The 'One Big Beautiful Bill Act' is now law. What does that mean for individual taxpayers?
The One Big Beautiful Bill Act (OBBBA) includes several notable tax provisions impacting individual taxpayers. The landmark legislation, which was signed into law on July 4, 2025, extends expiring provisions from the Tax Cuts and Jobs Act (TCJA), while also advancing other tax priorities aligned with the Trump administration. Notably, it permanently increases the federal gift and estate tax exclusion, and it introduces new deductions aimed at eliminating income taxes on certain types of tip income and overtime pay.
The following is an overview of some of the most significant tax provisions affecting individual taxpayers, what they may mean for you, and what steps you should consider in the coming months.
Overview of key tax provisions
From SALT deduction changes to estate and gift tax expansions, these are a few OBBBA provisions that individual taxpayers should keep in mind.
- Estate, gift and GST tax exemptions: The new law permanently increases the federal estate, gift and generation-skipping transfer (GST) tax exemptions to $15 million per taxpayer starting in 2026. For married couples, this means $30 million can be transferred to future generations without gift or estate tax. (These amounts would be adjusted for inflation annually thereafter.)
- Tax rates: The law makes the individual income tax rates established by the 2017 TCJA permanent and adds one year of inflation adjustment to the thresholds for brackets above 12% and 22%.
- Standard deduction:The TCJA's higher standard deduction amounts are made permanent, increasing to $15,750 for single filers, $23,625 for heads of household, and $31,500 for joint filers starting in 2025, with future adjustments for inflation.
- SALT deduction: The law increases the $10,000 cap on the state and local tax (SALT) deduction to $40,000 while preserving the Pass-Through Entity Tax (PTET) deduction. It also includes a 1% per year raise in the $40,000 cap each year through 2029, after which the cap would return to $10,000 in 2030. The full $40,000 deduction is available for filers with household incomes below $500,000 (for single and joint filers). For those exceeding this threshold, the deduction phases down. However, the cap will not be reduced to below $10,000 via income-based phaseouts.
- Enhanced deduction for taxpayers over 65 years of age: The law has a $6,000 deduction for seniors. This enhanced deduction will be limited based on modified adjusted gross income, and this provision will expire after 2028.
- Child Tax Credit (CTC) provisions: The law includes a permanent increase to the Child Tax Credit, raising the maximum benefit per child from $2,000 to $2,200. It also includes stricter eligibility criteria, such as requiring both the child and parents to have Social Security numbers.
- Mortgage interest deduction: The OBBBA permanently extends the TCJA's cap on mortgage interest to debt of up to $750,000 and will also permanently exclude home equity loan interest from the definition of qualified residence interest. Additionally, it treats mortgage insurance premiums as qualified interest for deduction purposes.
- Charitable contribution deduction: Taxpayers who do not elect to itemize will be able to deduct up to $1,000 for single filers or $2,000 for married taxpayers filing jointly for certain charitable contributions. For itemizers, the law introduces a 0.5% charitable donation floor, reducing the deductible amount of an individual's charitable contributions for a tax year by 0.5% of their contribution base.
- Qualified small business stock: The law provides a tiered qualified small business stock gain exclusion effective for acquisitions after the date of enactment. Stock held for three years would qualify for 50% of the total exclusion amount, stock held for four years gets 75% and stock held for five years or longer gets 100% of the total exclusion amount. The total exclusion amount for qualified small business stock would increase from $10 million to $15 million. In addition, the aggregate gross asset limitation on qualified small businesses increases from $50 million to $75 million. Both of these items would be subject to future adjustments for inflation.
- No tax on tips: The law introduces a temporary above-the-line deduction of up to $25,000 for qualified tip income, available to both employees and independent contractors in traditionally tipped occupations. This deduction applies from 2025 through 2028 and begins to phase out for taxpayers with modified adjusted gross income (MAGI) over $150,000 ($300,000 for joint filers). A transition rule allows employers to reasonably estimate 2025 tip amounts when reporting.
- No tax on overtime: The law creates a temporary above-the-line deduction of up to $12,500 ($25,000 for joint filers) for qualified overtime pay received between 2025 and 2028. The deduction phases out for taxpayers with MAGI over $150,000 ($300,000 for joint returns) and applies only to overtime wages required under the Fair Labor Standards Act that are reported separately on Form W-2 or Form 1099.
Planning ahead: What you can do now
This is a good time to start evaluating your current tax strategy in light of the new tax changes in the OBBBA. Being proactive with tax planning can help you stay ahead of any potential impacts.
Individuals now have certainty to proceed with making significant wealth transfers without worrying about a future potential reduction in the estate and gift tax exemption related to a sunset clause that was part of prior tax acts.
While the increased exemption thresholds reduce the number of taxpayers subject to federal gift and estate taxes, planning is still needed to maximize wealth transfer and minimize potential tax liabilities. When considering methods to transfer wealth, making lifetime gifts and using irrevocable trusts coupled with valuation freezing techniques, are invaluable and can also provide asset protection for many future generations. Additionally, the increase to the generation-skipping transfer tax exemption creates valuable opportunities to establish or further fund GST-exempt dynasty trusts, as well as to make additional allocations of the GST tax exemption.
Whether or not your estate may approach or exceed the new $15 million/$30 million exemption thresholds for estate, gift and GST tax, it's a good idea to review your existing estate and gift planning with your tax advisor to decide whether any adjustments or revisions are necessary to align with your goals.
The new 0.5% charitable donation floor introduces another planning opportunity for taxpayers who itemize. Depending on the level of giving, you may want to consider front-loading donations to the extent allowable by adjusted gross income (AGI) in 2025, including the use of donor-advised funds.
Additionally, you may want to revisit mortgage and real estate strategies, including use of home equity loans and mortgage insurance premiums, considering changes to the mortgage interest deduction under the OBBBA.
Reach out to your Kaufman Rossin tax advisor with any questions about how these or other tax provisions might affect you.
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.
