The One Big Beautiful Bill Act: The Deets
Photo by Kyle Mills on Unsplash
No doubt you’ve heard about the passing of the One Big Beautiful Bill Act. And, yes, it’s actually called that. Like, in real life.
Perhaps just as awkwardly, let's call it the OBBBA instead.
Anyway, there’s a decent chance you have feelings and thoughts about it, as the content of the bill is quite controversial.
But alas, let’s put aside any opinions we may have, positive or negative, and instead acknowledge that there are some tax-and-personal-finance-related items in there that will affect us.
What’s in there, you ask? Quite a lot. Are you going to cover all of it, Keith? Oh no, there’s way too much. Instead, let’s take a peek at 12 of the items that are most likely to affect you.
1. Previous Tax Cuts Made Permanent
What: Permanently extends the current tax brackets and standard deduction.
Effective: Starting in 2025.
A bit more detail: This is the centerpiece of the bill. Essentially, the bill takes several of the provisions from the 2017 Tax Cuts and Jobs Act, originally set to expire at the end of this year, and locks them in for good (well, until a future administration changes things again … “permanent” doesn’t actually mean permanent when it comes to this stuff).
This includes keeping the higher standard deduction, and even raising it a bit this year to $15,750 for individuals and $31,500 for married couples. It also includes keeping the lower tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%). As an underreported cherry on top, it expands the 10% and 12% brackets, meaning more income will be taxed at those rates, thereby lowering your taxes.
How it might affect you: Lower taxes for pretty much anyone who owes any taxes.
2. Additional Deduction for Taxpayers Age 65+
What: Many people age 65+ get an extra $6,000 deduction ($12,000 for couples).
Effective: From 2025 through 2028.
A bit more detail: Taxpayers age 65 and older as of the end of the year can claim an additional deduction of $6,000 per person on top of the standard deduction. It phases out once your AGI (adjusted gross income) goes over $75,000 if you file Single and $150,000 if you file Married Filing Jointly, with no benefit past $175,000/$250,000. And, yes, this is on top of the existing additional standard deduction for people age 65+, which is already on top of the standard deduction.
Additionally, this new deduction is available whether you take the standard deduction or you itemize deductions.
Note: This is the provision that some people are claiming will help folks pay less tax on their Social Security. That’s actually not true at all. Yes, this will lower the tax bill for folks on Social Security, but it’s not connected to Social Security. It’s available whether you have claimed Social Security benefits or not. And depending on the rest of your tax picture, you’re likely to still be paying taxes on those Social Security benefits.
How it might affect you: Lower taxes for moderate-income taxpayers age 65+.
3. Higher SALT Deduction Cap
What: Increases the SALT deduction limit from $10,000 to $40,000.
Effective: From 2025 through 2029.
A bit more detail: The cap on state and local tax (“SALT”) deductions has been increased from $10,000 to $40,000 for households making under $500,000.
In English, that means that you were previously only allowed to deduct up to $10,000 of SALT (mainly property tax and/or sales tax) if you were itemizing deductions. But now you can deduct more of those taxes you pay. But only if your AGI is low enough, as it starts to phase out at $500,000.
However, this higher limit only lasts until the end of 2029, after which the old $10,000 cap returns.
As an aside, it’s nice that the bill allows the cap of $40,000 to rise with inflation each year. That’s good! But the inflation adjustment is capped at 1% per year. That’s not as good! And it adds another layer of complexity…good times!
How it might affect you: If you live in a high-tax state, this could help lower your tax bill.
4. Increased Child Tax Credit
What: Raises the credit from $2,000 to $2,200 per child and ties it to inflation.
Effective: Starting in 2025.
A bit more detail: The Child Tax Credit was going to decrease next year from $2,000 to $1,000 per qualifying child under age 17. But now it’s being raised to $2,200 this year, with future years adjusted for inflation.
Just as before, if your AGI is too high, you don’t qualify for the credit. It’s phased out starting at $200,000 for those filing Single or Head of Household, and $400,000 for those filing Married Filing Jointly.
How it might affect you: More money back at tax time if you’re raising kids and don’t make too much money.
5. Deduction for Tips and Overtime Earnings
What: Deduct up to $25,000 of tip income and up to $12,500 (individual) or $25,000 (joint) of overtime income.
Effective: From 2025 through 2028.
A bit more detail: If you earn tips as part of your job, there’s a good chance you’ll now be able to deduct them (meaning you won’t have to pay Federal income taxes on them). But that deduction is limited to $25,000 (for all filing statuses).
If you earn overtime pay, same deal, but limited to $12,500 for those filing Single or Head of Household and $25,000 for those filing Married Filing Jointly.
If your AGI is too high, you don’t qualify for the deductions though. They are phased out starting at $150,000 for those filing Single or Head of Household, and $300,000 for those filing Married Filing Jointly.
Also, note that this does not mean “no tax on tips” or “no tax on overtime”. In addition to the limitations mentioned above, you’ll also still owe payroll taxes (mainly Social Security tax and Medicare tax) and perhaps state income taxes. And with overtime pay, the deduction only applies to the amount above your normal pay.
How it might affect you: Lower taxes if you’re paid via tips or overtime and meet the other rules.
6. Deduction for Auto Loan Interest
What: Deduct up to $10,000 in loan interest on new U.S.-built vehicles.
Effective: From 2025 through 2028.
A bit more detail: You might be able to deduct up to $10,000 in auto loan interest, whether you take the standard deduction or itemize deductions.
Similar to other tax breaks mentioned already, if your AGI is too high, you don’t qualify for the deduction. It’s phased out starting at $100,000 for those filing Single or Head of Household, and $200,000 for those filing Married Filing Jointly.
Do all cars qualify? Nope.
It only applies to new, personal-use cars, vans, SUVs, pickups, and motorcycles that were assembled in the U.S. and that weigh less than 14,000 pounds. Additionally, the loan had to be taken out in 2025 or later (for new loans or refinanced loans where the original balance is not increased).
How it might affect you: This could come in handy if you happen to be buying a car that meets the criteria. But even then, it’s usually better to buy in cash if you’re able, unless the interest rate is really low. But if you have to take a loan, this will help.
7. Trump accounts (IRA-like savings accounts for children)
What: A new savings account for kids is being introduced. The government will contribute $1,000 for babies born between 2025–2028.
Effective: July 1, 2026
A bit more detail: There’s still A LOT we don’t know about these accounts and how they will work. And whether they will actually be that helpful or not compared to existing alternatives. I may do a write-up devoted to this topic at some point.
But here are a few things we know, bullet point style:
It is a type of IRA that grows tax-deferred;
Contributions can be made for a child until their age 17 tax year (the year before the year they turn 18);
Max contribution is $5,000 per year, indexed for inflation;
Parents can elect to have a $1,000 credit paid by the U.S. government into the account for any child born in 2025, 2026, or 2027 (the mechanics of this are unknown);
Contributions made by a parent or other individual are NOT tax-deductible;
Governmental or charitable entities can contribute on a child's behalf, and those contributions do NOT count toward the $5,000 limit;
Employers can contribute up to $2,500/year (adjusted for inflation) on behalf of an employee or an employee's dependents, but this DOES count toward the $5,000 limit;
Investments can be made only in index funds that (a) track an index composed primarily of U.S. equities, (b) are market-cap based and not sector/industry-based, (c) are not leveraged, and (d) have annual fees no higher than 0.1%;
No withdrawals from the account before age 18, with a few exceptions;
When money is withdrawn, the person pays ordinary income taxes on the growth of the account, but no tax on the original contributions.
How it might affect you: This is obviously helpful to a child born between 2025-2028 (hey, free money!), but more needs to be understood about the pros and cons of the accounts to understand how helpful they are otherwise. My first reaction is that they will be a helpful tool in the toolkit, and will nicely complement other savings options for kids (529s, taxable accounts, IRAs if the child has earned income).
8. Clean Energy Tax Breaks Going Bye-Bye
What: Ends credits for electric vehicles, EV chargers, and energy-efficient home improvements.
Effective: EV credit ends 9/30/2025; EV charger credit ends 6/30/2026; energy-efficient home improvement credit ends 12/31/2025.
A bit more detail: These existing credits are fairly generous, but they will no longer be available shortly:
Electric vehicle credit: Up to $7,500 tax credit for a new electric vehicle and $4,000 for a used one (if it meets certain requirements); ends 9/30/2025.
Electric vehicle charging equipment: Up to $1,000 for electric vehicle charging equipment installed at a taxpayer's personal residence; ends 6/30/2026.
Energy-efficient home improvements: Up to $1,200 toward the cost of energy-efficiency improvements (e.g., windows, doors, insulation, or heating and cooling equipment, and home energy audits); equipment must be placed in service by 12/31/2025.
Solar panels, wind power, etc.: Up to 30% of the cost of purchasing or installing solar panels, wind power, geothermal heat pumps, or fuel cell equipment; ends 12/31/2025.
How it might affect you: If you’re considering purchasing anything listed above, consider doing it sooner rather than later!
9. Mortgage Insurance Now Deductible
What: Mortgage insurance premiums will be deductible.
Effective: Starting in 2026.
A bit more detail: Borrowers who pay private mortgage insurance (PMI) will be able to deduct those premiums as an itemized deduction starting next year.
How it might affect you: This will be helpful to you if you pay PMI and itemize your deductions.
10. New Rules for Charitable Donations
What: Sets a 0.5% AGI minimum for itemized deductions; standard deduction filers can claim up to $600; itemized deductions capped at 35% of AGI.
Effective: Starting in 2026.
A bit more detail: To deduct charitable donations, you’ll need to give more than 0.5% of your AGI starting next year. For instance, if your AGI is $100,000, only the portion of donations above $500 will be deductible. That’s the bad news.
On the good news front, starting next year you can deduct up to $600 in donations even if you don’t itemize deductions.
Back on the bad news train, and this applies to all itemized deductions (not just charitable contributions), higher income taxpayers in the 37% tax bracket will have their itemized deductions limited to a 35% deduction. That basically means your deductions will be worth a bit less than they used to be.
How it might affect you: This is a mixed bag. These new rules will help you if you give some money to charity and don’t itemize deductions, hurt you if you are charitably inclined and you itemize deductions, and hurt you if you’re in the highest tax bracket.
11. Changes to the Estate Tax
What: Raises the exemption threshold instead of it being cut in half.
Effective: Starting in 2026.
A bit more detail: The estate tax is a bit of a mystery to many people. Basically it’s a tax that’s assessed on the estates of the wealthy. This year, the estate tax of 40% only applies to people who pass away with more than $13.99 million in assets (potentially times two for a married couple). That threshold was scheduled to be cut in half starting in 2026, but instead it is permanently set at the higher level now. Specifically, it’s being adjusted to $15 million in 2026 and then will rise with inflation each year thereafter.
How it might affect you: If you have significant assets, you may be able to pass along more wealth to your heirs tax-free.
12. Expanded Childcare Tax Relief
What: Increases Dependent Care FSA limits and enhances the Child and Dependent Care Credit.
Effective: Starting in 2026.
A bit more detail: The contribution cap for Dependent Care FSAs will be going up from $5,000 to $7,500 starting in 2026 (which is the first increase since the 1980s!).
The Child and Dependent Care Credit also gets a bit better for lower-income parents who have to pay for childcare due to working, as the percentages for claiming the credit go up a bit (between 20%-50%, depending on your AGI).
How it might affect you: You may save some additional tax if you pay for childcare.
Summary
So there you have it. Mostly good news on the tax front, if you consider your taxes going down to be good news. How this plays out over the long term remains to be seen, as there are real questions about how these tax breaks will affect the long-term health of the economy due to the deficit increasing.
And, of course, there’s a lot more in the bill beyond tax-related issues, as there are major cuts being made to social programs such as Medicaid, the Supplemental Nutrition Assistance Program, education, etc.
But regardless of where you land in terms of what you think of the entire package, it’s helpful to know how the changes may affect you. And hopefully this short missive has shed some light on a few of the major tax-related impacts.