The One Big Beautiful Bill (OBBB) was formally signed into law on July 4, 2025. This new legislation primarily extends the temporary tax cut provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire after December 31, 2025. Below are several new temporary and permanent provisions from the OBBB that will impact your tax planning starting in 2025. Please reach out to a financial professional if you have any questions or concerns.
1. Reduced Income Tax Rates
The new legislation extends the lower individual income tax rates and brackets introduced by the TCJA in 2017. The lower tax rates and brackets were previously scheduled to increase in 2026. The top individual rate will now remain at 37%, instead of reverting back to 39.6%.
2. Increased Standard Deduction
The standard deduction has now been permanently increased for 2025 and beyond. Married couples filing jointly may deduct $30,000, while single filers may deduct $15,000 for 2025. The deductions will increase to $31,500 for married taxpayers filing jointly, and $15,750 for single filers in 2026.
3. Temporary SALT Limitations
The TCJA capped the individual deduction for state and local taxes (SALT) at $10,000, which was scheduled to sunset on December 31, 2025. The OBBB retroactively increases the SALT deduction from $10,000 to $40,000 for the 2025 tax year. In 2026, the SALT cap is scheduled to increase to $40,400, and by an additional 1% in 2027, 2028 and 2029 respectively.
4. Increased Estate, Gift, and GST Tax Exemptions
Starting in 2026, the federal lifetime exclusion amount will increase from $13.99 million to $15 million per spouse. The exclusion amount will be adjusted for inflation after 2025. This provision is for estates of decedents and gifts made after December 31, 2025.
5. Introduction of Senior Deduction
The OBBB permanently eliminates the personal exemption deduction, which the TCJA suspended for the 2018 to 2025 tax years. However, the OBBB now allows taxpayers aged 65 or older to claim a $6,000 deduction per qualified individual (for spouses filing jointly) for tax years 2025-2028. The senior deduction is reduced by 6%, but not below zero, for any adjusted gross income that exceeds $75,000 for single taxpayers, and $150,000 for married taxpayers filing jointly.
6. Increased Child Tax Credit
The Child Tax Credit has been permanently increased to $2,200 per qualifying child starting in 2025 and will be indexed for inflation going forward. The credit begins to phase out when the parent’s modified adjusted gross income (MAGI) reaches $400,000 for married taxpayers filing jointly, and $200,000 for all other filers, including single and head of household filers.
7. Trump Accounts
The OBBB has created a new tax-deferred investment account for children called a “Trump Account.” Parents, relatives, employers, and non-profit entities may contribute a total aggregate of $5,000 per year into the account. The contributions are not tax deductible and must be paid with after-tax dollars. The $5,000 annual contribution limitation will be indexed for inflation. The account funds must be invested in a U.S. stock index and grow tax deferred.
The account holders are not allowed to take distributions until the age of 18. Further guidance is expected on this new legislation. For eligibility, the child must be a U.S. citizen and have a Social Security number. The accounts may not be created, and contributions may not be made until 2026. Parents who negligently open an account for a nonqualifying child will be subject to a $500 fine, while parents who are found to have intentionally committed fraud for a noneligible child will be subject to a $1,000 penalty.
8. Newborn Pilot Program
Under the Newborn Pilot Program, U.S. citizens born between January 1, 2025, and December 31, 2028, will be eligible to receive $1,000 from the federal government into an eligible Trump Account. Parents will need to opt in to the program on their tax return. However, if the IRS determines that an eligible child does not have an account opened for them by the first tax return where the child is claimed as a qualifying child, the IRS will establish an account on the child’s behalf. Parents will have the option to opt out of the account if they desire.
9. No Tax on Car Loan Interest
Prior to the OBBB, individual taxpayers could not deduct personal interest, which includes interest on auto loans used to purchase cars for personal use. The OBBB now allows individual taxpayers, including non-itemizers, with a temporary tax deduction for interest paid on loans used to purchase a new personal use passenger vehicle. The deduction may not be used for loans used to purchase used vehicles.
For the 2025 to 2028 tax years, individuals will be able to deduct up to $10,000 of car loan interest per year, subject to a phase out starting at $100,000 MAGI for single filers, and $200,000 MAGI for joint filers. For eligibility, the final assembly of the car must occur in the United States and the vehicle identification number (VIN) must be reported on the tax return. Lenders will be required to file information returns reporting interest received with the IRS.
10. Elimination of Graduate PLUS Loans and Federal Student Loan Caps
The OBBB effectively eliminates the Graduate PLUS student loans beginning in the 2026-2027 school year. This will impact graduate students pursuing professional degrees, including, but not limited to, law and medicine.
The Act also implements a lifetime cap for federal Direct Loans of $100,000 (or $20,500 per academic year) for graduate student borrowing, and a $200,000 lifetime cap ($50,000 per academic year) for professional school borrowing. Previously, graduate students were able to borrow up to the full cost of attendance, subject to a credit check.
Finally, the Parent PLUS loan program which can be used for undergraduate or graduate school is now being capped at $20,000 per year, per student, and a lifetime cap of $65,000.
11. 529 Plan Enhancements and Increased Distributions
The OBBB implements additional expenses that may be treated as qualified higher education expenses. The expanded list of eligible exclusions now includes tuition, curriculum materials, books or other instructional materials, online education materials, tuition for tutoring or education classes outside of the home, fees for nationally standardized tests, advanced placement exams, college admission exams, and educational therapies for students with disabilities provided by a licensed professional. These changes will go into effect in July 2026.
Additionally, the Act increases the annual limit for 529 account distributions from $10,000 to $20,000 for K-12 expenses. Beneficiaries will be able to take the higher distribution amount starting January 1, 2026.
12. Tax Breaks on Tips and Overtime
The OBBB has created a temporary deduction for the 2025 to 2028 tax years, for individuals who receive qualified cash tips. The deduction is up to $25,000 per year, per taxpayer. All tips must continue to be reported on the proper IRS forms. Married taxpayers will be required to file jointly to claim the deduction, and the taxpayer must have a valid Social Security number. Taxpayers will be able to claim the deduction in addition to the standard deduction.
The OBBB has also created a temporary deduction for overtime pay. Single taxpayers may temporarily deduct up to $12,500 per year in qualified overtime compensation, while married taxpayers filing jointly may deduct up to $25,000. There is a deduction phase out by $100 for every $1,000 of MAGI above $150,000 for single filers, or $300,000 for joint filers.
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The information contained herein has been obtained by sources we consider reliable as of 7/14/2025 and is subject to further legislative updates; this information is not guaranteed, and we are not soliciting any action based upon it. This material is intended for general consumer educational purposes and is not intended to provide legal, tax, or investment advice nor should it be relied on to avoid tax penalties. Whether any planned tax result is realized depends on the specific facts of your own situation at the time your tax return is filed. Neither D.A. Davidson nor its representatives provide legal, tax or accounting advice. Always consult your tax advisor for specific tax advice. Copyright D.A. Davidson & Co., 2025. All rights reserved. Member FINRA and SIPC.