The One Big Beautiful Bill Act and How it Could Impact Your Finances.
On July 4th, President Trump signed H.R.1 – One Big Beautiful Bill Act, which has many provisions that will impact individual taxpayers. I decided to sit down and read through many of the sections pertaining to tax law changes for individuals. While not an exhaustive list, here is my interpretation and summary of a few of the key provisions that are most likely to impact professionals, families, and charitable-minded individuals. Please understand that the IRS will need to provide further guidance and clarification on these, and other, parts of the Act.
Temporary Provisions of the OBBB Act:
These statutes all have “built in” expiration dates. In addition, they largely correlate to President Trump’s campaign promises. However, there are differences in what was promised versus how the tax law is written.
1) No Tax on Tips – Sec. 70201
· Effective January 1, 2025, but expires December 31, 2028
· This is an above-the-line deduction, meaning ALL taxpayers (itemizers and non-itemizers) are eligible for this deduction.
· The maximum deduction is $25,000 per taxpayer. If you earn above $25,000 in qualified tips then you must pay taxes on tips in excess of $25,000.
· There is an income phaseout of $150,000 for single taxpayers and $300,000 for married filing jointly taxpayers. The phaseout is such that every $1,000 of income above the income limit reduces your allowable tip income deduction by $100.
· NOT allowed for married filing separate taxpayers.
· Any deducted tips on the federal return are still subject to FICA (Social Security and Medicare) tax AND state income tax.
· The idea is that this applies to jobs that historically receive voluntary tips.
2) No Tax on Overtime – Sec. 70202
· Effective January 1, 2025, but expires December 31, 2028
· This is an above-the-line deduction, meaning ALL taxpayers (itemizers and non-itemizers) are eligible for this deduction.
· The maximum deduction is on a per return basis ($12,500 single and $25,000 married filing jointly). You must pay tax on overtime pay in excess of these maximum deduction amounts.
· There is an income phaseout of $150,000 for single taxpayers and $300,000 for married filing jointly taxpayers. The phaseout is such that every $1,000 of income above the income limit reduces your allowable overtime deduction by $100.
· NOT allowed for married filing separate taxpayers.
· Any deducted overtime pay on the federal return is still subject to FICA (Social Security and Medicare) tax AND state income tax.
3) Deduction for Car Loan Interest – Sec. 70203
· Effective January 1, 2025, but expires December 31, 2028
· This is an above-the-line deduction, meaning ALL taxpayers (itemizers and non-itemizers) are eligible for this deduction.
· The maximum deduction is $10,000/year per return
· There is an income phaseout of $100,000 for single taxpayers and $200,000 for married filing jointly taxpayers. The phaseout is such that every $1,000 of income above the income limit reduces your allowable deduction by $200.
· Requirements:
o Car must be NEW
o Car must have final assembly completed in the U.S.
o For car purchases, not leases
4) Temporary Senior Deduction – Sec. 70103
· Effective January 1, 2025, but expires December 31, 2028
· Available for an individual age 65 or older before close of taxable year (December 31st)
· $6,000 per qualified individual
· There is an income phaseout of $75,000 for single taxpayers and $150,000 for married filing jointly taxpayers. The phaseout is such that the $6,000 senior deduction is reduced (but not below $0) by 6% of the amount of a taxpayer’s income above the income phaseout ($75,000 / $150,000).
· This is in addition to the age 65 standard deduction ($1,950 single/head of household; $1,550 per person married filing jointly or separately).
· This is more or less the promise for “tax-free Social Security benefits” because there is no statute that directly reduces the amount of S.S. benefit subject to federal taxation.
5) Deductions for State and Local Taxes (SALT) – Sec. 70120
· Effective January 1, 2025, but expires December 31, 2029
· In 2025, the allowable deduction increases from $10,000 ($5,000 for married filing separate taxpayers) to $40,000.
o Small annual increases to the $40,000 SALT cap through 2029.
· In 2030, the SALT cap reduces back to $10,000
· In 2025, the SALT deduction is reduced by 30% (but not below $10,000) of income above the threshold amount of $500,000 ($250,000 for married filing separate taxpayers)
o There is a small annual increase of the phaseout limit
Permanent Provisions of the OBBB Act:
Please know that permanent statutes can be changed but require the passage of future legislation. Otherwise, the statutes remain as they are written in the OBBB Act.
1) Reduced Income Tax Rates – Sec. 70101
· Makes permanent the federal tax brackets set forth by Tax Cuts and Jobs Act in 2027. These tax rates are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%
· The rates for qualified dividends and long-term capital gains remain at 0%, 15%, and 20%.
· Makes permanent the extension of the standard deduction
o $15,750 single/married filing separate taxpayers
o $23,625 head of household taxpayers
o $31,500 married filing jointly taxpayers
2) Extension of Limited Deduction for Home Mortgage Interest – Sec. 70108
· The OBBB Act permanently lowered the deduction for qualified residence interest from $1 million to $750,000.
· Home equity line of credit (HELOC) interest is still only deductible if the interest is associated with the funds being
used for the acquisition or improvement of the home that secured the HELOC.
3) Extension and Modification of Wagering Losses – Sec. 70114
· Effective January 1, 2026
· Current tax law allows a taxpayer to deduct 100% of gambling losses, with a maximum deduction equal to your gambling winnings for the year.
o Example: You won $5,000 playing poker in June but lost a total of $5,200 playing Blackjack in August and September. You would report $5,000 as gambling income and take a $5,000 itemized deduction for gambling losses.
· Moving forward, taxpayers are limited to taking 90% of gambling losses, with a maximum deduction equal to your gambling winnings for the year.
o Example: You won $5,000 playing poker in June but lost a total of $5,200 playing Blackjack in August and September. You would report $5,000 as gambling income and take a $4,680 (90% of $5,200) itemized deduction for gambling losses.
4) Extension and Enhancement of Increased Child Tax Credit – Sec. 70104
· Taxpayers can receive a credit up to $2,200 per qualifying child in 2025 (inflation adjustments begin in 2026). The credit was set to drop to $1,000 per child.
o The refundable portion of the credit remains at $1,700.
· Income phaseouts of $200,000 single/head of household taxpayers and $400,000 married filing jointly taxpayers.
5) Enhancement of Child and Dependent Care Tax Credit – Sec. 70405
· Effective January 1, 2026
· Permanently increases the child and dependent care credit from 35% to 50% of qualifying expenses.
o Reduced by 1% (but not less than 35%) for each $2,000 of AGI above $15,000.
o Further reduced by 1% (but not below 20%) for each $2,000 of AGI ($4,000 for joint returns) that AGI exceeds $75,000 ($150,000 joint returns).
6) Enhancement of Dependent Care Assistance Program – Sec. 70404
· Effective January 1, 2026
· This is provided through your employer and allows taxpayers to set aside pretax money from their paycheck to cover qualifying child care costs.
o Funds cannot be carried forward from one calendar year to the next.
· Increases the maximum annual amount excludable from income from $5,000 ($2,500 married filing separate) to $7,500 ($3,750 MFS)
7) Termination of Green New Deal (Clean Energy) Tax Credits
· There were two federal tax credits available to taxpayers that purchased an electric vehicle. Both credits were set to expire December 31, 2032.
o Moving forward, the credit for purchasing a used EV (maximum $4,000 credit) and the credit for purchasing a new EV (maximum $7,500 credit) will expire on September 30, 2025.
· There were two federal tax credits available to taxpayers that made energy efficient home improvements or purchased solar panels (among other things) for their home.
o Moving forward, these credits will expire on December 31, 2025.
o Based on my interpretation and from other reliable sources, it appears as though any home energy improvement must be complete (installed) by December 31st. It’s not enough to have the equipment purchased.
New Items in the Tax Code after Passing of OBBB Act:
1) Federal Tax Credit for Donations to Scholarship Granting Organizations – Sec. 70411
· Effective January 1, 2027
· For charitable contributions to a 501(c)(3) organization that provide scholarships to elementary and secondary school students
· Maximum credit of $1,700, but you must reduce the credit by any credit amount taken on your state return
· Cannot take the credit AND use the same amount as a charitable contribution for itemized deductions.
· Each state should provide to the Secretary a list of SGOs that meet the requirements and allow taxpayers to take the tax credit.
2) Tax Deductibility of Charitable Contributions – Sec. 70425
· Effective January 1, 2026
· For non-itemizing taxpayers, you are allowed a charitable contribution of up to $1,000 ($2,000 if filing a joint return).
o Contribution must be a cash contribution
· For itemizing taxpayers, there is a new 0.5% floor, which means that your charitable contributions start to count as an itemized deduction once the aggregate contributions exceed 0.5% of your AGI for that tax year.
o Example: Your AGI in 2026 was $100,000 and you gave $2,000 to various qualifying charities. Your deductible charitable contributions are $1,500. There is no tax benefit for the remaining $500.
3) Trump Accounts – Sec. 70204
· These accounts are treated as non-Roth IRAs and are for the benefit of an individual not age 18 before the end of the calendar year.
· Maximum contribution is $5,000/year per account beneficiary
o Contributions are not tax deductible
o Contributions will not be accepted until July 4, 2026 at the earliest.
· Distributions follow IRA rules and there don’t look to be any exceptions that allow distributions prior to the calendar year in which the account beneficiary attains age 18.
· Investments in “qualified investments” only
· Automatic enrollment for kids born from 2025 – 2028.
o Receive $1,000 government contribution
Disclaimer: The information presented in this document is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information is not intended as tax, accounting or legal advice. The information provided should not be solely relied upon for decision making. Please consult your legal, tax, or accounting professional regarding your specific situation. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. Advisory services offered through Pay It Forward Financial Planning, an investment adviser registered with the state of Ohio.