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One Big Beautiful Bill Act

On July 4th, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law by President Trump. We have been closely following the negotiations in Congress, as the House and Senate both passed different versions of the bill. Before we dive into the details of the final bill, I have a few general thoughts on this legislation.

We've given up on simplifying taxes. You may recall the efforts of the first Trump administration to simplify the tax code. They said tax returns would be so simple that they could be completed on a small postcard. This never made much sense to me, since the vast majority of returns are filed electronically. However, it would be beneficial to focus on simplifying the tax code. Instead, this bill is almost 1,000 pages long and will add new line items for your tax return, complex new limitations and calculationss, and even new account types to consider. It’s safe to say this bill does NOT simplify taxes!

Nothing is ever permanent in tax law.  When the Tax Cuts and Jobs Act (TCJA) was passed at the end of 2017, it included a sunset at the end of 2025. Since that bill was passed, we’ve known that Congress would either enact a new bill this year or the pre-TCJA rules would go back into effect. The OBBBA makes many (but not all) of the provisions of the TCJA “permanent”. This only means that there is no specified date on which these new rules will revert to the old rules. However, as we have seen throughout history, there really is no such thing as a “permanent” tax law. In four years, Congress will likely look different from what it does now, and nobody should be surprised to see further changes under a new administration. Let’s call the timeframe for these extensions “indefinite” instead, since we have no idea how long they will actually stay this way.

This could set a bad precedent. When Congress pushed the bill through reconciliation, it quietly switched the score-keeping rules. Instead of the normal “current-law” baseline, which assumes the 2017 Trump tax cuts expire in 2026, lawmakers used a “current-policy” baseline that assumes those cuts were already permanent. By comparing the bill to that better starting point, the official score omits roughly $3-4 trillion in additional costs over the next decade. Don’t be surprised if future bills take a similar approach and our Federal debt continues to explode.

It’s better than December! Major tax legislation like this has a history of being passed at the last minute before the end of the year. That creates additional headaches for everyone. Individuals wind up with little to no time to implement any planning strategy, and the Treasury has to scramble to update their systems before tax filing season. Whether you like the bill or not, at least we have almost 6 months to digest everything before the end of the year!

As I mentioned, this bill has more provisions than I can cover in this article. If you want to take a deeper dive into the details, I recommend reading this article by Ben Henry-Moreland or this one from Holistiplan, which includes some helpful videos on specific topics. Here are some highlights from the bill:

TCJA Extension - The “core” of the bill is an extension of many provisions from the Tax Cuts and Jobs Act, which was passed at the end of 2017. Among those extensions:

  • Tax Brackets - The brackets that have been in place since TCJA are extended indefinitely, with inflation adjustments.
  • Standard Deduction - The standard deduction, which was increased under the TCJA, is also extended indefinitely, with an increase to $15,750 for single filers and $31,500 for joint filers in 2025.
  • Mortgage Interest Limitation - This was reduced to $750,000 under TCJA and is now extended indefinitely. 
  • Miscellaneous Itemized Deductions - These were eliminated under the TCJA and are now extended indefinitely.

Senior Deduction - Despite what you’ve likely heard in the news, the bill does NOT have any impact on the taxation of social security benefits. However, there is a new temporary deduction for individuals who are 65 or older, which will mean that many (but not all) Social Security recipients will pay little to no tax. Here are the details:

  • This new deduction is $6,000 for single filers or $12,000 for joint filers if both spouses are 65 or older. 
  • The deduction is in place from 2025 through 2028
  • There is a phaseout based on your modified adjusted gross income (MAGI). That phaseout begins at $75,000 for singles and $150,000 for married filers, and is fully phased out when MAGI reaches $175,000 for singles and $250,000 for married filers.
  • Planning Note - Taxpayers who are 65 or older will have to pay close attention to their MAGI each year as the phaseout of this deduction could increase their tax rate. This could make Roth conversions or other tax planning techniques less attractive in some cases.

State and Local Tax (SALT) Deduction - As part of the original TCJA in 2017, the deduction for state and local taxes was capped at $10,000. The OBBA increases this to $40,000, but there are a few caveats:

  • There is a phaseout that starts at $500,000 of MAGI and ends at $600,000. If you are single or married and your MAGI is over $600k, your maximum deduction will still be capped at $10,000.
  • This increase is temporary for the years 2025-2029, then it reverts back to $10,000 for everyone.
  • The cap and the phaseout thresholds both increase by 1% per year each year from 2026-2029. 
  • Planning Note - Taxpayers with income in the $500k-$600k range could face a 45.5% marginal rate at the Federal level because of this phaseout. Taxpayers who are close to this income level might look for ways to bunch deductions or defer income.

Charitable Contributions - A new minimum threshold has been established for charitable contributions to be deductible, in addition to new above-the-line deductions.  A few notes on this:

  • Only charitable contributions that exceed 0.5% of your Adjusted Gross Income (AGI) will be deductible. This is similar to the medical expense limitation that only allows a deduction if your expenses exceed 7.5% of your AGI.
  • This limitation is effective beginning in 2026 and continues indefinitely
  • The existing AGI-based maximum limitations on various types of charitable contributions remain unchanged. This will cause additional complications for anyone who exceeds those limits and has carryover contributions.
  • There is a new “above the line” charitable deduction for taxpayers who do not itemize deductions, starting in 2026. The maximum deduction is $1,000 for single filers and $2,000 for joint filers.
  • Planning Note - If you plan to make large contributions, consider completing them this year before the 0.5% floor takes effect. If you don’t itemize, make sure you take advantage of the new deduction in 2026.

Itemized Deduction Limitation for High-Income Taxpayers - If you love unnecessarily complicated tax limitations, you’ll love this one. Higher income taxpayers will need to reduce their allowable itemized deductions by 2/37 of the lesser of:

  • The taxpayer's total itemized deductions; or
  • The amount by which their taxable income plus total itemized deductions exceeds the 37% bracket threshold (before applying the limitation).

Estate Tax Exemption - The increased estate tax exemption implemented under the TCJA has been increased to $15 million per person in 2026 and extended indefinitely. This amount will be adjusted annually to account for inflation.

  • Planning Note - Many states have already decoupled from the federal estate tax exemption and have their own lower exemption level. Maryland is one of these states, with an estate tax exemption of just $5 million per person.

New Deductions - In keeping with promises made on the campaign trail, there will be new deductions for overtime wages, tips and car loan interest. However, there are many limitations for each of these new deductions, as pointed out in this Morningstar Article. 

Trump Accounts - These are essentially a new form of IRA for individuals under the age of 18. There are a lot of rules surrounding these accounts and you can read more about these in this WSJ Article. I’d also encourage you to listen to this podcast with Michael Dell, the founder of Dell Computers, who will help better explain why he pushed so hard for these accounts to be included in the bill. Here are the basics:

  • Starting in July 2026, contributions of up to $5,000 per year can be made to a Trump account on behalf of a beneficiary who has not yet reached age 18.
  • Contributions made by a parent or other individual are not tax-deductible, but other entities, like the government or charitable organizations, can contribute on a beneficiary’s behalf.
  • Employers can also make a tax-deductible contribution on behalf of an employee’s dependents up to a $2,500 annual cap.
  • There will be a pilot program for US citizens born in 2025, 2026, or 2027 for parents to elect to have a $1,000 credit paid by the US government into a Trump account on behalf of an eligible child.
  • No distributions are allowed until the beneficiary turns 18, and it looks more like a regular IRA at this point regarding allowed distributions.
  • Planning Note - We still need to wait for more guidance on these new accounts before we fully understand how beneficial they will be or how to use them for your kids.

Qualified Small Business Stock (QSBS) Exclusion - There are several positive changes to the QSBS Exclusion included in the bill:

  • The maximum exclusion is increased from $10 million to $15 million for QSBS acquired after July 4, 2025. 
  • The corporate-level gross assets ceiling to qualify for QSBS is raised from $50 million to $75 million.
  • There is a new tiered limitation schedule:
    • 50% exclusion if held between 3 and 4 years
    • 75% exclusion if held between 4 and 5 years
    • 100% exclusion if held for 5 years or more

Miscellaneous

  • The Pass-Through Entity Tax (PTET), which many states have implemented as a workaround to the SALT cap, was not impacted by the bill.
  • The 199A deduction was extended with only minor adjustments. An earlier version of the bill would have increased this from 20% to 23%.
  • The list of expenses eligible for 529 plan distributions has been expanded.
  • Educator expenses are included in the bill as itemized deductions, which are not considered miscellaneous deductions. We’ll need more clarification on this, but it could be an additional itemized deduction for teachers.
  • The child tax credit is increased to $2,200 per child beginning in 2025 and will remain at this higher level, adjusted for inflation, indefinitely.
  • 100% bonus depreciation for business property is restored indefinitely for property placed in service after January 19, 2025.

There is much more in the bill that we haven't touched on here. We will also have a lot more clarity on some of these changes when the Treasury releases their guidance in the coming months. If you have any questions on how the new bill might impact your taxes, feel free to reach out.

-Chris Benson, CPA, PFS

The views expressed represent the opinions of L.K. Benson & Company and are subject to change.  These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.

Please see Additional Disclosures more information.