Author: Mike Hunsberger

Now that the One Big Beautiful Bill Act has been signed into law, we can assess the changes and how they’ll affect your taxes in the future.  While there are some changes that you need to be aware of, most people probably won’t notice a big change between their taxes last year and the next few years.

The main point of the bill was to make the previously scheduled to expire Tax Cuts and Jobs Act (TCJA) tax rates permanent.  Permanent in this context (and in this post) means no longer scheduled to expire.  Remember the tax code is written in pencil and Congress can and will change it again.

Things made permanent that had been scheduled to sunset at the end of 2025

Current tax brackets – The 7 tax brackets (10%, 12%, 22%, 24%, 33%, 35%, and 37%) are now permanent.

Standard Exemption – Staying at elevated level although there is a bump above standard indexing rate in 2025.
– Single – $15,750
– Married Filing Jointly (MFJ)- $31,500
– Head of Household – $23,625

Personal Exemption – Permanently eliminated

Itemized Deductions – The miscellaneous itemized deductions permanently eliminated

Moving Expenses for Military Members – The one deduction that has been held over is moving expenses for military members.  This will be for expenses that are over and above your government reimbursement.

Mortgage Interest Deduction – capped at $750,000

Qualified Business Income – Makes permanent the section 199A qualified business income deduction, with no change to the current 20% deduction percentage. Additionally, the bill expands the limitation phase-out window from $50,000 for single filers to $75,000.  Married filing jointly (MFJ) goes from $100,000 to $150,000.  The new itemized deduction threshold does not impact determination of deduction for QBI purposes.

Mike’s Take:  This is what we’ve been used to since the TCJA passed.  The standard exemption will still make itemizing a challenge although the State and Local Tax deduction increase (below) will help more people itemize.

Changes and Additions in The One Big Beautiful Bill

There are several things that were big slogans during the last Presidential campaign that made it into the bill.  Those included “no tax on tips”, “no tax on overtime”, and “no tax on Social Security”.  Let’s look at how those are implemented in the law.

No Tax On Tips – The maximum deduction for tips is $25,000.  This applies to all filing statuses except married filing separately (MFS) who are not eligible for this deduction.  This deduction is phased out for incomes over $300,000 for MFJ and $150,000 for others.  The deduction hits $0 at $550,000 for MFJ and $400,000 for others.  This is in effect for 2025 and ends in 2028 and the IRS will publish a list of employment that will qualify for this exemption.

No Tax On Overtime – The maximum deduction is $25,000 for MFJ, $0 for MFS, and $12,500 for all other filing statuses.  This deduction is phased out for incomes over $300,000 for MFJ and $150,000 for others.  The deduction hits $0 at $550,000 for MFJ and $275,000 for others.  This is in effect for 2025 and ends in 2028 and is based on the Fair Labor Standards Act definition of overtime.

New Senior Exemption – While the tagline is “No Tax On Social Security”, the law does not change how Social Security is taxed.  The bill does provide those 65 and older up to a $6,000 deduction.  This begins to phase out at $150,000 for MFJ and $75,000 for all other filers.  This will start in 2025 and end in the 2028 tax year.

State and Local Tax Exemption (SALT) – One of the big sticking points during negotiations was the SALT cap.  The Tax Cuts and Jobs Act limited this exemption to $10,000 ($5,000 for married filing separately).  Many people in high tax states lost a large deduction they previously used based on this limit.  The new law raises the SALT cap to $40,000 ($20,000 for married filing separately) effective for 2025.  It will be increased by 1% each year through 2029.  In 2030 it reverts to $10,000.  This increased deduction begins to phase out at an AGI of $500,000 and is decreased to $10,000 for those with an AGI at or above $600,000.  Because of the steep decline, there could be planning opportunities for those with an AGI between $500,000 and $600,000.

Interest on a New Car Purchase – $10,000 maximum annual deduction for interest on a new car.  Phased out starting at $200,000 for MFJ and $100,000 for all others.  Goes to $0 at $250,000 for MFJ and $150,000 for all others.  Deduction is available for 2025 through 2028.  There are numerous requirements with this so make sure if you’re buying a new car you understand if it will qualify.  Some of the bigger requirements:

• Only for new cars
• Leases don’t count
• Final assembly must be done in the United States
• Not for commercial vehicles that aren’t for personal use
• No campers or RVs

Charitable Deductions – Good news & bad news here.  First the good news.  Starting in 2026, you’ll be able to deduct a small amount of charitable contributions even if you don’t itemize your taxes.  Single filers will be able to deduct up to $1,000 and married filing jointly will be able to deduct up to $2,000.  If this sounds familiar, there was a temporary provision during the pandemic that allowed a deduction for a smaller amount of chartable contributions.

Now the bad news.  For those who itemize deductions, there will be a 0.5% AGI floor for charitable deductions need to exceed before being deducted.  This is probably easier to explain with an example. Let’s say your AGI is $200,000 and you make a $20,000 charitable donation.  Currently, you’d get to deduct the full $20,000.  Starting in 2026, you’ll have to clear the 0.5% floor first.  You’ll subtract $200,000 * 0.5% which is $1,000 from your $20,000 charitable deduction and be able to deduct $19,000.

Mike’s Take:  I think it’s great that everyone will be able to deduct some charitable giving even if they don’t itemize.  Bunching donations (Link To Article) can still make sense if it pushes you over the line where itemizing makes sense.  The combination of the high standard deduction, new AGI floor, & deduction if you don’t itemize could make it make sense to bunch once every 3 years with a donor advised fund.  Compare your options based on your annual giving.

Estate Tax – The lifetime gift/estate tax is increasing to $15,000,000 per person in 2026.  This is a permanent change and will be indexed to inflation starting in 2027.  This deduction is portable so it’s effectively $30,000,000 for a married couple.

Child Tax Credit – The child tax credit is increased to $2,200 starting in 2025.  It will also be indexed to inflation and is a permanent change.  The refundable portion is increased to $1,400 which will also be indexed to inflation.

New Trump Accounts For Children – The bill established Trump accounts (yes, that’s their name in the bill) for children under 18.  This is a tax-deferred account similar to an IRA, but with some notable differences.

• Contributions – Up to $5,000 per year. These are not tax deductible with one exception.
• Employer Contributions – Employers can make up to $2,500 in contributions to the children of their workers’ accounts. This would not count as taxable income to the employee or the child.
• Investment Options – Will be limited to low-cost (<0.1%) index funds
• Access to Funds – There is no access until the child turns 18. Some of the proposals had the ability to distribute up to half of the account between 18 and 24 with the full account being available at 25 and having to be fully distributed at age 31.  I don’t see this in the final language, but I am seeing this in several news articles on reputable sites.
• Distributions – This is still a little murky to me. Some of the proposals had a staggered distribution as discussed above and would have allowed distributions at capital gains rates for qualified expenses (college, starting a business, having a baby, buying your first home).  Again, I’m not seeing these in the final language and source I trust says the distributions will generally follow IRA rules.
• Free money! – For children born between 2025 and 2028, the government will contribute $1,000.

Mike’s Take:  Should you open/contribute to a Trump account for your child(ren)?  It depends.  The one time you 100% should is if you have a new baby and can get the free money.  That’s a no-brainer.  I’d want to see the final IRS language before jumping in for other cases.  There might be a case for younger kids who don’t have access to IRAs because they don’t have earned income yet.  In that case if your employer offers the $2,500 contribution that will be excluded from your income it could make sense depending on the distribution rules.  Otherwise, if it’s saving for college it’s probably better to use a 529 plan.  If it’s general savings for your child, you could potentially use a taxable brokerage account holding a low-cost index fund and then just move that to a Roth IRA once the child has earned income.

Electric Vehicle Credit – EV Credits end September 30, 2025.  If you’re in the market for an EV, it could make sense to buy one soon.  The $7,500/$4,000 credit is still available for certain new/used models until then.

Residential Clean Energy Credit – The bill ends the 30% tax credit for resident clean energy installations on December 31, 2025.  Projects must be installed and in service by that date.  These credits applied to solar electric panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage technology.

Mike’s Take:  If you were in the market for an EV you still have some time, but you’ll want to act quickly.  You also have time to claim the residential energy credit, but if you’re thinking of starting a new project make sure you can get it done and turned on by December 31^st.

Business Owners Highlights

I won’t dive deep into this as it’s a more limited audience.

Section 179 Expansion – Maximum amount eligible is increased to $2.5 million (from $1 million).  Phaseout begins at $4 million of property.  These are effective for 2025 and made permanent.

Bonus Depreciation – 100% Bonus Depreciation had been in effect but was slowly being phased out.  100% bonus depreciation is restored for any property put into service on January 20, 2025, or later and is permanent.

What Wasn’t Included in The One Big Beautiful Bill

Affordable Care Act Enhanced Credit Extension – The enhanced subsidies for the ACA that were introduced in the American Rescue Plan Act and extended via the Inflation Reduction Act were not extended.  They will expire at the end of 2025.  Subsidies will revert to the 2021 levels.

• Premiums would be 2.9 – 9.83% of income (currently 0-8.5% of income)
• Households earning above 400% of the federal poverty level will lose all access to subsidies

Mike’s Take:  This will impact a large number of people and I don’t want to minimize that.  The one group that might be reading this that could be affected is early retirees who are NOT military retirees.  Military retirees have Tricare.  Many early retirees with large nest eggs, but little income qualified for some subsidies under the old rules.  If you’re planning to retire before age 65 when you’ll be covered by Medicare and don’t have healthcare like Tricare, expect to pay more for ACA coverage.  And remember, that 400% level for federal poverty is a cliff.  Make $1 more and you lose all subsidies.

Wrap Up

The One Big Beautiful Bill Act is now law, and we’ve got a more permanent tax regime for the next few years.  Some of the new provisions are scheduled to sunset in the 2028/2030-time frame which sets up a future tax battle.  Could it change before then?  Of course.  As I said in the intro, the tax law is written in pencil.

Want to understand how these tax laws impact your personal situation?  Set up a call with Mike or one of the other MQFPs to talk about your situation.