The 2025 One Big Beautiful Bill Act and Its Tax Effects on Individual Taxpayers
On July 4, 2025, President Trump signed H.R. 1 – commonly known as the One Big Beautiful Bill Act (OBBB) – into law. The legislation spans approximately 887 pages and includes several significant tax changes. Below are some highlights as they relate to individual taxpayers.
Individual Income Tax Rates
The Act permanently extends the tax rates and brackets enacted by the 2017 Tax Cuts and Jobs Act (TCJA). Additionally, it adds an extra year of inflation adjustments to the end of the 10 percent and 12 percent brackets, increasing the income threshold at which the 22 percent bracket begins.
Standard Deduction
The 2025 standard deduction was initially set at $15,000 for single filers and $30,000 for married taxpayers filing jointly. The OBBB makes the standard deduction permanent and increases it to $15,750 for singles, $23,625 for heads of household, and $31,500 for married persons filing jointly.
Personal Exemptions & Child Tax Credit
The TCJA suspended personal exemptions from 2018 through 2025. The OBBB permanently repeals personal exemptions and the Child Tax Credit and Other Dependent Credit (Section 70104).
In their place, the OBBB creates a permanent, enhanced child tax credit of $2,200 (beginning in 2025) for qualifying children under 17. This amount is adjusted for inflation after 2025 and is subject to phaseouts ($200,000 for singles and $400,000 for married filing jointly). The $1,400 refundable portion of the credit is also made permanent (currently indexed at $1,700), as is the $2,500 earned income requirement for the refundable credit.
The Act also makes permanent the $500 nonrefundable credit for other dependents (e.g., children over 16) and requires that the child and at least one parent have a Social Security number.
Estate and Gift Tax Exemption
Beginning in 2026, the Act increases the estate and gift tax exemption to $15 million per person, indexed for inflation. The 2025 basic exclusion remains $13.99 million per person.
Alternative Minimum Tax (AMT)
The Act permanently extends the TCJA’s increased AMT exemptions with adjustments. It resets the phaseout thresholds to the 2018 levels: $500,000 for singles and $1 million for joint filers (inflation-adjusted since 2018). Additionally, the AMT exemption phases out faster—by 50 cents for every dollar over the threshold, rather than the previous 25 cents.
Home Mortgage Interest Deduction
The OBBB makes permanent the TCJA’s $750,000 cap on home mortgage interest deduction ($375,000 for married filing separately) and permanently excludes interest from home equity debt. Starting in tax year 2026, mortgage insurance premiums are treated as qualified residence interest.
Casualty Loss Deduction
The Act makes permanent the TCJA rule limiting casualty and theft loss deductions to federally declared disasters. Effective in 2026, the deduction is extended to include losses from “state-declared disasters.” Qualified losses are subject to a $500 floor (instead of $100), but qualified disaster losses are not subject to the 10% AGI reduction.
Miscellaneous Itemized Deductions
The OBBB permanently suspends miscellaneous itemized deductions subject to the 2% floor (e.g., unreimbursed employee expenses, hobby expenses, investment fees). However, beginning in 2026, an exception is created for unreimbursed “educator expenses,” including expenses incurred by coaches. These expenses may be itemized without a cap. The $300 above-the-line deduction also remains.
Limitation on Itemized Deductions
The OBBB permanently repeals the Overall Limit on Itemized Deductions and introduces a new limit. The tax benefit of itemized deductions is reduced by the lesser of 2/37 of itemized deductions or the amount by which income exceeds the 37% tax bracket.
Qualified Bicycle Commuting Reimbursement
OBBB permanently ends the exclusion for qualified bicycle commuting reimbursements.
Moving Expenses
The Act permanently repeals the moving expense deduction and employer exclusion, except for certain Armed Forces and Intelligence Community personnel.
Wagering Losses
Beginning in 2026, wagering losses are limited to 90% of the loss and only to the extent of gains. Deductible losses include any allowable deductions incurred in the course of wagering.
ABLE Accounts
The Act permanently extends TCJA enhancements to ABLE (Achieving a Better Life Experience) account contribution limits and Saver’s credit eligibility. It also allows rollovers from qualified tuition programs.
Student Loan Discharges
Student loan debt discharged due to death or permanent disability will remain excluded from gross income. The taxpayer’s Social Security number must be reported on the return in the year of discharge.
State and Local Tax (SALT) Deduction
Starting in 2025, the SALT deduction limit increases to $40,000, rising to $40,400 in 2026, and increasing by 1% annually through 2029. In 2030, the cap reverts to $10,000.
Between 2025–2029, the deduction is reduced by 30% of the amount by which MAGI exceeds certain thresholds ($500,000 in 2025, adjusted annually). The deduction never falls below $10,000.
The Act does not restrict pass-through entity tax (PTET) workarounds adopted by many states.
Deduction for Qualified Tips
A temporary deduction (2025–2028) allows up to $25,000 for “qualified tips” (cash tips from traditional tipping occupations). The deduction phases out above $150,000 MAGI ($300,000 for joint filers).
Deduction for Qualified Overtime Compensation
From 2025–2028, the Act provides a deduction of up to $12,500 ($25,000 for joint filers) for overtime pay under the Fair Labor Standards Act. It phases out at $150,000 MAGI ($300,000 joint). Reporting and SSN requirements apply.
Personal Car Loan Interest Deduction
A temporary deduction (2025–2028) allows up to $10,000 of interest paid on personal-use passenger vehicle loans (first lien only). The deduction phases out completely at $150,000 MAGI (single) or $250,000 (joint). Vehicles must be assembled in the U.S.
Trump Accounts
OBBB establishes a new tax-advantaged savings vehicle for children, known as Trump Accounts. These are not Roth IRAs and are not deductible. Contributions are capped at $5,000/year (indexed for inflation), allowed until the child turns 18. Contributions begin 12 months after enactment.
Employers may contribute up to $2,500, and other entities (e.g., nonprofits, government) may contribute beyond the cap for “qualified groups.” A $1,000 Treasury-funded deposit will be made for each eligible child born from 2025–2028.
Earnings grow tax-deferred. No distributions are allowed until the child reaches age 18.
Planning Ahead
While many OBBB provisions extend key components of the 2017 TCJA, close attention to detail is critical in understanding the Act’s full impact. Numerous provisions include sunset clauses or income-based phaseouts. Taxpayers should consult their tax advisor to assess how these changes may affect their specific situation.
