Summary
President Trump signed into law what is commonly referred to as the One Big Beautiful Bill Act (OBBBA), extending provisions from the Tax Cuts and Jobs Act of 2017 otherwise set to expire at the end of this year. The new budget law also includes three new individual tax provisions that originated as campaign promises during the 2024 election, as well as other changes.
The Upshot
- The OBBBA makes permanent (with some modifications) many provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) that were approaching expiration.
- The new individual tax provisions include provisions for no tax on tips, no tax on overtime, and no tax on car loan interest, as well as others.
- This Advisory provides a summary of more than a dozen provisions that are made permanent or new under the OBBBA.
The Bottom Line
We will continue to monitor guidance regarding these and other tax provisions in the OBBBA. Attorneys in our Tax Group can help with questions and issues about any of these changes and how they may affect tax planning.
On Friday, July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA). This alert provides a high-level summary of the provisions in the OBBBA impacting individuals.
As described below, the OBBBA made permanent (with some modifications) many provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) otherwise set to expire at the end of this year. We previously described the TCJA in our earlier alert. The OBBBA also includes three new individual tax provisions that originated as campaign promises during the 2024 election—no tax on tips, no tax on overtime, and no tax on car loan interest—as well as other new provisions.
The individual tax provisions that the OBBBA made permanent and/or adjusted include:
- Lower Tax Brackets. The OBBBA retains the current brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37% (instead of 10%, 15%, 25%, 28%, 33%, 35%, and 29.6%). In addition, the income amounts for the 10%, 12%, and 22% brackets receive an additional year of inflation adjustment.
- Significantly Increased Standard Deduction. The OBBBA retains the increased standard deduction. Further, the inflation adjusted standard deduction is increased for 2025 to $31,500 (joint filers), $23,625 (head of household), and $15,750 (all other filers).
- Termination of Personal Exemptions. The OBBBA makes permanent the termination of the deduction for personal exemptions. However, the law includes a temporary deduction of $6,000, through the 2028 calendar year, for individuals 65 years old and older. This deduction is phased out for seniors with modified adjustment gross income over $75,000 ($150,000 for those filing a joint return).
- Miscellaneous Itemized Deductions. The OBBBA permanently extends the TCJA rules disallowing such deductions, but unreimbursed employee expenses for eligible educators are removed from the definition of miscellaneous itemized deductions.
- Increased Child Credit. The OBBBA makes permanent the increased child credit (and income phase-out). Further, the law increases the credit to $2,200 for 2026, with an inflation adjustment for subsequent years. The law also requires the social security number of at least one spouse to be included on a joint return to claim the credit.
- Section 199A Deduction. The OBBBA retains the 20% deduction for qualified business income (QBI). In addition, the law increases to $75,000 ($150,000 for a joint return) the amount above the threshold income amount for phasing in the wage and investment limitation and the limit for a specified service trade or business. Further, the law creates a minimum deduction of $400 for taxpayers with at least $1,000 of QBI.
- Estate and Gift Tax Exemption. The OBBBA retains the estate and gift tax exemptions significantly increased by the TCJA. Further, the law sets the exemption for 2025, which is adjusted for inflation for the subsequent year at $15 million ($30 million for married filing jointly). The exemption amount for 2024 was $13.61 million ($27.22 million for married filing jointly).
- Increased AMT Exemption Amount and Phase-Out Thresholds. The OBBBA makes permanent the TCJA changes to the Alternative Minimum Tax (AMT) that eliminated the AMT for taxpayers who otherwise would have been subject to the AMT.
- Mortgage Deduction Limitation. The OBBBA makes permanent the rule that limits the mortgage interest deduction to interest paid on principal of $750,000. This limit was scheduled to increase to $1 million in 2026 but the OBBBA keeps the lower cap.
- SALT Cap. The OBBBA retains the $10,000 cap on the deduction of state and local taxes (SALT). However, for 2025 to 2029, the SALT cap is increased to $40,000 (plus an additional 1% each year after 2025). The SALT cap increase above $10,000 for 2025 to 2029 is reduced by 30% of a taxpayer's modified adjusted gross income above $500,000 (which amount also is increased by 1% each year after 2025). For example, for 2025, the SALT cap remains at $10,000 for taxpayers with modified adjusted gross income above $600,000.
- Student Loan Debt. The OBBBA makes permanent the exclusion from income of cancellation of student loan debt due to the death or disability of the student borrower.
The new individual tax provisions to fulfill campaign promises are:
- No Tax on Tips. Temporary allowance of an above-the-line deduction for up to $25,000 of qualified tip income. The deduction only applies to individuals working "in an occupation which customarily and regularly received tips on or before December 31, 2024," as to be determined by the IRS. For a married taxpayer, the deduction is only available if the taxpayer and their spouse file a joint return. The deduction is phased out for individuals with modified adjusted gross income above $150,000 ($300,000 for married filing jointly). Other limitations apply, and there are enhanced information reporting requirements. The deduction is scheduled to sunset after 2028.
- No Tax on Overtime. Temporary allowance of an above-the-line deduction for up to $12,500 ($25,000 for married filing jointly) of qualified overtime income. For a married taxpayer, the deduction is only available if the taxpayer and their spouse file a joint return. The deduction is phased out for individuals with modified adjusted gross income above $150,000 ($300,000 for married filing jointly). Other limitations apply. The deduction is scheduled to sunset after 2028.
- No Tax on Car Loan Interest. Temporary allowance of an above-the-line deduction for up to $10,000 of qualified passenger vehicle loan interest. The deduction is phased out for individuals with modified adjusted gross income above $100,000 ($200,000 for married filing jointly). Other limitations apply, and there are new information reporting requirements for businesses that receive $600 or more in qualified passenger vehicle loan interest payments. The deduction is scheduled to sunset after 2028.
The other new individual tax provisions in the OBBBA include:
- Tax Credit for Private School Tuition. The OBBBA creates a new tax credit starting in 2027 for "qualified contributions" to a "scholarship granting organization." For this purpose, a scholarship granting organization generally is a 501(c)(3) public charity that operates private school for K-12 education and provides scholarships, and a qualified contribution generally is a contribution to a scholarship granting organization that provides a scholarship to a student who is a member of a household with income greater than 300% of the area medium gross income. The credit is capped at $1,700 per "taxpayer"—nothing in this provision provides special rules for married taxpayers, so it appears that a married couple can claim a credit of up to $3,400. The credit is reduced by the amount of any state tax credit received for the contribution, and a charitable contribution deduction is not allowed for any portion of the contribution for which a credit is claimed.
- Expanded Use of 529 Plans for K-12 Expenses. The OBBBA expands the K-12 education expenses that can be paid using withdrawals from 529 Plans, including expenses related to homeschooling. The law also doubles the amount of K-12 education expenses that can be paid each year from a 529 plan from $10,000 to $20,000.
- Charitable Deduction for Taxpayers Who Do Not Itemize Deductions. For tax years beginning in 2026, taxpayers who do not itemize deductions can claim a deduction for charitable contributions of up to $1,000 ($2,000 for married filing jointly). The deduction does not apply to contributions made to a donor advised fund (DAF). This reinstates, increases, and makes permanent the $300 ($600 for married filing jointly) charitable contribution deduction allowed for 2021 as part of the tax changes made to address the COVID-19 pandemic.
- Floor for Charitable Contributions. Charitable contributions otherwise deductible by individuals who itemize deductions are only deductible to the extent that they exceed 0.5% of the individual's charitable contribution base (generally, AGI calculated without taking into account charitable contributions). The significant increase in the standard deduction under the TCJA prompted many high-net-worth individuals to use a DAF to "frontload" charitable contributions to maximize the tax benefit by changing the timing for deductions. This new floor should add to the benefits of using a DAF.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
