How Are You Affected By the New Tax Bill?
A Breakdown of What’s Changing—and What It Means for You
The One Big Beautiful Bill Act (OBBBA) has officially passed, locking in many provisions from the Tax Cuts and Jobs Act (TCJA) while introducing new deductions and phasing out others. Here is what you need to know—and how it could impact your finances in 2025 and beyond. Actions you might want to consider are in the “Planning Tip” sections below.
1. Tax Brackets Are Now Permanent
Personal tax brackets introduced by the TCJA—10%, 12%, 22%, 24%, 32%, 35%, and 37%—are now permanent and will continue to adjust annually for inflation.
What this means for you:
The higher pre-TCJA rates that were scheduled to return in 2026 will no longer take effect, meaning today’s lower rates are here to stay.
2. Standard Deduction Gets a Boost
Starting in 2025, the standard deduction increases to:
- $31,500 for married couples filing jointly
- $23,625 for heads of household
- $15,750 for single filers
These will be indexed for inflation going forward.
Nevertheless, the increased SALT deduction for most (next section) will likely result in more people itemizing deductions again (Schedule A) and thus foregoing the standard deduction.
Planning Tip: If switching from the standard deduction to Schedule A, then charitable contributions may be of more value than they were previously, and easier to do than using IRA Qualified Charitable Distributions.
3. SALT Deduction Cap Increased (Temporarily)
The cap on state and local tax (SALT) deductions is raised to $40,000 starting in 2025:
- Increases by 1% per year through 2029.
- Phaseout of this deduction occurs for incomes over $500,000 MAGI for those filing married or single. However, the SALT deduction can be no lower than $10,000 after maximum phaseout.
- During the $100,000 income phase-out range, the marginal federal tax rate may be as high as 45.5%.
- Reverts to $10,000 in 2030.
Planning Tip: Workarounds like pass-through entity taxes still apply. For those in high-tax states, this could be a planning opportunity.
Avoid increasing voluntary income if in the SALT $100,000 income phase out range (45.5% tax rate). Defer Roth IRA conversions and capital gain sales to other years when not in the phaseout range.
4. Charitable Deduction Changes
Two key updates starting in 2026:
- A new deduction of up to $2,000 (MFJ) or $1,000 (single) for non-itemizers.
- For itemizers, only the portion of charitable contributions above 0.5% of MAGI is deductible.
- For tax payers in the highest 37% tax bracket, itemized tax deductions will only reduce taxes by 35%, so in effect there is a surcharge tax.
Planning Tips: If your MAGI is $100,000, only donations over $500 will count. This enhances the effectiveness of a bunching strategy, particularly for itemizers with charitable contributions near or below the 0.5% MAGI threshold.
If in the highest tax bracket, doing more charitable contributions in 2025 is beneficial as this will still reduce taxable income by 37% rather than by only 35% starting next year.
5. New Tip & Overtime Income Deduction
From 2025 through 2028, qualified workers can deduct:
- Up to $25,000 in tip income
- Up to $12,500 in overtime (or $25,000 for MFJ)
Income phaseouts begin at $150,000 (single) and $300,000 (MFJ). The IRS will define which roles qualify (e.g., servers, barbers, etc.).
6. Estate & Gift Tax Exemption
Beginning in 2026:
- The lifetime estate tax and gift tax exemption is permanently increased to $15 million per person / $30 million per couple.
- Indexed for inflation going forward.
- Step-up of cost basis at death remains unchanged.
Implication: High-net-worth individuals and families have greater flexibility in estate planning, gifting, and wealth transfers.
Transfers of assets within family members to achieve step-up in cost basis will continue to work. Converting separate property to community property also is beneficial from an income tax perspective.
Most people will continue not to need complicated irrevocable trusts to avoid estate taxes.
7. Social Security Remains Taxable
Seniors benefit from a higher standard deduction, but the taxable status of Social Security remains unchanged.
- $6,000 increase to the existing standard deduction for those age 65 and older.
- This increase is reduced (but not below zero) by 6% of so much of the taxpayer’s MAGI exceeds $75,000 (single) or $150,000 (MFJ).
8. Child & Dependent Tax Credits Expanded
Starting in 2025:
- Child tax credit increases to $2,200 per child (indexed for inflation).
- Refundable portion capped at $1,400 (indexed for inflation).
- The $500 dependent credit is made permanent.
- Phaseout thresholds of $400,000 (MFJ) or $200,000 (single) are now permanent.
9. Green Energy Credits Phased Out
Several green energy incentives are ending soon:
- EV tax credits (new, used, and commercial) expire after September 30, 2025.
- Residential solar credit (30%; must be paid for by December 31, 2025).
- Home EV charger credit expires after June 30, 2026.
Action item: If you are planning to install solar panels or back-up batteries, buy an EV, or make energy-efficient home upgrades, act quickly to lock in remaining tax credit benefits.
10. New Car Loan Interest Deduction
From 2025 through 2028:
- Up to $10,000 in interest on qualified car loans is deductible.
- Phaseout begins at MAGI of $100,000 (single) or $200,000 (MFJ).
11. Alternative Minimum Tax (AMT) Relief
The AMT exemption amounts are permanently increased starting in 2026:
- Reduces the alternative minimum taxable income threshold to $500,000 (single) or $1,000,000 (MFJ), but adjusts annually for inflation.
- Increases the percentage rate from 25% to 50% of the amount by which a taxpayer’s alternative minimum taxable income exceeds the threshold, steepening the claw-back for higher earners. However, the SALT deduction limitation makes AMT very unlikely for tax payers, even those with very high incomes.
12. 529 Plan Education Expenses
Starting in 2026, the OBBB expands qualified 529 expenses to include:
- Up to $20,000 per year in K-12, homeschool, and postsecondary credentialing expenses.
- Tuition, fees, books, supplies, equipment, and other expenses related to the enrollment or attendance in a recognized postsecondary credentialing program.
- Many states (e.g. California) do not follow all federal rules, so 529 plan distributions for K-12 could result in some state income taxes, even though federal taxes are avoided.
13. Invest America IRA Accounts for Children
A new tax-advantaged savings account is introduced:
- Children born in the U.S. between 2025–2028 will receive a $1,000 federal deposit (gift).
- Anyone may contribute up to $5,000/year (in aggregate and nondeductible) until age 18 (indexed with inflation).
- Tax deferral similar to Traditional IRA accounts.
- No earned income requirement, unlike other IRAs.
- Funds become partly accessible at age 18, though taxes will apply on profits related to withdrawals. Certain exceptions allowed to avoid 10% penalty for before age 59.5 withdrawals.
Final Thoughts
The One Big Beautiful Bill Act cements many TCJA-era provisions while reshaping others. From charitable giving to estate planning, education, energy, and even auto financing, the law introduces both opportunities and risks.
Whether you are optimizing deductions, preparing for retirement, or revisiting your estate plan, now is the time to speak with a financial advisor or tax professional to ensure you are taking full advantage of the changes.
All items discussed are for information purposes only. Any actions suggested should be verified with your tax advisor or attorney.
Implications and desired tax strategies can change due to pending IRS regulations and possible Congressional changes, some of which are already being considered. As always, please feel free to contact WESCAP at (818) 563-5170 if you would like to discuss any of this further.