What the One Big Beautiful Bill Act Means for Individuals
Published on by Dave Phelps in Tax Services
What does the “One Big Beautiful Bill Act” (OBBBA) mean for your personal tax situation? There’s a lot to unpack here, and we’ll be covering the implications in a series of blog posts. Today, we’re looking at the implications of the OBBBA for individuals, and you may also be interested in our post on the impact of the OBBBA on businesses.
The OBBBA makes sweeping and permanent changes to the federal income tax system for individual taxpayers. Here are the key aspects of the law that directly affect individuals.
Permanent extension and enhancement of the standard deduction
- The increased standard deduction, originally set to expire after 2025, is made permanent and further increased.
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- For 2025, the standard deduction is $23,625 for heads of household and $15,750 for singles, with inflation adjustments thereafter.
- This replaces the lower pre-2018 amounts and eliminates the scheduled sunset of the higher deduction.
Permanent lower individual tax rates
- The lower individual tax rates from the Tax Cuts and Jobs Act (TCJA) are made permanent, removing the 2025 expiration date.
- The tax brackets and rates remain as under TCJA, with continued inflation adjustments.
Child Tax Credit (CTC) expansion and permanence
- The expanded CTC is made permanent and increased to $2,200 per qualifying child, with inflation adjustments.
- Stricter Social Security Number (SSN) requirements apply for both the taxpayer and the child.
- The refundable portion is also increased and indexed.
Personal exemptions remain suspended (with senior exception)
- The suspension of personal exemptions is made permanent.
- However, a new $6,000 deduction is allowed for seniors (age 65+) through 2028, subject to a phaseout at higher incomes and SSN requirements.
Qualified Business Income (QBI) deduction enhancement
- The phase-in threshold for the QBI deduction is increased to $75,000 ($150,000 joint), and a $400 minimum deduction is established for active business income, with inflation adjustments.
State and Local Tax (SALT) deduction cap increased
- The SALT deduction cap is increased to $40,000 ($20,000 MFS) for 2025, indexed for inflation, with a phase-down for modified adjusted gross income over $500,000. The cap reverts to $10,000 after 2029.
Permanent suspension of miscellaneous itemized deductions
- The suspension of miscellaneous itemized deductions (subject to the 2% AGI floor) is made permanent, except for educator expenses, which remain deductible and are expanded.
Permanent limitation on mortgage interest deduction
- The $750,000 cap on the mortgage interest deduction is made permanent, and mortgage insurance premiums are treated as interest.
Permanent limitation on casualty loss deduction
- The limitation of the casualty loss deduction to federally declared disasters is made permanent and expanded to include state-declared disasters.
New limitation on itemized deductions
- A new formula reduces itemized deductions by 2/37 of the lesser of deductions or income above the 37% bracket threshold, which essentially caps the benefit of itemized deductions at 35% for taxpayers in the highest bracket.
Temporary deductions for tips and overtime pay
- For 2025–2028, individuals can deduct up to $25,000 in qualified tips and up to $12,500 ($25,000 joint) in qualified overtime pay. The phase-out of the deductions begins at $150,000 of adjusted gross income ($300,000 for married filing joint filers).
Temporary deduction for car loan interest
- For 2025–2028, a deduction of up to $10,000/year is allowed for interest on loans for new U.S.-assembled passenger vehicles. The deduction is phased out for modified adjusted gross incomes starting at $100,000 ($200,000 for married filing jointly).
Creation of “Trump Accounts” for children
- New tax-advantaged accounts for children under 18, with a $5,000 annual contribution limit, employer and charitable contributions, and a $1,000 government-funded pilot for newborns (2025–2028).
Permanent increase in estate and gift tax exemption
- The estate and gift tax exemption is permanently increased to $15 million (indexed), effective for estates/gifts after 2025.
Other notable provisions
- Permanent Increase in AMT Exemption and Phaseout Thresholds.
- Enhancements to the Child and Dependent Care Credit and Dependent Care Assistance Program.
- Permanent and Expanded Charitable Deduction: Increased to $1,000 ($2,000 joint) and made permanent.
- 0.5% Floor on Itemized Charitable Deductions: Only contributions exceeding 0.5% of AGI are deductible, with carryforward rules.
What to do next
Have questions about how the OBBBA will impact your tax situation? Contact us today for a free consultation with one of our leading tax pros. As always, we’re here to help.
