On July 4, 2025, President Trump signed into law the reconciliation bill informally named the One Big Beautiful Bill Act (OBBBA). The bill has been hailed by the administration as a sweeping tax reform package that reshapes the tax landscape for individuals and businesses alike.
President Trump’s first term saw the passage of the Tax Cuts and Jobs Act (TCJA), which included significant tax reforms including lowering individual income tax brackets, increased standard deduction, a $10,000 limitation on state and local tax (SALT) deductions, an increased exemption for alternative minimum tax, and the introduction of the qualified business income (QBI) deduction. Much of the OBBBA is an extension or expansion of the tax provisions of the TCJA.
Some key TCJA individual tax provisions made permanent include:
- Lowered individual income tax brackets (10% to 37%)
- Elimination of personal exemptions
- Higher standard deduction, including a small increase for 2025
- Increased alternative minimum tax exemption and thresholds
- Mortgage interest limited to the interest on $750,000 of principal for mortgages taken out after December 17, 2017
- Child Tax Credit has been extended with slight increases
There remains a limitation on the SALT deduction, however it has been increased from $10,000 to $40,000. The deduction starts to phase back down to $10,000 for taxpayers with modified adjusted gross income over $500,000.
Earlier iterations of the bill included a provision to disallow pass-through entity tax (PTET) deductions enacted by many states as a work around to the $10,000 SALT limitation. The final bill does not include such a provision.
Prior to TCJA, itemized deductions for taxpayers over a certain adjusted gross income threshold were limited. TCJA temporarily repealed the limitation. OBBBA repealed the original limitation but imposes a new one. Under OBBBA, itemized deductions will be reduced by 2/37 of the lesser of (a) the amount of the deductions or (b) the taxable income that exceeds the dollar amount at which the 37% rate bracket begins. Additionally, the bill added a 0.5% adjusted gross income floor for individual itemized charitable deductions beginning in 2026.
One of the most significant provisions from TCJA set to expire at the end of 2025 was the increased estate tax exemption. The exemption for 2025 is $13.99 million. It was scheduled to reduce to about half of that for 2026. The exemption for decedents dying in 2026 is now $15 million under OBBBA with inflation adjustments for future years.
Some new provisions of OBBBA include:
- Maximum $25,000 deduction for tip income starting in 2025 through 2028, with a phase out of the deduction beginning when modified adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers
- Maximum $12,500 deduction for overtime pay with the same modified adjusted gross income phase out as the tip income deduction also starting in 2025 through 2028
There has been significant discussion about the bill’s effect on the taxability of Social Security benefits. The bill does not directly affect the taxability of Social Security benefits at all. For tax years 2025-2028, the bill adds a $6,000 deduction for taxpayers 65 years and older with a phase out of the deduction starting at modified adjusted gross income of $75,000 ($150,000 for joint filers). For certain taxpayers with income under the phase out levels, this may result in reduced or eliminated tax on Social Security income.
Some other provisions include:
- Deductibility of up to $10,000 of automobile loan interest with several stipulations including an income limitation phase out starting at $100,000 of modified adjusted gross income for individual filers and $200,000 for joint filers
- Creation of “Trump Accounts”, tax-favored accounts set up with $1,000 funded by the government for newborn children
- Expansion of educational expenses for which 529 plan funds can be used including increased amounts for elementary and secondary education
- Charitable contribution deduction ($1,000 or $2,000 for joint filers) for taxpayers taking the standard deduction instead of itemizing beginning in 2026
- Elimination of various credits for clean vehicles and energy efficient home credits, some being eliminated as early as 2025
On the business tax side:
- 100% bonus depreciation is permanent for property acquired after January 19, 2025
- Deduction for domestic research and experimental expenditure costs in place prior to 2022 has been reinstated for expenditures incurred after 2024. Small businesses with gross receipts of less than $31 million will be able to elect to claim the deduction retroactively to 2022
- QBI deduction has been made permanent with some expansion to qualifications
The OBBBA is robust, and this is not an all-encompassing summary. We encourage you to reach out to your KWC advisor with questions about how the OBBBA may affect your tax situation.