We’ve been waiting in anticipation for a few years now about what the extension of the Trump tax reform Tax Cuts & Jobs Act would look like. Now it’s here – the One Big, Beautiful Bill Act.
Setting other issues aside and focusing just on the tax law provisions, we’re fairly happy with the bill. The OBBBA generally extended all the provisions of the TCJA permanently, plus gave us several extra changes.
We’re here to break it all down for you, focusing on the relevant tax law issues for our individual tax clients, how it affects you and your tax planning. Although there were many tax changes in the OBBBA, this article focuses on the issues that matter to you.
TCJA Extensions
As we expected, everything in the TCJA was made permanent. “Temporary” tax laws have a strong record of becoming permanent, and that’s what happened.
The most important items discussed here include tax rates, the child tax credit, the credit for other dependents, the standard deduction, and the AMT exemption.
The TCJA did eliminate or limit some deductions, such as the deduction for employee job expenses & investment expenses, and the limit on deducting home mortgage interest. While we never like to lose a deduction, these were offset by the TCJA tax cuts.
Standard Deduction & Itemized Deductions
The standard deduction, which nearly doubled in the TCJA, receives an 8% boost starting in 2025. Meanwhile, the limitation on deducting state and local taxes (SALT) is being increased from $10,000 to $40,000. (The higher limit does phase out for taxpayers earning over $500k.)
- This may increase the number of people that itemize, despite the increase in the standard deduction.
- This means that some of our business owner clients should no longer elect into the state PTE tax.
- Because SALT isn’t deductible for Alternative Minimum Tax, this may change the frequency of AMT from extremely rare to medium rare.
There’s a new restriction on charitable contributions if you itemize. Donations aren’t deductible for the first 0.5% of your income. (For example, if your AGI is $100,000 and you donate $2,000, only $1,500 will be deductible.) On the other hand, you can deduct up to $1,000 of donations ($2,000 for married couples) even if you don’t itemize.
There are two new items in the list of itemized deductions starting in 2026:
- Mortgage insurance premiums are deductible again. This deduction expired for 2022-2024. (This deduction phases out as your income goes above $100,000-110,000.)
- Job expenses are deductible for teachers. There was already a $250 deduction apart from itemized deductions, but now if you spend more than $250 on teaching supplies, the excess becomes part of your itemized deductions.
Other Deductions (Non-Itemized)
There are several new deductions that you don’t have to itemize to claim:
Taxpayers age 65 and up can deduct $6,000 each.
- Trump’s promise to make Social Security nontaxable ran into some budget rule issues, so this is the workaround they came up with. It actually has nothing to do with Social Security benefits – you can claim this deduction without receiving Social Security benefits.
- However, the deduction starts to phase out if your income exceeds $75,000 ($150,000 for married couples). This helps the middle class, but for people in retirement doing tax planning, this makes it trickier to hit the income targets with your Roth conversions while avoiding the extra Medicare premiums caused by higher income (IRMAA).
Tips included in income can be deducted back out.
- This will help restaurant employees as well as personal care employees (hair care, nail care, esthetics, and spas).
- You do still have to report the tips to your employer to fill out the W-2 correctly and pay Social Security & Medicare tax on it.
- The deduction starts to phase out after your income exceeds $150,000 ($300,000 for married couples).
Overtime premium incomed in income can be deducted back out.
- Only the overtime premium amount (in excess of your regular pay rate) can be deducted, so this may have less payoff than it sounds like.
- This applies only to overtime required under the Fair Labor Standards Act, so very small employers may have a few employees that don’t qualify.
- The deduction starts to phase out after your income exceeds $150,000 ($300,000 for married couples).
Interest on vehicle loans is deductible – sometimes.
- This is only for new vehicles with the final assembly done in the U.S.
- You should receive some sort of Form 1098 from the lender showing the info needed for the tax return.
- The deduction starts to phase out after your income exceeds $100,000 ($200,000 for married couples).
The moving expense deduction was eliminated by the TCJA except for military personnel, but the OBBBA did expand it to members of the intelligence community starting in 2026. This should apply to FBI employees that relocate to Huntsville, if they move in 2026 or later.
Children
The Child Tax Credit for children age 0-17 increases from $2,000 to $2,200. For lower-income families when the Child Tax Credit exceeds the tax amount, now $1,700 of that credit can cause your tax to go negative – that’s up from $1,400.
Parents paying for daycare get bigger tax breaks starting in 2026:
- The limit on childcare through your employer’s FSA increases from $5,000 to $7,500.
- The childcare credit will be a larger percentage of the cost of the daycare expense, for taxpayers earning up to $103,000 ($226,000 for married couples).
- Daycare is expensive, and these are small tax benefits, but they’re getting bigger. A typical example for a moderate-income family without an FSA might see an increase in the credit from $1,200 to $2,100.
529 plans are being improved for children in private school, starting 7/5/2025. You could already use up to $10,000 of 529 funds for tuition, but now that limit increases to $20,000 and can also be used for books, tutors, exam fees, and educational therapies for disabilities. (Stay tuned for details on how soon these changes will be allowed by your specific 529 plan, such as Alabama CollegeCounts.)
There’s a new type of IRA for infants & children called the Trump account. It works similar to a traditional IRA that has had nondeductible contributions made to it.
- Contributions (allowed up to $5,000 per year) aren’t deductible.
- The money is only allowed to be invested in U.S. stock funds.
- Distributions (minus the basis from the contributions) are taxable when the money is pulled out. Distributions can happen only between ages 18 and 31. You can make that income treated as a capital gain if the money is spent on college, a first-time home purchase, or a small business loan to start a business.
- The government will add $1,000 when you open an account for babies born between 2025-2028, but 529 plans, which offer a lot more flexibility are already available for college savings. This is probably a good option mainly for people that are already maxing out their tax strategies for savings. Even putting the money in a taxable brokerage account and giving kids taxable income along the way would most likely save taxes.
Most of the energy credits are being done away with. If you’ve been wanting to take advantage of some of these, you’ll have to act fast!
- The credits for purchasing an electric vehicle expire after 9/30/2025. You only have a couple months to buy an electric car if you want a credit, maybe even less if the available inventory runs out! Income limits do apply for non-business vehicle credits.
- You have until 6/30/2026 to install a recharging station for your EV if you want a credit.
- The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit expire on 12/31/2025 for a credit for insulation, solar panels, wood heaters, energy-efficient air conditioners, etc. (Note that for insulation and air conditioners, the Product Identification Number or QM Code must be reported on your tax return for 2025.)
Premium Tax Credit
Changes are coming in 2026 to tighten the rules on the ObamaCare PTC:
- If you get Advance Premium Tax Credit subsidizing your monthly premium, there will no longer be a limitation keeping you from paying back large amounts of subsidy. (This problem can be avoided by giving the marketplace an accurate estimate of your next year’s income when you sign up for insurance. They will also have stricter income verification requirements starting in 2028.)
- The rules have tightened on qualifying for the Premium Tax Credit when you change insurance, depending on the kind of coverage you have during a special enrollment period.
- Income exceeding 400% of the poverty line makes you ineligible for the PCT credit entirely. People who do qualify are expected to pay a higher percentage of income towards the cost of insurance. These rules eased during the late COVID era and expire after 2025.
Estate Tax
The estate tax exclusion is going from $13,990,000 in 2025 to $15,000,000 in 2026. (Married couples essentially have twice that limit if they elect portability of the exclusion.) This keeps the estate tax quite rare, as it should be.
What This Means for You – And Why Now Is the Time to Plan
The One Big Beautiful Bill Act brings a wide range of changes that offer new planning opportunities but also create new pitfalls if not approached strategically. Whether it’s maximizing the new SALT cap, timing Roth conversions around the senior deduction, managing daycare costs, or capitalizing on soon-to-expire energy credits, there’s no shortage of levers you can pull to improve your tax outcome.
Some of these changes are already in effect, while others are coming soon. That’s why now is the perfect time to sit down and talk strategy. We can help you tailor a personalized tax plan that not only optimizes your 2025 return but sets you up for long-term success under this new framework.