Ä¢¹½TV

Whenever Congress passes significant tax legislation, people reach out to me with questions on how the new law will impact them.  The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, and it is full of changes that will impact virtually every taxpayer.  Before we dive into these changes, let me provide some backstory to how we got here.

Back in 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA) into law, which, to many, made the most significant changes to American tax laws since the establishment of the current Internal Revenue Code of 1986.  In short, the TCJA:

• Reduced and modified tax rates for individuals and corporations
• Increased the individual standard deduction and Child Tax Credit
• Eliminated the individual personal exemption and the corporate alternative minimum tax
• Limited or eliminated some itemized deductions for individuals
• Doubled the estate tax exemption
• Changed the progressive corporate tax structure to a lower flat tax
• Created a pass-through business deduction and provided more generous depreciation expense write-offs

However, many of the individual and business changes of the TCJA were set to expire at the end of 2025 and 2028, respectively.  Taxpayers typically dislike uncertainty and they always dislike tax increases, so it was inevitable that something would be done before these expiration dates were reached. The OBBBA addresses these problems and adds a few new changes to our tax law.

Many OBBBA changes have enforcement and implementation details that will be worked out during the latter half of 2025.  Right now, we can only go off what is written in the law.  Some of the changes are temporary and some are permanent.  In short, the OBBBA:

• Continues the reduced individual tax rates from the TCJA (permanent)
• Raises the itemized deduction cap on state and local taxes from $10,000 to $40,000 for those making less than $500,000 (temporary for 2025 through 2029)
• Creates tax deductions for tips or overtime pay received (up to $25,000 or $12,500, respectively, with income limits) and new automobile loan interest incurred (up to $10,000, with income limits) (temporary for 2025 through 2028)
• Raises the standard deduction for those 65 or older by $6,000 (with income limits) (temporary for 2025 through 2028)
• Creates a charitable giving deduction of $1,000 if single or $2,000 if married for those taking the standard deduction (temporary for 2025 through 2028)
• Creates a floor on the deductibility of charitable contributions at 0.5% of AGI for itemizers (beginning in 2026, permanent)
• Creates Trump accounts for kids (temporary for kids born from 2025 through 2028) where the federal government puts $1,000 into a fund and invests it. The account functions like a retirement account and has many more restrictions than typical retirement accounts. This is one of the most unusual parts of the OBBBA.
• Increases the maximum percentage of qualifying expenses allowed for the Child and Dependent Care Credit from 35% to 50% (begins in 2026, permanent)
• Makes a large part of the Adoption Credit refundable and annually indexed for inflation (starts in 2026 at $5,000, permanent)
• Expands the list of eligible education expenses for 529 plans to include admissions testing, standardized testing, AP exams, and educational therapy (permanent)
• Increases the Child Tax Credit from $2,000 to $2,200 (temporary for 2025 through 2028, but beginning in 2029, the credit will be annually indexed for inflation permanently)
• The educator expense deduction is now available for coaches and for sports equipment (permanent)
• Includes state-declared disasters recognized by the Secretary of the Treasury in the nonbusiness casualty and theft loss deduction (beginning in 2026, permanent)
• Restores 100% bonus depreciation for business purchases (permanent)
• The filing threshold for Form 1099-NEC is raised from $600 to $2,000 beginning in 2026, and will be indexed for inflation annually thereafter
• Phases out or eliminates some clean energy tax credits and promotes fossil fuels through expanded leasing and reduced royalty payments required for extraction (permanent)
• Reduces the deduction for gambling losses (to the extent of winnings) down to 90% of losses instead of 100% (permanent)
• Increases tax credits for the production of semiconductors and other critical products (permanent)
• Limits the amount of itemized deductions that can be claimed by people in the top tax bracket beginning in 2026 (permanent)
• Raises the estate tax exemption to $15 million per individual or $30 million per married couple and indexes these amounts for inflation (permanent)
• Creates both a new 1% tax on remittances (money sent to foreign countries) and a new tax on endowment investment income for large universities (permanent)

There are some non-tax changes from OBBBA worth noting including reductions to Medicaid spending, expansions of work requirements for SNAP benefits, and shifting some funding responsibility for SNAP from the federal government to the state governments.  One significant change to the automobile industry from OBBBA is the neutralization of the impact of existing Corporate Average Fuel Economy (CAFE) standards from the Environmental Protection Agency (EPA).  OBBBA reduces the penalties for noncompliance down to $0, meaning that automakers will not be penalized for failing to meet the high MPG fuel economy targets previously set by the EPA.  Things like auto start-stop, engine downsizing, and even the gas guzzler tax could soon be a thing of the past.

There are also significant changes to spending on defense and border enforcement, but these are outside the scope of this article. One non-tax provision of the OBBBA that is worth noting is the $5 trillion increase to the national debt ceiling, which was a point of contention that nearly kept the OBBBA from passing.  The OBBBA is not so much an overhaul of the tax laws, but more a series of small changes that together result in a noticeable shift in tax policy.  As history has shown, some of these provisions will be quite popular and others will receive significant backlash.

If a single party continues to control both houses in Congress and the Presidency, it is possible that additional tweaks or changes could come to this law in the future.  However, if one of the houses of Congress or the Presidency are flipped in an upcoming election, you can expect deadlock, and this law could largely go unchanged for several years.  I fully expect another round of discussions about the provisions expiring in 2028 to come up eventually, but that’s a fight for another day.

Remember to consult with a tax professional for specifics on how these OBBBA changes impact your specific situation.