1. Continuation of the Tax Cuts and Jobs Act (TCJA) Framework
The OBBBA effectively extends and makes permanent several provisions originally introduced under the Tax Cuts and Jobs Act (TCJA) of 2017. Most notably, this includes the current marginal income tax rates and bracket structures (IRS Tax Brackets for 2025, pending final update). By codifying these rates, the legislation aims to provide longer-term predictability for individual taxpayers and financial planners.
2. SALT Deduction Cap Modification
The state and local tax (SALT) deduction cap—originally set at $10,000 under the TCJA—is temporarily increased to $40,000 for the next four tax years, 2025 through 2029, applicable only to taxpayers with annual income under $500,000. Above this income level, the deduction is gradually reduced, though it will not drop below the original $10,000 threshold. For our clients in high tax states and below the $500,000 income threshold, this higher deduction may provide some relief on federal taxes. Keep in mind, SALT is used if you take an itemized deduction rather than the standard deduction. State and local income taxes, personal property tax and sales taxes all fall under SALT (SALT Deduction 2025: Three Things to Know Now, Kiplinger).
3. Estate and Gift Tax Exemption
Beginning in 2026, the unified estate and gift tax exemption increases to $15 million per individual, indexed annually for inflation. This is substantially higher than the pre-TCJA exemption baseline of roughly $5 million (Section 70106, OBBBA).
4. Social Security Taxation Adjustment
According to MarketWatch, there have been many questions around how the bill affects the taxation of social security benefits. With the OBBBA a temporary tax deduction can be used to reduce or remove federal taxes on social security benefits. To be eligible, the recipient must be 65 years old or older and have a modified adjusted gross income (MAGI) of $75,000 or less. For married couples the income threshold doubles to $150,000 when filing jointly. The additional deduction is $6,000 for single filers and $12,000 for married filing jointly. The temporary deduction is in place from 2025 through 2028 unless Congress decides to extend the timeframe. The deduction phaseout for single filers falls between $75,000 and $175,000 and for married filing joint the phaseout falls between $150,000 and $250,000. Some retirees will see a tax benefit from the new deduction. No other changes were made to Social Security (Social Security Sends Misleading Email Claiming to Eliminate Taxes, the New York Times).
5. Deductions for Tips and Overtime Pay
The current draft of the legislation introduces a temporary deduction (2025–2028) for certain workers earning tips or overtime pay. As written, the provision includes:
- Tips: Up to $25,000 in qualified tips may be deductible
- Overtime Pay: Up to $12,500 for single filers or $25,000 for joint filers may be deductible
These deductions begin to phase out at modified adjusted gross income (MAGI) levels of $150,000 (single) and $300,000 (joint). However, this provision is not yet finalized. The deduction’s applicability will depend on future IRS guidance, particularly around which occupations are considered eligible. Further clarification is expected later this year. (One Big Beautiful Bill Act: Tax deductions for working Americans and seniors, IRS).
6. Clean Energy Tax Credit Phaseout
The OBBBA modifies and eliminates certain tax credits for clean energy. One notable change affects the federal Electric Vehicle (EV) tax credit. The $7,500 credit, introduced under the Inflation Reduction Act, is scheduled to expire for new EV purchases made after September 30, 2025, unless new legislation is enacted. This change may affect purchasing decisions for eligible individuals considering a qualifying EV. Additional details regarding eligible vehicles and manufacturer qualifications can be found through the U.S. Department of Energy.
7. Auto Loan Interest Deduction
The OBBBA includes a provision for a new temporary deduction related to auto loan interest. Beginning with purchases made after December 31, 2024, taxpayers may be eligible to deduct up to $10,000 annually in interest paid on loans for new vehicles. This deduction is subject to income phaseouts beginning at a modified adjusted gross income (MAGI) of $100,000 for single filers and $200,000 for joint filers. The deduction is available from 2025 through 2028 under current law. To qualify, the vehicle must be assembled in the United States, which generally means the major components are integrated and final assembly occurs at a U.S. plant. Specific guidance on eligible vehicles is expected from the U.S. Department of the Treasury or the IRS (One Big Beautiful Bill Act: Tax deductions for working Americans and seniors, IRS).
8. “Trump Accounts” for Children
The new law includes provisions for the creation of government-supported investment accounts for children under the age of 18. Under the current legislation, families would be permitted to contribute up to $5,000 annually to these accounts. Additionally, children born between January 1, 2025, and December 31, 2028, may be eligible to receive a one-time $1,000 government-funded seed contribution. These accounts are scheduled to become available starting in July 2026; however, implementation is contingent on final guidance and regulations from the U.S. Department of the Treasury. Eligibility criteria and administrative details are still pending and subject to change based on forthcoming federal rulemaking (4 ways Trump’s ‘Big Beautiful Bill’ could impact your wallet, Business Insider).
9. Charitable Deduction Changes
The OBBBA has created two permanent changes in relation to how much an individual can deduct from their taxes from a charitable gift. A new 0.5% of income floor has been put into place. This means that the first 0.5% of income worth of gifting is not included in your itemized deductions. For example, if your MAGI is $100,000 the first $500 of charitable giving will be excluded from your itemized deduction. This reduces the value of itemized charitable deductions. For those that typically take the standard deduction and give regular gifts to a charity or their local church a new deduction has been put into place. These gifts must be made in cash (not investments) given directly to the 501(c)(3) charity. Donor advised fund gifts and private foundation gifts do not count toward this deduction. The new charitable deduction is worth $1,000 for single filers and $2,000 for joint filers even if the standard deduction is taken. This begins in 2026.
For those in the top tax bracket of 37%, charitable deductions will be capped to 35%. Typically, if someone were to make a $10,000 itemized charitable deduction in the top tax bracket, their tax liability would be reduced by $3,700. With this new rule their tax liability would be reduced by $3,500 (FAQ: The One Big Beautiful Bill Act Tax Changes, Tax Foundation).
Final Considerations
Guidance and details about these changes are expected to be released gradually to the public over the coming months. While the OBBBA offers many new opportunities, individuals should remain cautious and seek professional guidance to understand their specific impact. If you have questions regarding these changes and how they may affect your personal situation, please let us know. We are happy to guide you through the updates.
Frequently Asked Questions on the “One Big Beautiful Bill Act” Tax Changes
Q1. What does the OBBBA do to federal income brackets and rates?
The One Big Beautiful Bill Act (OBBBA) proposes to make permanent the individual income tax rates and brackets that were temporarily enacted under the 2017 Tax Cuts and Jobs Act (TCJA). Under current law, these provisions are set to expire after 2025. If enacted as written, the OBBBA would prevent that sunset and maintain the current structure of marginal tax rates beyond 2025. (One Big Beautiful Bill Act Tax Policies: Details and Analysis, Tax Foundation)
Q2. How will the SALT deduction change under the OBBBA?
The SALT deduction cap increases to $40,000 (2025–2029) for MAGI under $500,000 and then reverts to $10,000 in 2030. Income above the threshold triggers a 30% phaseout (One Big Beautiful Bill Act, Congress).
Q3. What are the changes to estate and gift taxes?
Starting in 2026, the exemption level will be $15 million (inflation-adjusted) per individual, superseding the scheduled reduction to about $5 million (One Big Beautiful Bill Act, Congress).
Q4. Are Social Security benefits fully tax‑exempt now?
No. The law introduces a temporary deduction to help reduce taxable income for seniors (2025–2028) but does not eliminate Social Security taxation for all. According to the New York Times, analysts estimate approximately 88% will pay no tax on benefits, up from an estimated 64%, largely due to the enhanced deductions (Social Security Sends Misleading Email Claiming to Eliminate Taxes, the New York Times).
Q5. What will change for tipped or overtime‑earning workers?
The OBBBA includes proposed temporary deductions for certain workers who earn income through tips or overtime. As currently written, the bill would allow eligible employees to deduct up to $25,000 in tips and up to $12,500 (single) or $25,000 (joint) in overtime pay, subject to phaseouts based on MAGI, starting at $150,000 for single filers and $300,000 for joint filers. However, eligibility requirements—including what constitutes a “qualified” occupation—have not yet been defined by the IRS or the U.S. Department of the Treasury. These provisions are not final and remain subject to regulatory guidance and potential legislative adjustments before implementation (One Big Beautiful Bill Act: Tax deductions for working Americans and seniors, IRS).
Q6. Is the electric vehicle tax credit still available?
Yes—for now. As written in the current version of the law, the federal $7,500 electric vehicle (EV) tax credit will no longer be available for new EV purchases made after September 30, 2025, unless Congress passes new legislation to extend or revise the credit. (Department of Energy – Fuel Economy EV Tax Credit ).
Q7. How does the new auto loan interest deduction work?
From 2025 to 2028, borrowers may deduct up to $10,000/year in interest costs on loans for qualifying new U.S.-assembled cars, with income phaseouts at MAGI $100,000 (individual) and $200,000 (joint). Full rules pending IRS guidance (One Big Beautiful Bill Act: Tax deductions for working Americans and seniors, IRS).
Q8. What are “Trump Accounts”?
Under the current version of the bill, “Trump Accounts” are proposed as new government-supported investment accounts for children under age 18. As written, the legislation would allow annual contributions of up to $5,000 per child, and children born between January 1, 2025, and December 31, 2028, would be eligible for a one-time $1,000 government seed deposit. However, these provisions are not yet finalized. Implementation is pending final guidance from the U.S. Treasury Department, and the accounts are not expected to be available before July 2026, if the timeline remains unchanged (4 ways Trump’s ‘Big Beautiful Bill’ could impact your wallet, Business Insider).
Q9. How have charitable deduction rules changed?
Beginning in 2026, the OBBBA proposes several modifications to how charitable deductions are calculated:
- Itemized Deductions: Taxpayers who itemize will be subject to a new 0.5% of modified adjusted gross income (MAGI) floor on charitable deductions. This means the first 0.5% of MAGI given to charity will not be eligible for a deduction; only amounts above that threshold may be deducted.
- Standard Deduction Filers: Those who take the standard deduction may qualify for a new, separate charitable deduction of $1,000 (single filers) or $2,000 (joint filers) for cash donations to qualifying public charities. This provision excludes gifts to donor-advised funds and private foundations, and only direct cash contributions to 501(c)(3) public charities qualify.
- High-Income Filers: For taxpayers in the top federal income tax bracket (currently 37%), the effective tax benefit of charitable deductions will be capped at 35%, reducing the maximum tax offset from charitable giving at the highest income levels.
(FAQ: The One Big Beautiful Bill Act Tax Changes, Tax Foundation)
Disclosures: This material is provided for informational and educational purposes only and should not be construed as personalized tax, legal, or investment advice. The contents summarize legislative provisions under the One Big Beautiful Bill Act (OBBBA), as enacted in July 2025, and reflect information available as of August 2025. These provisions are subject to interpretation, further regulatory guidance, and potential legislative amendments. Certain details—including eligibility criteria, implementation dates, and qualifying definitions—remain pending final guidance from the U.S. Department of the Treasury, IRS, or other regulatory agencies. You should not act or rely on any information in this summary without seeking the advice of a qualified tax advisor, attorney, or financial planner who is familiar with your personal circumstances. Howe & Rusling does not provide tax or legal advice, and nothing in this document should be construed as a recommendation to make or refrain from any specific financial decision. References to external sources (such as the IRS, U.S. Department of Energy, Tax Foundation, Kiplinger, Business Insider, and The New York Times) are included for context and informational support. Howe & Rusling makes no representations or warranties as to the accuracy, timeliness, or completeness of third-party information and is not responsible for its use. Investments in vehicles such as “Trump Accounts” or any other referenced accounts or deductions are not guaranteed and are contingent on final government implementation and eligibility requirements. Legislative initiatives such as tax deductions, credits, or limits may expire or be altered without notice. Howe & Rusling is an SEC-registered investment adviser. SEC registration does not imply a certain level of skill or training.
