July 4, 2025 marked the passing of the One Big Beautiful Bill Act (OBBBA), introducing significant updates to U.S. tax policy and federal spending. With hundreds of provisions outlined, President Trump’s signature bill touches nearly every household and area of the U.S. economy.
The bill not only makes permanent many of the tax provisions from the President’s first term, but also includes several new deductions, credit changes, and tax incentives. Alongside these changes, the OBBBA reduces long-term federal funding for programs such as Medicaid and eliminates several tax credits, including several related to clean energy.
While the OBBBA covers broad territory, we’ve outlined key tax changes and opportunities below.
Extension of 2017 Tax Cuts and Jobs Act (TCJA) Provisions
When President Trump enacted the 2017 Tax Cuts and Jobs Act (2017) during his first term, the provisions were set to expire at the end of 2025. With the passing of OBBBA, many of those provisions are permanently or temporarily extended. These include lower income tax rates, increased tax exemption on estate taxes, and increased alternative minimum tax (AMT) exemptions.
Let’s take a closer look at each.
Lower Income Tax Brackets & Higher Standard Deduction
The TCJA’s lower individual income tax rates will remain in place, with the top marginal rate staying put at 37% for those with taxable incomes above $626,351 (or $751,601 for joint filers).
Here’s a quick comparison of the pre-TCJA tax rates (originally set to continue in 2026) and the current tax rates, which have been made permanent as part of the OBBBA:
As part of the TCJA, the standard deduction was nearly doubled. Not only did the OBBBA make the higher standard deduction permanent, but gave 2025 an extra inflation boost. It will be $15,750 for single filers and $31,500 for couples.¹
For taxpayers who itemize, there will be a cap on itemized deductions at the 35% tax bracket. In other words, if you’re a high earner in the 37% bracket, your itemized deductions would reduce your tax liability at a rate of 35 cents per dollar of deductions instead of 37 cents. This cap reflects the idea that higher earners benefit more from itemized deductions under the marginal tax system.
Increased Estate Tax Exemption
The federal estate and gift tax exemption limits were doubled as part of the TCJA, from $5.6 million in 2017 to $11.2 million per taxpayer in 2018 (or $22.4 million per couple). This limit is also indexed for inflation annually and will no longer revert to pre-TCJA levels at the end of 2025.¹
Currently, the exemption limit is set at $13.99 million per person (or $27.98 million for joint filers) for 2025 and will increase to $15.00 million per person come 2026.
Increased Alternative Minimum Tax (AMT) Exemption
High-income earners—and particularly those receiving incentive stock options (ISOs) from their employer—may have to perform a separate tax calculation known as the alternative minimum tax (AMT). If your AMT liability (which does not include certain deductions) is higher than the standard tax system’s total tax liability, you’ll be required to pay AMT instead. The AMT rates are currently a 26% or 28% flat tax, depending on your income level.
When calculating AMT, there is an exemption amount (similar to a standard deduction). This exemption is what protects the majority of taxpayers from AMT liability.
The Tax Cuts and Jobs Act (TCJA) raised both the AMT exemption and the income thresholds at which those exemptions begin to phase out. Originally set to expire next year, the increased AMT exemptions will now remain in place and continue to be adjusted annually for inflation.
The AMT exemption for 2025 is $88,100 for single filers and $137,000 for those filing jointly. Phaseouts begin at $626,350 for individuals and $1,252,700 for joint filers.¹
Increased State and Local Tax (SALT) Deduction
As part of the TCJA, the state and local tax deduction (available to those who itemize) was limited to $10,000. The OBBBA raises the SALT deduction limit to $40,000 in 2025, as well as implements a 1% increase annually through the end of 2029.¹
A phaseout begins for taxpayers with a modified adjusted gross income (MAGI) above $500,000, though the deduction will never drop below $10,000 for high earners.
This increase may be particularly beneficial for Massachusetts residents, given its top tax rate of 9% and combined state and local tax burden of around 11.5%.
Business Taxes and Depreciation
Another noteworthy permanent extension from TCJA is the Qualified Business Income Deduction (QBI). The QBI allows eligible owners of pass-through entities (including sole proprietorships, partnerships, and S corporations) to deduct up to 20% of their QBI from taxable income.¹
In addition to extending the QBI deduction, the OBBBA extends another favorable provision for business owners: the 100% bonus depreciation. Businesses can fully deduct the cost of qualified property in the year it is acquired and placed in service, so long as that occurs after January 19, 2025.¹
The bill also introduces a new elective 100% depreciation allowance for Qualified Production Property (QPP) through 2030.¹
Adjustments to Credits
Those with young children at home will see a slight increase in the Child Tax Credit. Starting in 2025, the credit increases to $2,200 per child and is indexed annually for inflation. Unless further legislative action is taken, the credit is set to drop back to $1,000 per child at the end of the 2028 tax year.¹
The OBBBA is eliminating energy-related tax credits for home and car buyers. These include:
- The $3,200 energy-efficient home improvement tax credit
- Residential clean energy tax credit
- Energy-efficient home tax credit for contractors
Additional Deductions
The OBBBA introduces a substantial amount of changes, but here are a few additional deductions that may impact your upcoming tax bill:¹
- Auto loan interest deduction: Through 2028, qualified taxpayers can deduct up to $10,000 in interest from a personal vehicle loan, as long as the vehicle was assembled in the U.S. Relatively low phaseout limits apply, but this above-the-line deduction is available for those who don’t itemize.
- Mortgage interest deduction: The mortgage interest deduction will continue to have a debt limit of $750,000. This deduction is only available to those who itemize.
- Charitable deductions: New above-the-line charitable deductions are available, up to $1,000 per taxpayer ($2,000 per couple) starting next year. If you choose to itemize, you will only be able to itemize charitable deductions exceeding 0.5% of your AGI (though you can carry forward unclaimed donations to future tax years).
- Tips and overtime: Through 2028, employees can deduct up to $25,000 in qualified cash tips, as well as up to $12,500 (or $25,000 for joint filers) for qualifying overtime pay. Phaseout limits apply.
- Bonus Senior Deduction: Starting 2025 through 2028, an additional $6,000 deduction for taxpayers blind or aged 65+ (and $12,000 total for married couples where both spouses are 65+), regardless of whether they itemize or claim the standard deduction. This is also in addition to the existing $1,600 – $2,000 deduction already received if age 65+ and/or blind. That said, there are phaseouts to be aware of:
- Full deduction up to $75,000 MAGI. Phases out at 6% of MAGI exceeding $75K. Fully eliminated by $175,000 MAGI.
- Married couples (both 65+): Full $12K deduction up to $150,000 MAGI. Likewise phased out at 6% over the threshold, ending at $250,000 MAGI
It’s Time to Reassess Your Tax Strategy
When changes this significant are passed into law, it’s always worth checking in on your existing tax strategy to see how changes in tax law may impact your financial plan. With time still left in the year to optimize your 2025 tax plans, we encourage you to reach out and schedule time to talk with our team. We can walk you through the potential advantages or drawbacks of the OBBBA provisions, particularly as they apply to your unique circumstances.
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