The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, covers a broad spectrum of tax issues concerning individuals and businesses. Some changes are retroactive to the beginning of 2025, some take effect next year in 2026, and some are temporary, while some are permanent. In this series over the next few months, we will summarize key provisions of the bill piece by piece, starting with those to consider for this tax year.

The OBBB permanently extended many parts of the Tax Cuts and Jobs Act that were set to expire at the end of 2025. Much of the tax code we are used to will remain, including the current tax brackets, the larger standard deductions, no personal exemptions, increased child tax credit, and larger estate tax federal limit. Many of these had small changes that we will review.

Standard Deduction Increases

The base standard deduction is getting a slight increase starting in 2025. See the chart below:

The bigger change is a temporary additional standard deduction of $6,000 from 2025 – 2028 for those over 65. This additional deduction is phased out for single filers starting with Modified Adjusted Gross Income (MAGI) over $75,000 and eliminated at $175,000 MAGI. The phase-out range for those who file jointly is $150,000 to $250,000.

For example, a married couple over age 65 with MAGI under $150,000 had a standard deduction of $33,200 before the OBBB and is now at $46,700.

Social security’s taxability is still calculated the same as last year and will not change. Even though there is more of a deduction for some, it is a below-the-line deduction and does not affect the Adjusted Gross Income used to calculate provisional income for social security.

State and Local Tax (SALT)

One of the highest negotiated items was the State and local tax (SALT) deduction. This is one of the itemized deductions on Schedule A. The Taxpayer can take the standard deduction or itemize if they have more deductions than the standard. Taxpayers were limited to deducting $10,000 of other taxes paid, so if you lived in a state with income taxes or high property taxes, you were likely not able to deduct all of them. The limit is now $40,000 starting in 2025. This is a temporary increase from 2025 to 2029. The limit will increase by 1% each year during that time and revert to $10,000 in 2030.

The higher SALT is also subject to phase-outs based on MAGI over $500,000. When you reach the upper phase-out limit of $600,000, you are capped at $10,000 SALT deduction. For those near the $500,000 phase-out range and itemizing, developing a strategy to keep income below that or bunch deductions into a particular year might make sense.

For business owners of pass-through businesses with state tax payments, there is a way to structure their taxes to be paid by the business and, therefore, not subject to the SALT limit on a personal level. You can consult your CPA to confirm you are setting these up correctly.

Tip Deduction

The promise of ‘no tax on tips’ was partially fulfilled in the OBBB. From 2025 to 2028, a deduction is created for up to $25,000 of qualified tip income. Tips are still subject to payroll tax and possibly state income tax.

To be qualified for tip income, the taxpayer must work somewhere that traditionally receives tips. Tips must be voluntary and determined by the payor, and they cannot be earned through an SSTB (specified service trade or business).

This deduction is also phased out starting at $150,000 for single filers and $300,000 for joint filers. It is phased out at $100 per $1,000 of income over the income threshold.

Overtime Deduction

The ‘no tax on overtime’ promise was partially fulfilled in a similar way. It will also be in place from 2025-2028, but the deduction is limited to $12,500 for single and head of household and $25,000 for joint. The phase out is the same as the Tip deduction.

The other important note is that the deduction applies only to the overtime premium, the amount paid above the regular hourly rate, not the entire overtime pay.

Car Loan Interest Deduction

This bill also allows interest on new car loans to be deductible again only from 2025 to 2028. The vehicle must be for personal use, must be new, assembled in the US, and the loan must have started in 2025. Originally, this was going to include used vehicles, but the final version of the bill removed that.

The deduction is capped at $10,000 and is phased out for single filers at $100,000 up to $149,000 and for married filers starting at $200,000 up to $249,000.

Child Tax Credit Increase

Another change effective in 2025 is a permanent increase in the Child Tax credit to $2,200. It will automatically increase with inflation now as well. The refundable portion of the credit remains at $1,700.

The credit phase-out remains the same for single or head of households with MAGI over $200,000 or joint households over $400,000—the credit phases out by $50 for every $1,000 of AGI above those limits.

Summary

These are just a few of the effective changes from the OBBB for 2025. We will cover a few more changes for 2025 next month, including changes to 529 accounts and energy credits. After that, we will discuss changes for 2026.

Our team is making sure to incorporate these changes into our tax planning for this year and future years. If you have any questions, please contact your advisor.

This communication is for informational purposes only and is not intended as individual tax advice. Please consult your advisor and tax professional to determine how these provisions apply to your specific circumstances.