After years of anxiety over the scheduled sunset of the Tax Cuts and Jobs Act (TCJA) at the end of 2025, the widely anticipated legislation extending and replacing TCJA – also known as the "One Big Beautiful Bill Act" (OBBBA) – was signed into law on July 4, 2025.
At its core, OBBBA makes permanent many of the provisions of the original TCJA, including TCJA's tax brackets, increased standard deduction, Section 199A deduction for Qualified Business Income (QBI), and increased Child Tax Credit. All of these receive minor tweaks but remain substantially the same as they were under TCJA. However, the $10,000 limitation on State And Local Tax (SALT) deductions is temporarily increased to $40,000 under the new law. Higher-income households may see this deduction phased back down to the $10,000 limit, and all households will again be subject to the $10,000 SALT cap beginning in 2030.
Additionally, OBBBA introduces several new below-the-line tax deductions while amending numerous others. The new law introduces a temporary $6,000 deduction for seniors age 65+, deductions of up to $25,000 of income from tips and overtime wages, and up to $10,000 of interest paid on qualifying auto loans. All of these provisions take effect from 2025 through 2028. Among several changes to itemized deductions, the new law most notably introduces a 0.5%-of-AGI 'floor' on charitable contributions, reducing the deductible value of amounts donated to charity. It also imposes a new limitation for taxpayers in the 37% tax bracket, capping the 'value' of itemized deductions to 35% of taxable income.
Also included are a host of other tax changes, including (but not limited to) reduced phaseout thresholds and a faster phaseout rate for the Alternative Minimum Tax (AMT) exemption, an expansion of eligible 529 plan expenses to cover K–12 materials and postsecondary credentials, and an extension of the Qualified Opportunity Zone program. The law also increases the gift and estate tax exclusion to $15 million per person and creates a new "Trump account", a type of IRA that can be funded at a young age (and without any earned income).
Ultimately, while many of the individual provisions under OBBBA are relatively minor changes from existing law, together they represent a substantial shift in tax policy – one that adds a significant amount of complexity to tax planning with the number of new deductions, phaseout rules, and effective dates governing OBBBA's provisions. Which will make it all the more valuable for advisors to understand how their clients stand to be impacted by the new rules, so they engage in proactive planning that takes all the new (and old) rules into account and translates them into actionable strategies for their clients!
