Congress recently passed the One Big Beautiful Bill Act (OBBB), a sweeping tax reform package signed into law on July 4th, 2025. This legislation introduces significant changes across personal, business, and estate tax planning, while preserving many foundational tax provisions established under the TCJA. Although not an exhaustive list of all the tax changes, below is a summary of what we believe are the most relevant updates for our clients: TCJA Provisions Made PermanentThe OBBB cements many reforms introduced under the Tax Cuts and Jobs Act (TCJA) from 2017, including: - Permanent individual tax brackets (10%–37%)
- Doubled standard deductions ($15,750 single / $31,500 joint, indexed)
- Higher Alternative Minimum Tax (AMT) thresholds and mortgage interest cap ($750K)
- Increased Child Tax Credit ($2,200 per child, indexed)
- Elimination of miscellaneous itemized deductions
- Estate exemption increased to $15M per individual
SALT & Charitable Deduction Changes- State & Local Taxes (SALT) Cap Raised: Increased to $40,000 for 2025, gradually reduced beginning in 2030, with phaseouts starting at $500K in Modified Adjusted Gross Income (MAGI)
- Charitable Deductions:
- Itemized gifts must exceed 0.5% of Adjusted Gross Income (AGI)
- Above-the-line deduction for non-itemizers: up to $1,000 single / $2,000 joint
- Corporate gifts must exceed 1% of taxable income
Retirees- Senior Bonus Deduction: Extra $6,000 for taxpayers 65+ ($12,000 for couples). This is in addition to the current senior deduction ($1,600 single / $3,200 joint) on top of the standard deduction. The amount phases once income exceeds $75,000 for singles; $150,000 joint filers and is completely phased out once income exceeds $150,000 for singles; $250,000 for joint filers. This is from 2025-2028.
- Social Security Tax Relief: Expanded deductions eliminate federal tax liability for ~88% of recipients
- Medicare & Medicaid: No direct changes to Medicare; potential impacts to Medicaid-funded care
Business Owners- QBI Deduction (Section 199A): Now permanent
- Bonus Depreciation: 100% expensing restored and locked in
- R&D & Section 179: Expensing limits expanded and indexed
- Opportunity Zones: Reauthorized with stricter rules
Estates- Estate & Gift Exemptions: Raised to $15M per individual, $30M for joint filers, indexed
- GST Alignment: GST exemption increased to match estate limits
- Step-Up in Basis: Preserved
529 Plans- "Qualified Higher Educational Expenses" (QHEE): definition expanded to include books, tutoring, educational therapies, vocational training, and even certifications and continuing education associated through a "recognized postsecondary credential program."
- K–12 Withdrawal Limit: doubled to $20,000 per year, per beneficiary starting in 2026
Unchanged Provisions (Still Effective)- IRA, Roth IRA, and 401(k) contribution limits remain intact
- Roth conversions and Backdoor Roth strategies still permitted
- Required Minimum Distributions (RMDs) & Qualified Charitable Distributions (QCDs) remain unchanged
As the full impact and details of the OBBB unfold, we’ll continue to analyze its provisions and share guidance on how this may provide unique planning opportunities ahead. If you have questions about how these changes (or provisions now made permanent) may affect your financial plan, estate strategy, or tax planning, please email us at clientservices@avodahadvisors.com. |
