Big Beautiful Bill – The Tax Impact

August 1, 2025  | By Manisha Gupta, CFP®, MBA

The much anticipated One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th, 2025. The new legislation is an extension of the 2017 Tax Cuts and Jobs Act (TCJA)  making many of the provisions permanent. It also introduced some additional changes that might affect individuals  and businesses. Below we highlight some of the key provisions, effective dates and the most relevant planning considerations for 2025.

Tax Brackets 

The current tax brackets have been in place since the passage of the TCJA in 2017 which were supposed to expire at the end of 2025. The new legislation made the current tax brackets permanent. 

For tax year 2025, the top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). The details for all the current tax brackets can be found at IRS.gov. 

As it happens at the end of each calendar year, the 2026 tax brackets will be adjusted for inflation at the end of 2025. 

There were no changes made to the long term capital gains tax rate which are taxed 0%, 15% and 20% depending on your income. The complete details around the capital gains tax rates and how it is calculated can be found here.

Tax Deductions 

The new legislation introduces both permanent and temporary changes to federal tax deductions for individuals and businesses, primarily building on and extending many provisions from the 2017 TCJA. Let’s take a look at the few that are the most impactful

Standard Deduction:

The OBBBA makes the larger standard deduction from the TCJA permanent, slightly increasing it – $15,750 for single filers and $31,500 for joint filers in 2025 and beyond, indexed to inflation. 

This is great news if you have been taking  standard deductions for the past couple of years. . Most taxpayers can now deduct an additional amount without going through the hassle of itemizing the deductions. 

Itemized Deduction:

If you have been taking advantage of itemized deductions there is some silver lining in the bill for you with the higher SALT ( State and Local tax ) deduction. Itemizing makes sense when the total of your allowed deductions exceeds the standard deduction. Here are key situations where this often applies:

High State and Local Taxes (SALT):

If you pay significant property taxes and/or state income taxes, you might benefit from this. For the years 2025 – 2029, the SALT cap is temporarily raised to $40,000 (or $20,000 for married filing separately), but income phaseouts may reduce your eligible amount if your modified AGI is higher than $500,000 ($250,000 for married filing separately), reverting to the $10,000 cap if your modified AGI is above $600,000($300,000 for married filing separately). 

We recommend doing some proactive planning before the end of the year if you are anticipating your 2025 income to be close to the phase out limit.

Large Charitable Contributions:

If you regularly give substantial amounts to recognized charities, itemizing the deductions might make sense in your situation. Starting in 2026, there are some additional AGI based restrictions on charitable deductions. Therefore, if you have a specific amount of charitable contributions that you would like to make in the upcoming years, it might be helpful to accelerate those contributions in 2025 so you can get the higher deductions.

**For tax payers taking standard deduction, OBBBA permanently restores the charitable deduction starting in 2026 and increases the maximum deduction to $1,000 for single filers and $2,000 for joint filers**

Significant Mortgage Interest:

Homeowners with large mortgages on primary or second homes may see their interest payments push them above the standard deduction. There is no change to the amount of mortgage interest you can deduct however with the higher SALT deduction you might be able to itemize the mortgage interest from the years 2025-2029.

Medical and Dental Expenses:

When out-of-pocket medical expenses exceed a certain percent of your AGI (usually 7.5% or more), you can itemize the excess.

Additional Deduction for Seniors (Age 65+)

This new law creates a temporary additional deduction for seniors age 65 or older from the year 2025 -2028. The new deduction is set at $6,000 for single filers, or $12,000 for joint filers where both spouses are age 65+. 

This deduction is available to any seniors regardless of whether a household uses standard deduction or itemized deductions as this is a below the line deduction. The deduction is subject to phase out for Modified Adjusted Gross Income (MAGI) between $75,000 – $175,000 (single) or $150,000 – $250,000 (joint). 

If you are above 65 and your annual income is closer to the phaseout ranges, it might be beneficial to do some additional tax planning before the end of the year so you can take advantage of these extra deductions. 

Other Temporary Deductions:

There are also temporary deductions for certain incomes (tips, overtime) and auto loans  for non-itemizers, though these are generally time-limited and subject to income limits. 

Details for these temporary deductions can be found on the IRS website

Section 199A (Qualified Business Income) Deduction Extended 

The Section 199A Qualified Business Income (QBI) deduction is now permanent for owners of pass-through businesses such as sole proprietorships, partnerships, and S corporations, letting them deduct up to 20% of their qualified business profit. 

Though this deduction has been in effect since the passage of TCJA, the main change is that the income ranges where this deduction starts to phase out are now wider, so more business owners can take advantage of this deduction.

Changes to Tax Credits 

Child Tax Credit 

Starting with your 2025 tax return, the Child Tax Credit (CTC) is permanently set at $2,200 per qualifying child. This change means you’ll receive a higher credit amount than previously planned (the CTC had been scheduled to drop to $1,000 with the sunset of TCJA). The Child Tax Credit will automatically adjust for inflation, beginning in 2026.

This credit is available for households with children under the age of 17 and will start phasing out for income above $200,000 (single and head-of-household) or $400,000 (married filing jointly).

Expanded Benefits for 529 accounts

OBBBA provides more flexibility in how you put your education funds to work – both for K–12 expenses and for career advancement.

K-12 Expenses

Starting in 2025, 529 plans can now be used for a broader range of K-12 expenses. In addition to tuition, you can take tax-free withdrawals to cover curriculum and textbooks, qualified tutoring, standardized testing (like AP and college admission exams), dual enrollment fees for high schoolers attending college classes, and even approved therapy for students with disabilities. 

Starting in 2026, the annual limit for these K–12 expenses doubles to $20,000 per child per year which can provide a significant tax advantage if your kids are enrolled in private schools. 

Career Credentials

For the first time ever, 529 savings can also be used tax-free for career-related credentials. This means you can fund the cost of tuition, books, required exams, and even continuing education for qualifying programs—from industry certifications and registered apprenticeships to state-licensed professions. 

Full details regarding the 529 account changes can be found on my529.org

Other Provisions (Starting in 2026)

• The annual pre-tax dependent care assistance income exclusion increases to $7,500 per household ($3,750 for married filing separately).
• Higher estate tax exemption limits have been made permanent.  Estate tax exemption will be increased to $15M per person (or $30 million per couple). This will be indexed to inflation each year after that.

There are quite a few other provisions that apply to businesses and are not mentioned here.  If you are a business owner and want to know the details, we encourage you to talk to your tax professional. 

We’re here to help you understand the details and how these changes may impact your tax situation each year. As always, if you have questions about the new tax laws or want to discuss how these and other changes apply to you, please reach out!