Q&A・Preparing for Tax Filing under the One Big Beautiful Bill Act (OBBBA)

With new legislation announced earlier this year, what are the key considerations?

Lifetime Estate and Gift Tax Exemption

The lifetime estate and gift tax exemption was scheduled to sunset in December, decreasing the exemption to $6 million from nearly $14 million. Instead, that higher exemption has been made permanent and will increase next year to $15 million for individuals or a combined $30 million for married couples.

Deductions

The legislation makes the larger standard deduction permanent—which will increase next year to $15,750 for single filers and $31,500 for joint filers.

For those itemizing deductions, the lower maximum mortgage interest deduction of $750,000 was made permanent.

From 2026 onward, only itemized charitable contributions that exceed 0.5% of a taxpayer’s modified adjusted gross income (MAGI) can be deducted. Donations below that threshold cannot be taken as deductions at all. (For corporate donors, the floor is 1% of income.) Also starting next year, the upper limit for charitable deductions is 35% of MAGI—even for clients at the highest tax bracket of 37%. Read Helen’s companion Q&A for specific insight on how Donor Advised Funds might be used to contend with limits on charitable gift tax deductions that begin next year.

Complexity with State-and-Local-Tax (SALT) Deductions

The bill’s temporary increase of the state-and-local-tax (SALT) deduction limit to $40,000 begins to phase out dramatically once modified adjusted gross income (MAGI) exceeds $500,000. Every dollar of income above that threshold decreases the maximum deduction by 30 cents. That is, until income reaches $600,000, at which point the limit has dropped all the way back down to $10,000—where it was before the bill passed. As a result, some taxpayers whose incomes fall within the SALT phaseout range may face more complicated decisions when considering financial moves that increase their income.

What provisions are temporary?

These deductions and credits are applicable only for tax years 2025 through 2028.

Reduced income tax on tips and overtime

Up to $25,000 of tips may be deducted from federal taxable income for those in industries where tips are customary. Up to $12,500 of overtime compensation for single filers and $25,000 for joint filers may be deducted. Both of these deductions phase out when modified adjusted gross income (MAGI) exceeds $150,000 for single filers and $300,000 for joint filers.

Enhanced income tax deduction for older adults

Eligible filers 65 or older may deduct $6,000 per year providing modified adjusted gross income (MAGI) does not exceed $75,000 for single filers or $150,000 for married couples filing jointly.

Deductible car loan interest

Auto loan interest is deductible for new autos with final assembly in the United States. The deduction is limited to $10,000 and phases out when income exceeds $100,000 for single filers and $200,000 for joint filers.

Are there any considerations specifically for business owners?

Business owners can plan with the knowledge that the Section 199A deduction for qualified business income is now permanent and remains capped at 20%.

What tax incentives are ending?

The bill brings a premature death to electric vehicle tax credits, which expired at the end of September—seven years earlier than planned.

A suite of tax credits for clean-energy upgrades and energy-efficient residential and commercial properties are likewise on borrowed time. The expiration dates for these are staggered. If you’re planning a switch to solar or wind power, that credit expires at the end of December. Other credits will sunset later, but the clock is ticking to take advantage of any of them.

Anything else important to note?

Specifically for parents –  the Child Tax Credit (CTC) is increased to a maximum of $2,200 in 2025, made permanent, and adjusted for inflation in following years. Also, the OBBBA creates a new savings account for children, fundable up to $5,000 a year until age 18, at which point the account effectively converts to a traditional IRA. The account also permits a one-time deposit of $1,000 from the federal government for those born in 2025 through 2028.

Please reach out with any questions as we approach year end. We are always happy to discuss these policy updates in further detail, collaborating with your tax accountant and other trusted advisors.

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