax provisions. But here's the real question: What does it actually mean for your taxes?

In this post, we break it all down: what’s changing, when it takes effect, who benefits, and what steps you can take to get ahead. Many of these provisions include income phaseouts or sunset dates, so your personal situation will ultimately determine how much you benefit.

🔗 OBBA Blog Series Overview

This is Part 1 of a three-part series covering the One Big Beautiful Bill Act:

• Part 1 (This blog): A general overview of OBBA’s key changes for individuals and families

• Part 2: What OBBA means for business owners

• Part 3: OBBA’s impact on retirees and seniors

📋 What We’ll Cover Today

• Income Tax Bracket Adjustments

• Deduction Updates

  • Standard Deduction Updates

  • SALT Cap Increase

  • Charitable Contribution Rule Changes

  • Other Itemized Deductions & Credits

• Tips and Overtime Tax Relief

• Child Tax Credit

• Estate Tax Changes

• Trump Accounts

Income Bracket Adjustments: Mostly Inflation Tweaks

Effective: 2025

Status: Permanent

Tax brackets are permanently extended from the TCJA Act from 2017. Compared to last year, there's not a very big change, mostly adjustment for inflation with some more expansion in bracket in the lower tax brackets.

Here’s a quick overview:

NOTE: While there are some slight changes made in income tax brackets, there's NO CHANGE to capital gains tax rates.

Standard Deduction: Slightly Higher

Effective: 2025

Status: Permanent

The standard deduction sees a modest increase, at $15,750 for Single filers and $31,500 for Married Filing Joint filers. 

In addition, from 2025 to 2028, taxpayers age 65+ receive an extra $6,000 (single) or $12,000 (MFJ) below-the-line deduction. We will expand on this in part 3 of this series.

SALT Deduction Cap Expansion

Effective: 2025–2029. Reverts to $10K in 2030

Filing Status New Cap (2025) - MFJ/Single $40,000

A generous boost from $10,000 SALT Cap — but phased out for high earners. Phaseouts begins at $500K (Single/MFJ) and reduce the deduction by 30% for every $100K above; the lower limit remains at $10,000 for people earning $600k of AGI (Single/MFJ).

Note the timeline of 2025-2029. Just like some TCJA provisions, this one comes with an expiration date. We can't speculate whether it'll be extended beyond 2030 or not, but so far, we'll plan as if it doesn't.

🔎 Takeaway: With the large increase of standard deduction from TCJA, many more people that used to itemize no longer needed to. Although standard deduction didn't change much in OBBA, the sizable increase in SALT cap could mean more people itemizing on their tax returns again, especially high-tax state residents. 

If you used to itemize and claim a big deduction for state and local taxes, this provision could bring back some of those savings.  It's a good idea to start tracking your itemized deductions again (at least until 2030, anyway).

Charitable Giving: A Mixed Bag Under the New Rules

Effective: Most changes begin in 2026

Status: Some permanent, some temporary

💡 The Good: A New Deduction for Non-Itemizers

Starting in 2026, taxpayers who don’t itemize can deduct up to $1,000 (single) or $2,000 (married filing jointly) in charitable donations on top of the standard deduction.

• No minimum required — donate $50 or $500, and you’ll still get some benefit.

• This is a permanent change

• It does not reduce AGI, so it won’t interfere with Social Security or Medicare thresholds.

  
  

🔎 Takeaway: For people who use standard deduction, this new deduction could make charitable giving more rewarding, tax-saving-wise.

💡 The Bad: New Hurdles for Itemizers

Starting in 2026, itemized charitable deductions come with more fine print:

1. 0.5% AGI Floor

 You can only deduct the portion of your donations that exceeds 0.5% of your AGI.

▶️ Example:

• AGI = $200,000 → 0.5% = $1,000

• Donate $800 → $0 deductible

• Donate $1,200 → Only $200 deductible

  
  

2. 35% Deduction Cap for High Earners

 Even if you’re in a 37% bracket, your maximum benefit is capped at 35% of the donation amount.

3. Stricter Carryforward Rules

• Carryforwards are only allowed for amounts above the 0.5% floor in years you qualify.

🔎 Takeaway: For itemizers, it's worth spending more time to evaluate your charitable giving strategies. You can bunch your charitable contributions in certain years to maximize the benefit, or utilize a Donor Advised Fund(DAF) to give with more flexibility. Qualified Charitable Distributions (QCDs) don't count towards charitable contribution; therefore, they are not subject to the giving floor. Therefore, it could be an even more valuable strategy going forward.

Other Itemized Deductions & Credits: More Flexibility, More Complexity

Housing & Loans

• Mortgage insurance premiums deductible again (starting 2026)

• Mortgage interest is only deductible on the first $750,000 of the mortgage.

• Auto loan interest (for non-leased vehicles) is deductible up to $10K (phased out at higher incomes)

  
  

Other Changes

• Professional gambling losses treated differently; casual gamblers mostly unaffected

• [NEW] A deduction for qualified auto loan interest. Applicable to loans originated after 12/31/2024, capped at $10,000 deductible interest per year. Phaseout starts at  $100,000/$200,000 (Single/MFJ) MAGI.

🔎 Takeaway: Start tracking your deductions—itemizing may now be worth it again, especially for households with high SALT, mortgage, or charitable outflows.

Child Tax Credit (CTC): Bigger Benefits for Families

Effective: 2025–2028

• $2,200 per child under 17 (indexed to inflation)

• Additional $1,000 per child under 6

• Refundable up to $1,700

• Phaseout begins at $200K (Single) / $400K (MFJ)

  
  

🔎 Takeaway: Child tax credit is not only not sunsetting, it's also slightly adjusted upward. The biggest difference is actually inflation indexing, which was not done prioir. Adjust your W-4 withholding to reflect this enhanced credit. Lowering your AGI with 401(k) or HSA contributions could help retain the full benefit.

Tips & Overtime: Some tax break on some income, temporarily

Effective: 2025

Expires: End of 2028

Applies to federal income tax only (you still owe Social Security and Medicare taxes)

• Up to $25,000 per year in combined tips and overtime pay can be excluded from federal income tax

• Applies only to customarily tipped or hourly roles

• Phases out starting at $150,000 (Single) / $300,000 (MFJ) MAGI

  
  

✅ Covered income includes:

• Cash tips

• Credit/debit card tips

• Overtime pay - ONLY THE PORTION OVER YOUR REGULAR PAY

  
  

❌ Not included:

• Gift cards, meals, and other non-cash tips

• Reclassified salary (e.g., corporate roles can't "tip" themselves)

🔎 Takeaway: A tax break? Yes. A big tax break? Not really. Like the title suggests, it’s temporary and comes with strict eligibility criteria. However, if you qualify, you should absolutely take advantage of it.

💡 Tip: If your income is near the phaseout range, consider lowering AGI through HSA or 401(k) contributions to stay eligible. And make sure your employer is properly tracking and applying the exemption.

Estate Tax: A Higher Threshold—But Still Worth Planning Around

Effective: 2026

Status: Permanent

• The federal estate tax exemption increases to $15 million per person (or $30 million per couple) starting in 2026, up from ~$13.6 million in 2025.

• The exemption will continue to be indexed to inflation annually

  
  

🔎 Takeaway: This is arguably one of the biggest updates for High Net Worth/ Ultra High Net Worth families. Reverting to the pre-TCJA estate tax bill could mean hundreds of thousands, or even millions more, in estate taxes. OBBA extended the historically high estate tax exemption and added to it more. While this increase provides more breathing room for affluent families, it doesn’t mean estate planning is off the table. Here’s why:

• State estate taxes may still apply, and many states have far lower exemption thresholds.

• This exemption could be reduced in future legislation, so flexibility is still something to keep in mind.

Trump Accounts: A New Tax-Advantaged Option for Kids, but More Clarity Neeed

Effective: 2025

Expires: New contributions end after 2028

• Designed as "IRA-like accounts" for children

• Families can contribute up to $5,000 per year per eligible child, through age 19

• Withdrawals are allowed starting at age 18 for approved uses; strictly not allowed before age 18.

  
  

📊 Investment rules:

• Must be invested in U.S. equity index funds

• Funds must charge ≤ 0.1% in annual fees and may not use leverage

  
  

🧾 Tax treatment:

• Direct contributions from family are treated as after-tax

• Federal match + investment growth is treated as pre-tax

• Distributions for qualified uses are tax-free

  
  

🔎 Takeaway:

 Trump Accounts offer a new way to jumpstart a child’s financial future, but they come with significant constraints. Investment options are limited, and no distributions are allowed until the child turns 18—even for emergencies. It's also murky with tax treatment. We'll need to wait and see more specifications.

💡 Tip: If you're already contributing to 529s or custodial Roth IRAs, this could be a nice complement. But it’s not a replacement—especially if flexibility or control matters more to your family.

Final Thoughts

The OBBA includes provisions that affect different areas of your tax return. It extended a great amount of tax provisions from TCJA and made them permanent while also introducing other tax-saving provisions.

Here's your checklist to stay ahead:

• ✅ Start tracking itemized deductions

• ✅ Max out high-impact deductions while they last

• ✅ Re-evaluate your tax strategies, especially what you need to apply before year-end.

  
  

Need help navigating it all? This is the time to work with a financial planner or tax pro and turn the new rules into real savings.