Quick Reads

Permanent extension of lower tax rates and brackets

Tax Cuts and Jobs Act (TCJA) rates (lowered rates) expire after 2025; rates revert to pre-TCJA levels. We currently have seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Bracket thresholds are adjusted annually for inflation. The OBBBA generally makes the tax rates enacted in 2017 in the Tax Cuts and Jobs Act (TCJA) permanent. An additional year of inflation adjustment is added for determining the dollar amounts at which the 12% rate bracket ends and the 22% rate bracket begins.

Standard deduction

The TCJA doubled the standard deduction amounts from the earlier levels, but that was temporary and set to expire by the end of this year. This increased standard deduction would be made permanent. Effective for 2025, the amounts are as follows: Single & Married Filing Separately (MFS): $15,750 (indexed) Head of Household (HoH): $23,625 (indexed) Married Filing Jointly (MFJ): $31,500 (indexed)

Enhanced deduction for seniors

Currently, if you are over age 65 or blind in 2025, you can tack on $1,600 to your standard deduction ($2,000 for unmarried taxpayers). Under OBBBA, seniors would be eligible to claim a new, temporary deduction of $6,000 beginning in 2025-the deduction would expire in 2028. The deduction would be available to taxpayers who itemize and those who claim the standard deduction. It is subject to a phase out-phase-outs mean that the credit is reduced as your income increases. In this case, the deduction begins to decrease once income reaches $150,000 for joint filers ($75,000 for all other taxpayers) and disappears completely once income hits $350,000 for joint filers ($175,000 for all other taxpayers). This is a stand-in for the "no tax on Social Security" -there is no separate provision. According to the White House, under current law, 64% of seniors do not pay tax on Social Security benefits and that will bump up to 88% under OBBBA.

Child Tax Credit

The child tax credit allows families a tax break of up to $2,000 per qualifying child. The child tax credit is income-dependent and subject to phase-out. For married taxpayers filing a joint return, the phase-out begins at $400,000-it's $200,000 for all other taxpayers. In this case, the reduction is $50 for each $1,000 by which your modified adjusted gross income, or MAGI, exceeds the threshold amount. The nonrefundable child tax credit increases to $2,200 per child beginning in 2025 and the credit amount is indexed for inflation. The credit remains subject to phase-outs. The bill would also require that the child have a valid Social Security number to qualify-a provision that already exists-and would require one parent to have a valid Social Security number.

Estate and gift tax exemption

The increased exemption is made permanent and raised to $15 million per individual ($30 million for married couples) in 2026, indexed for inflation.

SALT deduction cap

Currently, if you itemize your deductions, you can deduct state and local income taxes or sales taxes, and you can deduct state and local property taxes only up to a $10,000 cap, often referred to as the SALT cap. OBBBA raises the SALT cap to $40,000 with a 1% increase in the cap each year but only until 2029 (it goes back to $10,000 in 2030). A phase-down applies for taxpayers with modified adjusted gross income (MAGI) over $500,000-unlike a phaseout, which eliminates the deduction, a phase simply reduces it.

Pass-Through Entity Tax (PTET) Deduction

Since the TCJA capped SALT deductions for individuals at $10,000, many states adopted PTET workarounds, which allowed pass-through entities (like partnerships and S-corporations) to pay state income taxes at the entity level, rather than individual owners paying at the personal level, effectively reducing the pass-through entity's income. Under OBBBA, the PTET deduction remains largely the same as before.

Home mortgage interest and insurance premiums

Currently, you may only deduct interest on acquisition indebtedness-your mortgage used to buy, build, or improve your home-up to $750,000, or $375,000 for married taxpayers filing separately. As a nod towards mortgages in effect before the TCJA, taxpayers with mortgage debt incurred on or before December 15, 2017, may deduct interest on the first $1 million of debt-or $500,000 for married taxpayers filing separately-of combined mortgage debt. Importantly, the deduction for interest on home equity debt (meaning re-fis not related to improving your home) was eliminated. Those caps are set to expire at the end of 2025. Under OBBBA, the new lower mortgage cap is made permanent. The exclusion of home-equity indebtedness from the definition of qualified residence interest is also now permanent.

Others

Trump Accounts: Under OBBBA, there's a new tax-favored account to benefit children under age eight. Parents would be able to contribute up to $5,000 per year to the account, adjusted for inflation, and money could not be withdrawn before the beneficiary turns 18. After that, money can be used to pay for college, a first-time home purchase, or to start a business-with withdrawals taxed at favorable capital gains rates. And while there won't be $5,000 checks for new babies, there would be a temporary plan to allow for government deposits of $1,000 for qualifying children born between December 31, 2024, and January 1, 2029. To be eligible, the child needs to be a U.S. citizen at birth. There are no income limits or phaseouts.

No Tax On Tips: Tip income would be temporarily deductible-only for tax years 2025 through 2028-for individuals in traditionally and customarily tipped industries who do not itemize. The deduction is limited to $25,000 of reported tips. It's important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportable-and taxable at the state and local level. It also means that tips would remain subject to payroll taxes, including Social Security and Medicare, for employees. And don't let those social media threads on "cash only tips" throw you-the deduction applies to cash or cash-equivalent tips (including credit cards). Highly compensated employees (those who make more than $160,000 in 2025) would be excluded.

No Tax On Overtime: Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married filing joint filers). As with tips, this is a deduction, not an exclusion. The deduction would apply to taxpayers who do not itemize and would also be temporary-only for tax years 2025 through 2028. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employee's regular rate-only the overtime compensation is part of the break. It phases out for taxpayers with income over $150,000 ($300,000 for married filing jointly)-that means the maximum deduction would disappear at $275,000 for single filers.

No Taxes On Car Loan Interest: Car loan interest used to be deductible until 1986, when Congress decided that it, along with other consumer loan interest, encouraged spending and discouraged saving. Now, a temporary provision would make auto loan interest deductible (but only for cars assembled in the U.S.) in tax years 2025 through 2028. The deduction would be limited to $10,000 and subject to phase-outs for individuals with income above $100,000 (for single filers) or $200,000 (for married taxpayers filing jointly). And autos only-campers and RVs are excluded.

Clean Energy Credits: OBBBA eliminated most individual credits for clean energy, including the clean vehicle credits for cars, the energy-efficient home improvement credit, the residential clean energy credit, and the new energy-efficient home credit. The repeal takes effect 180 days from the date of the bill (if the bill is signed on July 4, 2025, that should be December 31, 2025) except for the new energy-efficient home credit-that's eliminated 12 months from the date of enactment (so, likely July 4, 2026).