The One Big Beautiful Bill Act ("OBBBA" or "The Act"), signed into law on July 4, 2025, makes permanent many key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and includes new measures affecting individuals and families. "Permanent" means that the provisions have no set expiration date; however, Congress could still change them through future legislation. Unless otherwise noted below, all changes to current law will become effective on January 1, 2026.
Here are the key aspects of the OBBBA:
Estate and Gift Tax Exclusion: Effective January 1, 2026, the estate, gift, and generation-skipping transfer tax exclusions are permanently set at $15 million per person (or $30 million for a married couple), indexed for inflation beginning in 2027. This change prevents the sunset of higher exclusion amounts included in the TCJA.
Individual Income Taxes and Deductions:
- Income Tax Rates: The Act makes permanent the income tax rate structure established in the TCJA, maintaining the top ordinary income tax rate at 37% (preventing it from reverting to 39.6% in 2026). Other tax brackets will continue to be indexed for inflation.
- Temporary Income Exclusions (2025-2028):
- Tip Income: Up to $25,000 of qualified tip income can be excluded, with a phase-out for higher modified adjusted gross income (MAGI) ($150,000 for single, $300,000 for married filing jointly (MFJ)).
- Overtime Income: Up to $12,500 for single filers and $25,000 for MFJ taxpayers can be excluded; also subject to a phase-out based on MAGI.
- Alternative Minimum Tax (AMT): Higher AMT exemptions from the TCJA are extended, with increased phase-out rates (from 25% to 50%) and inflation indexing beginning in 2027. This helps to limit the infrequent application of AMT.
- Deduction for Senior Taxpayers: 2025-2028, individuals age 65 and older can claim a $6,000 bonus above-the-line deduction, regardless of whether they itemize. This deduction replaces the exemption of Social Security benefits from taxation and phases out for higher MAGI.
- Auto Loan Interest: For new domestically-assembled autos purchased from 2025 through 2028, up to $10,000 of interest paid on new auto loans can be an above-the-line deduction, phasing out for higher MAGI.
- Standard Deduction: The larger standard deduction amounts from the TCJA are made permanent and increased for 2025 to $15,750 for single filers, $23,625 for head of household, and $31,500 for MFJ, with future inflation indexing.
- Charitable Contributions:
- Non-itemizers: Starting in 2026, individuals who do not itemize can deduct up to $1,000 ($2,000 for MFJ) for contributions to public charities.
- Itemizers: Beginning in 2026, broader charitable contributions are subject to a 0.5% adjusted gross income (AGI) floor before they can be deducted. The 60% AGI limit for cash contributions to public charities is made permanent.
- State and Local Tax (SALT) Deductions:
- From 2025 through 2029, the SALT deduction cap is temporarily increased from $10,000 to $40,000 ($20,000 for married filing separately). This amount increases by 1% annually until 2029. A phase-out applies for MAGI over $500,000 (MFJ), reducing the deduction back to $10,000 for MAGI above $600,000. Crucially, the cap will revert permanently to $10,000 for tax years beginning with 2030.
- Mortgage Interest Deduction: TCJA rules are made permanent, maintaining the $750,000 principal limit on new mortgages (dated on or after December 15, 2017) and generally disallowing home equity interest deductions unless used for substantial home improvements or acquisition.
- Casualty Loss Deductions: Expanded to include both federal and state-declared disasters for tax years after December 31, 2025.
- Miscellaneous Itemized Deductions: The disallowance of miscellaneous itemized deductions (including investment management and tax preparation fees) introduced by the TCJA is made permanent, though certain educator expenses are removed from this category.
- Itemized Deduction Limitations: For high-income taxpayers (those in the 37% tax bracket), a modified limitation is reintroduced beginning in 2026, which effectively limits the tax benefit of itemized deductions to 35%.
Education and Family-Oriented Provisions:
- Child Tax Credit: The maximum credit for 2025 increases to $2,200 per child ($1,700 refundable), indexed for inflation. A $500 non-refundable credit is available for other dependents. These are permanent changes.
- Child Savings "Trump" Accounts: Established for U.S. citizen minors, allowing initial contributions from July 2026. Annual contributions are limited to $5,000 (indexed from 2028), and employers can contribute an additional $2,500. The government will provide $1,000 of funding for children born 2025-2028. Withdrawals for qualified purposes are taxed as long-term capital gains, and funds must be invested in US stock index funds with low expense ratios.
- Dependent Care Flexible Spending Accounts (FSA): The maximum election increases to $7,500 from $5,000 starting in 2026.
- 529 Plans: For tax years after December 31, 2025, the annual amount that can be withdrawn for private elementary or secondary education expenses is increased to $20,000. The Act also expands the types of qualified expenses and post-secondary programs.
- Federal Student Loan Programs:
- New borrowing limits apply from July 1, 2026: parents limited to $20,000 per year ($65,000 total per student), graduate students to $20,500 per year ($100,000 total), and professional school students to $50,000 per year ($200,000 total), with a combined maximum of $257,500 (excluding PLUS/parent loans).
- Student loan repayment plans will be more limited for loans starting mid-2026.
- The Public Service Loan Forgiveness (PSLF) program and Direct Subsidized Loans for undergraduates remain unchanged.
- The Act permanently allows employers to make payments of up to $5,250 per year on behalf of an employee for their education loans, indexed for inflation from 2027.
Investment and Business Incentives:
- Qualified Small Business Stock (QSBS): Significantly enhanced for stock acquired after July 4, 2025. The maximum gain exclusion increases to $15 million (from $10 million) per taxpayer, indexed for inflation from 2027. New tiered gain exclusion percentages based on holding periods are introduced: 50% for 3 years, 75% for 4 years, and 100% for 5 years. The maximum company gross assets allowed for eligibility increases from $50 million to $75 million.
- Qualified Business Income (QBI) Deduction: The 20% pass-through deduction for QBI (Section 199A) is made permanent, preserving a top effective tax rate of 29.6% on this income.
- Qualified Opportunity Zones (QOZ): Made permanent, with new rural QOZs allowing a lower 50% reinvestment threshold (compared to 100% for traditional QOZs) starting in 2027.
- Excess Business Losses: The availability of loss deductions for noncorporate taxpayers is made permanent for tax years beginning after December 31, 2026.
- Bonus Depreciation/Research & Development (R&D)/Section
179 Deductions:
- 100% bonus depreciation is made permanent for assets acquired and placed in service after January 19, 2025.
- The Section 179 deduction limitation for 2025 increases to $2.5 million, with future inflation indexing.
- Immediate expensing of domestic R&D costs is restored (effective since December 31, 2024), with possible retroactive expensing to December 31, 2021.
- Interest Deduction Adjustments: The Section 163(j) interest limitation now permanently aligns with EBITDA.
- 1099 Threshold: Starting in 2026, the reporting threshold for Form 1099 increases from $600 to $2,000.
Note that the Act does not contain provisions addressing the impact of passthrough entity taxes (PTET).
Other Provisions:
- Clean Energy Credits: Credits for electric vehicles (acquired after September 30, 2025), heat pumps and solar panels (placed in service after December 31, 2025), and electric vehicle charging equipment (placed in service after June 30, 2026) are set to expire.
- Adoption Credit: Enhanced starting in 2025, including a refundable portion.
- Scholarship Funding Credit: Up to a $1,700 credit is available starting in 2027 for cash contributions to scholarship organizations for K-12 students.
- Tax-Exempt Entity Taxation: Starting after December 31, 2025, certain private colleges and universities may see their tax on income increase from 1.4% to as much as 8%, particularly those with over 3,000 full-time equivalent tuition-paying students and high per capita endowment amounts.
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.
