H.R. 1 – The One Big Beautiful Bill Act (OBBBA): What It Means for Individuals
Since the signing of the bill on July 4th, our team has been hard at work breaking down each key income tax provision contained within the OBBB. Below is a summary of each point, effective dates, and what it means overall for individuals.
Individual Income Tax Provisions
Tax Rates and Standard Deduction
- Permanent Lower Individual Tax Rates
- The reduced individual tax rates from the Tax Cuts and Jobs Act (TCJA) are made permanent. The expiration date is removed.
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- Everyone’s taxable income is taxed at a lower rate – or at least lower than what it would have been had the bill not been passed.
- Increased Standard Deduction Made Permanent and Increased
- The higher standard deduction amounts are made permanent and further increased to $23,625 (head of household) and $15,750 (single), indexed for inflation.
- Effective Date: Tax years beginning after December 31, 2024
- What does it mean to you?
- Lower taxable income without the need to itemize.
Personal Exemptions
- Personal Exemptions Remain Suspended
- The suspension of personal exemptions is made permanent, except for a new $6,000 deduction for seniors (age 65+), phased out at higher incomes, available through 2028.
- Effective Date: Tax years beginning after December 31, 2024
- What does it mean to you?
- Less complexity – everyone gets at least the same deduction (via the standard deduction).
Credits
- Child Tax Credit (CTC) Enhanced and Made Permanent
- CTC increased to $2,200 per child, with inflation adjustments and stricter SSN requirements for both taxpayer and child.
- Effective Date: Tax years beginning after December 31, 2024
- What does it mean to you?
- Tax savings for those with eligible children.
- Above-the-Line Charitable Deduction Increased and Made Permanent
- Above-the-line charitable deduction increased to $1,000 ($2,000 joint) and made permanent.
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- Everyone can gain a tax benefit by contributing financially to qualified charitable organizations.
Deductions
- Qualified Business Income Deduction (Section 199A) Enhanced and Made Permanent
- Phase-in threshold increased to $75,000 ($150,000 joint); $400 minimum deduction for active business income, with inflation adjustments.
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- Effective tax rates for owners of pass-through entities will remain competitive with C Corporations.
- Mortgage Interest Deduction $750,000 Cap Made Permanent
- $750,000 cap on mortgage interest deduction made permanent; mortgage insurance premiums treated as interest.
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- Continues to limit the tax benefit to those paying interest on mortgages exceeding $750,000.
- SALT Deduction Cap Increased Temporarily
- Cap increased to $40,000 ($20,000 MFS) for 2025, indexed for inflation, with phase-down for high incomes; reverts to $10,000 after 2029.
- Effective Date: Tax years beginning after December 31, 2024
- What does it mean to you?
- Tax savings to those in high tax states – and helps to lower the effective tax rate for flow-through entity owners when compared to C Corporations.
- Miscellaneous Itemized Deductions Permanently Disallowed (Except Educator Expenses)
- Miscellaneous itemized deductions remain disallowed, except for educator expenses (expanded to include coaches and nonathletic supplies).
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- Less complexity.
- Alternative Minimum Tax (AMT) Exemption Made Permanent
- The increased AMT exemption and phaseout thresholds are made permanent, with modifications to inflation adjustments and phaseout rates.
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- Fewer taxpayers will experience the joy of an AMT surprise.
- Pease Limitation Replaced with New Formula
- New formula reduces itemized deductions by 2/37 of the lesser of deductions or income above the 37% bracket threshold.
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- With the increase in AMT exemptions, this serves to limit the benefit of itemized deductions for those with higher taxable incomes.
- Wagering Losses Deduction Limited
- Deduction limited to 90% of losses, only to the extent of gains.
- Effective Date: Tax years beginning after December 31, 2025
- Code Section: IRC §165(d)
- Reference: Sec. 70114
- Floor on Deduction for Charitable Contributions
- For individuals who itemize, only the amount of charitable contributions that exceeds 0.5% of the taxpayer’s AGI is deductible.
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- Everyone who takes a charitable contribution deduction as part of their itemized deductions will realize a reduced tax benefit.
Other Individual Provisions
- No Tax on Tips (Temporary Deduction)
- Deduction for up to $25,000 in qualified tips per year (phased out at high incomes) for 2025–2028, with new reporting requirements and anti-abuse rules.
- Effective Date: Tax years 2025–2028
- What does it mean to you?
- Increases take home pay of those in industries traditionally paid via tips.
- No Tax on Overtime (Temporary Deduction)
- Deduction for up to $12,500 ($25,000 joint) in qualified overtime pay per year (phased out at high incomes) for 2025–2028.
- Effective Date: Tax years 2025–2028
- What does it mean to you?
- Increases net take home pay for those working more than 40 hours per week.
- No Tax on Car Loan Interest (Temporary Deduction)
- Deduction of up to $10,000/year for interest on loans for new U.S.-assembled passenger vehicles (2025–2028), phased out at high incomes.
- Effective Date: Indebtedness incurred after December 31, 2024
- What does it mean to you?
- Incentive to buy vehicles assembled in the US and make them more affordable.
- Trump Accounts and Contribution Pilot Program
- Establishes “Trump Accounts” for children under 18, with $5,000 annual contribution limit, employer and charitable contributions, and a $1,000 government-funded pilot for newborns (2025–2028).
- Effective Date: Tax years beginning after December 31, 2025
- What does it mean to you?
- Incentivizes early saving and building a nest egg for college and/or retirement.
- Limitation on Excess Business Losses of Noncorporate Taxpayers Made Permanent
- Limitation made permanent; thresholds updated for inflation.
- Effective Date: Tax years beginning after December 31, 2026
- What does it mean to you?
- Limits the amount of other income that can be offset by pass-through business losses.
All of the tax changes are a lot – believe us, we know. Stay tuned for upcoming articles where we will be providing in depth analysis on these changes and others.
For more information, or if you have thoughts and/or questions about the information outlined above, please do not hesitate to contact us; our seasoned and experienced tax professionals are always here to help. You can also learn more by visiting our Tax service page.
