One Big Beautiful Bill Act Tax Cuts

The One Big Beautiful Bill Act (OBBBA) creates several new temporary tax deductions, while making permanent many of the changes within the Tax Cuts and Jobs Act (TCJA) of 2017 that were due to expire at the end of 2025. On balance, the vast majority of taxpayers should see their taxes go down, while those in the highest bracket may find they owe a bit more.

One thing to keep in mind is that "permanent" here only means that the rules we have today won't change or expire on their own. However, that doesn't mean Congress couldn't rewrite the tax code again in the future. That said, having many of the tax rules made permanent does simplify tax planning and offers some stability after years of expiration dates looming over us.

Understanding what's changed—and what hasn't—can help both investors and taxpayers plan with confidence. Ahead, we'll explore the key tax cuts and provisions introduced by the One Big Beautiful Bill Act, including changes to brackets, deductions, investment income, and more.

These tax changes potentially affect every taxpayer, regardless of income level.

The OBBBA makes permanent the tax rates and brackets that took effect in 2018 under the TCJA. That means the current tax rates of—10%, 12%, 22%, 24%, 32%, 35%, and 37%—will continue on into the future. Had the OBBBA not made these rates permanent, we would have seen many tax rates increase and almost all taxpayers would have seen an increase in their taxes.

But tax rates are only one part of the equation. Each tax rate has a set amount of income that falls into it, known as a "bracket." The more income that falls into a lower tax bracket, the lower your overall taxes will likely be. For 2025, the tax brackets won't change, but in 2026 the OBBBA will give the 10% and 12% an additional inflation adjustment, boosting the amount of money taxed at those lower rates. In practical terms, that means all taxpayers will see slightly lower taxes, no matter their income level.

The TCJA nearly doubled the standard deduction, offering tax relief to many taxpayers and making the standard deduction more appealing than itemized deductions for many. The OBBBA builds on that by slightly increasing the standard deduction for 2025 and making it the baseline for future inflation adjustments.

As a result, the standard deduction will rise by $750 to $15,750 for single filers, and $1,500 to $31,500 for joint filers. Taxpayers aged 65 and older also qualify for the additional standard deduction, amounting to an extra $2,000 for single filers and an extra $1,600 for each eligible married filer.

The OBBBA created a new tax deduction that grants taxpayers age 65 and older an even larger deduction of up to $6,000 for single filers, or $12,000 for qualified married couples. Along with the age requirement, both spouses must have a valid Social Security number, and the deduction phases out for income over a set limits. The phase-out limit is based on Modified Adjusted Gross Income (MAGI), and every dollar over the limit will lower the deduction by 6 cents.

• For single filers the MAGI limit is $75,000 and its completely phased out at $175,000.
• For joint filers the MAGI limit is $150,000 and its completely phased out at $250,000.

Importantly, this deduction is available whether you take the standard deduction or itemize. So, taken altogether, a qualifying single filer could claim a total deduction of $23,750 ($15,570 standard deduction + $2,000 additional standard deduction for seniors + $6,000 new senior deduction), while qualifying married filers could claim up to $46,700 ($31,500 standard deduction + $3,200 additional standard deduction for seniors + $12,000 new senior deduction).

Unfortunately, this deduction is only temporary. Barring Congressional action, it will expire after 2028.

Up to $25,000 of "qualified" income from tips will now be eligible for a federal income tax deduction for tax years 2025 to 2028. The deduction is capped at $25,000 for both single filers and joint filers.

Note that though this provision is often referred to as "No Tax on Tips," however, qualified tip income will still be subject to payroll tax and potentially state income taxes (if applicable). The deduction starts to phase out once MAGI is over $150,000 for a single filer, and $300,000 for joint filers.

Up to $12,500 of qualified overtime pay is now eligible for a tax deduction. As with the provision on tips, this deduction is due to expire in 2028 and starts to phase out at a rate of $100 per $1,000 of income over a MAGI of $150,000 for a single filer, and $300,000 for joint filers. Unlike with the tips provision, joint filers can claim a larger deduction of $25,000.

Note that the deduction is available only for overtime pay required by the Fair Labor Standards Act (FLSA). Extra pay earned under state laws, collective bargaining agreements, or employers' compensation plans isn't eligible.

Some taxpayers may be able to deduct up to $10,000 in car loan interest for new vehicles purchased between 2025 and 2028. Used cars are ineligible. To qualify, the vehicle needs to have undergone final assembly in the United States. The deduction begins to phase out if your MAGI exceeds $100,000 for single filers, or $200,000 for joint filers.

The OBBBA doesn't introduce sweeping changes to student loan policy, but it does preserve a few key tax benefits:

• Employers can continue contributing up to $5,250 annually toward employees' student loans tax-free.
• The deduction for student loan interest—up to $2,500 per year—remains in place.

Beyond individual tax brackets and deductions, the bill also addresses how families are taxed. From child care to estate planning, these changes affect households in a variety of ways.

The TCJA doubled the child tax credit to $2,000, but that increase would have expired at the end of this year. The OBBBA preserves the credit and bumps it up to $2,200 per child in 2025. Starting in 2026, the maximum amount will be indexed to inflation.

The credit starts to phase out at MAGIs of $200,000 for single filers, and $400,000 for joint filers.

The TCJA temporarily doubled the gift and estate tax exemption, and the size of the exemption had grown to $13.99 million per person as of 2025. However, it was also set to expire at the end of this year, which would have cut the exemption in half.

The OBBBA preserved the larger exemption, which will now rise to $15 million per person in 2026. After that, it will be indexed to inflation.

Here again, having a permanent amount will resolve a lot of uncertainty for those trying to craft plans for the biggest estates.

Things get a little more complicated for itemizers.

The TCJA temporarily removed the prior cap—called the Pease limitation—on the amount of itemized deductions that could be claimed. Starting in 2026, however, the OBBBA will introduce a new cap that will apply only to taxpayers in the 37% tax bracket (i.e., single filers earning more than $626,350, or married filers earning more than $751,600).

Typically referred to as the 2/37 rule, this provision effectively limits the value of deductions available to those in the highest tax bracket to just 35 cents for every dollar of itemized deductions. For example, a married couple in the 37% tax bracket that claimed $100,000 in itemized deductions would see tax benefit capped $35,000, instead $37,000.

Before the TCJA, taxpayers could potentially deduct 100% of the value of the state and local taxes they paid from their federal tax obligation—an arrangement that made itemizing more appealing to more taxpayers, though it primarily benefited higher earners from a handful of higher-tax states, like New York and California. The TCJA then temporarily capped the SALT deduction at just $10,000. That cap would have expired at the end of this year.

The OBBBA keeps the cap but raises it to $40,000 for 2025. It will rise by 1% each year thereafter, before snapping back to $10,000 in 2030.

However, the law also directly limits SALT deductions for higher earners. In short, the deduction is cut by 30% of the amount by which one's income exceeds a certain threshold. In 2025, that threshold is a MAGI of $500,000 (which will also increase by 1% a year going forward). So, a taxpayer with $550,000 of taxable income would see their maximum SALT deduction of $40,000 shrink by $15,000 ($50,000*0.3 =$15,000). The SALT deduction phases out to the old maximum of just $10,000 at MAGI above $600,000.

The $750,000 limit on home mortgage interest deduction is made permanent ($1 million for mortgages in place before Dec. 16, 2017). Starting in the 2026 tax year, the OBBBA permanently reinstates the ability of homeowners to deduct mortgage insurance premiums.

Several OBBBA provisions affect the deductibility of charitable contributions:

• Permanent limit on cash donations: The TCJA temporarily capped cash donations to public charities at 60% of a taxpayer's adjusted gross income (AGI). Previously it was 50% of AGI. The OBBBA makes the 60% limit permanent.
• Deduction floor: Starting in 2026, donations will be deductible only after they exceed 0.5% of a taxpayer's AGI. For example, if a couple's AGI is $500,000, their first $2,500 ($500,000*0.005=$2,500) of charitable donations won't be eligible for an itemized deduction. This provision will effectively shrink the value of deductions eligible for deductions.
• Charitable deduction for everyone: Previously only those who itemized could receive a tax deduction for donations, the OBBBA changes that. Beginning in 2026, non-itemizers will be able to claim a donation deduction of up to $1,000 for single filers, or $2,000 for joint filers. Unfortunately, donations to donor-advised funds or private non-operating foundations are not eligible for this deduction.

The Alternative Minimum Tax (AMT) is a second, more stringent way to calculate your tax bill. Each year, when you complete your federal tax return, you compare your tax liability under the regular tax system to the AMT liability and pay the higher of the two. This process ensures that high-income households pay their fair share of taxes through the removal of certain adjustments and deductions.

The TCJA reduced the number of households exposed to the AMT by significantly increasing the AMT exemption—to $88,100 for single filers and $137,000 for joint filers for 2025. The TCJA also raised the phaseout level—meaning the amount of income you could earn and still take advantage of the exemption—to $626,350 for single filers and $1,252,700 for joint filers in 2025. These changes would have expired at the end of 2025, but the OBBBA avoids that, with some changes.

In short, the OBBBA makes the higher exemption amount permanent. However, starting in 2026, the phaseout thresholds will kick in sooner, at $500,000 for single filers and $1 million for joint filers. In addition, the phaseout will bite much harder. Once your income for the AMT hits the phase-out threshold, your AMT exemption begins to phase out at 50 cents for every dollar over the threshold.

The OBBBA solidifies or makes permanent several investor-friendly tax provisions.

The TCJA introduced an investment vehicle called a Qualified Opportunity Fund (QOF) that directs investment capital into state-designated lower-income regions called Opportunity Zones. In exchange for their investments, QOF investors receive a variety of tax benefits. The OBBBA makes these incentives permanent—with a couple tweaks—but the updated versions don't take effect until 2027.

Here's how the program works:

• Deferral of taxable gains. Investors can invest capital gains—any capital gains from an investment portfolio or real estate sale—in QOF shares, and taxes on those capital gains are deferred for up to five years from the QOF investment, or until the investor liquidates their QOF shares.
• Cost basis step-up. Under the TCJA, investments held in a QOF for five years receive a 10% step-up in their cost basis, effectively lowering the taxable portion of any gains. After seven years, the step-up rose to 15%. The OBBBA scraps the 15% step-up but leaves the 10% step-up, it also introduces a new category of Rural Opportunity Zones that provide investors with a 30% step-up in cost basis after five years.
• Exclusion of taxable income on new gains. Capital gains earned from QOF investments may be excluded from taxation once you've held the investment for 10 years.

The TCJA introduced a temporary 20% tax deduction for Qualified Business Income (QBI) from passthrough structures, including investment vehicles like Real Estate Investment Trusts (REITS) and Master Limited Partnerships (MLPs). The OBBBA makes that deduction permanent.

As a reminder, passthrough entities enjoy special tax treatment whereby their income isn't taxed at the entity level—i.e., the REIT or MLP itself doesn't pay tax on its earnings before distributing them—so investors in those vehicles are taxed at their regular income tax rate for the income they receive. Even with the 20% deduction on passthrough income, investors in the highest tax brackets could still face significantly higher tax rates on passthrough income compared to, say, the maximum 20% rate they would pay on qualified dividends.

The now-permanent 20% QBI tax deduction offers some relief to REIT and MLP investors by effectively capping the highest tax rate on income from such structures at 29.6% (20% of 37% tax rate).

The OBBBA repeals many of the tax credits made available under the Inflation Reduction Act. Important rollbacks include:

• Clean Vehicle Credit: $4,000 for a used electric vehicle (EV)—and $7,500 for a new one—ended 09/30/2025.
• Energy Efficient Home Improvement Credit: Up to $3,200 for energy-efficient upgrades—including doors, insulation, and windows—ends 12/31/2025.
• Residential Clean Energy Credit: Up to 30% of the cost of fuel cells, geothermal pumps, solar panels, and wind turbines—ends 12/31/2025.

The OBBBA also included numerous non-tax provisions that might affect the plans of taxpayers and investors.

The OBBBA created a new tax-advantaged savings and investment account for children—dubbed the Trump Account—that could give families a new way to save for their children's futures.

You could almost think of a Trump Account as a cross between a traditional individual retirement account (IRA) and a 529 savings account. In brief, these accounts will be eligible for after-tax contributions of up to $5,000 a year until the year the child reaches age 18. Like with an IRA, potential earnings can then grow tax-free, and withdrawals are generally taxed at the child's income tax rate.

Like with a 529, the child doesn't need to have earned income to accept contributions and nearly anyone can contribute to their account, but there's no requirement that the proceeds be used for education expenses—or any other purpose.

The OBBBA also makes 529 college savings plans more flexible by expanding the list of education-related expenses that qualify for tax-free withdrawals. For example, 529s can now be used for expenses like books, tutoring fees, and college-prep materials for K-12 students. In addition, the OBBBA increases the annual limit on 529 withdrawals for K-12 educational expenses from $10,000 to $20,000 per year beginning in 2026.

Certain expenses from job-training and continuing-education programs will also be eligible for 529 funds.

Overall, the new tax law doesn't undertake significant tax reform, so much as enshrine or enhance the 2017 tax cuts. Still, many taxpayers should see a smaller bill from the federal government.