One Big Beautiful Bill Act (OBBBA) Tax Update

Posted in News

Standard Deduction Increase

  • Effective for 2025, the standard deduction amounts are increased as follows:
    • Single / Married Filing Separately: $15,750
    • Married Filing Jointly: $31,500
    • Head of Household: $23,625

Additional Standard Deduction for Seniors

  • From 2025 through 2028, taxpayers aged 65+ will qualify for a bonus standard deduction of up to $6,000.
  • This deduction will phase out for taxpayers whose MAGI exceeds $75,000 (or $150,000 for joint filers).
  • This deduction is available for both itemizing and non-itemizing taxpayers.

Child Tax Credit

  • Beginning in 2025, the Child Tax Credit will permanently increase to $2,200 per qualifying child. Of this amount, up to $1,700 will be refundable.
  • To claim the credit, both the child and the taxpayer must have valid Social Security Numbers (SSNs). For joint filers, at least one spouse must have an SSN.

Estate & Gift Tax Exemption

  • For 2025, the estate and gift tax exemption will be $13.99 million.
  • From 2026 onward, this amount will be expanded to $15 million and adjusted for inflation annually.

Charitable Contribution Deduction (Cash Deductions Only)

  • Standard Deduction Filers: Effective permanently starting in 2026, non-itemizers can claim a charitable deduction up to $1,000 (or $2,000 for joint filers).
  • Itemized Deduction Filers: Starting in 2026, only contributions exceeding 0.5% of AGI will be deductible.

Excise Tax on Foreign Remittances

  • Effective January 1, 2026, a 1% excise tax will be imposed on money transfers made by individuals to foreign recipients.
  • This tax applies to transfers of cash and cash equivalents and will be collected by the transfer service provider.
  • The tax will be imposed regardless of the sender’s citizenship or immigration status.
  • Transfers made through U.S. financial institutions (for example, using a debit card or credit card) are excluded from the excise tax.
  • Cryptocurrency transfers are also excluded; however, sending foreign currency may still incur service fees.

Tip Income Exclusion

  • From 2025 through 2028, taxpayers will be able to deduct up to $25,000 of tip income from taxable income.
  • This deduction will phase out for those whose MAGI exceeds $150,000 (or $300,000 for joint filers). Overtime Pay Exclusion
  • From 2025 through 2028, taxpayers will be able to deduct up to $12,500 of overtime pay from taxable income.
  • This deduction will phase out for those whose MAGI exceeds $150,000 (or $300,000 for joint filers).

Interest Deduction on Auto Loans (Non-Business Use)

  • For new auto loans originated after December 31, 2024, taxpayers will be able to deduct up to $10,000 of interest paid.
  • The deduction applies only to passenger vehicles assembled in the United States and is effective for tax years 2025 through 2028.

Adoption Tax Credit

  • Beginning in 2025, the adoption tax credit will become refundable, up to $5,000. This amount will be adjusted for inflation annually.

Expanded Use of 529 Plans

  • Qualified education expenses covered by 529 plans will be expanded to include:
    • A broader range of K–12 expenses
    • Homeschooling expenses
    • Postsecondary credential expenses, such as the CPA exam and credential costs.

Trump Accounts

  • New IRA-like accounts can be opened for U.S. children born between 2025 and 2028.
  • Parents or others may contribute up to $5,000 per year until the child turns 18, after which withdrawals are permitted.
  • The federal government will provide a one-time $1,000 seed contribution for each eligible newborn.

State and Local Tax Deduction (SALT Cap)

  • The annual SALT deduction cap for individual taxpayers will increase to $40,000 for the 2025 tax year.
  • This cap will further increase by 1% annually through 2029.
  • For MAGI > $500,000 in 2025, the deduction phases down by 30% of the excess MAGI, but never below $10,000.

Clean Vehicle Credit

  • The federal tax credit of up to $7,500 for qualifying new electric or clean vehicles is terminated for any vehicles acquired after September 30, 2025.

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Bonus Depreciation

  • 100% bonus depreciation is restored for qualifying assets placed in service after January 19, 2025.
  • Qualified production property (like manufacturing facilities) also qualify if construction begins by end of 2028 and placed in service by 2031.

Section 179 Expensing

  • Section 179 expensing limit is increased to $2.5 million, with phaseout starting at $4 million, indexed annually.
  • This applies to property placed in service in 2025 and beyond.

Business Interest Deduction

  • EBITA-based 30% limitation under Section 163(j) is reinstated for tax years starting in 2025, meaning more interest may now be deductible.

Section 199A Deduction (QBID)

  • The pass-through 20% deduction is made permanent.
  • Beginning in 2026, the deduction phaseout range for SSTBs is increased to $75,000 (or $150,000 for joint filers), and there is a new guaranteed $400 minimum deduction for taxpayers with at least $1,000 of QBI.