The One Big Beautiful Bill Act (OBBBA) transformed individual taxation—but what it preserved may matter more than what it changed.
OBBBA prevented the scheduled December 31, 2025 sunset of most Tax Cuts and Jobs Act provisions, making many permanent rather than allowing them to expire. This guide explores both the critical “non-changes” that provide long-term planning certainty and the new OBBBA provisions affecting individual taxpayers.
Beyond primary legislation, we’ll also cover additional year-end considerations to help you optimize your 2025 tax position.
TCJA Permanency: What’s Now Set in Stone.
TAX RATES & BRACKETS
OBBBA makes permanent the lower TCJA tax rates and higher bracket thresholds, preventing tax increases for most individuals. Notably absent: proposed millionaires’ taxes or marginal rate increases discussed earlier in 2025.
2026 Tax Rates and Brackets
| Tax Rate | Taxable Income |
|---|---|
| 10% | Up to $17,000 |
| 12% | $17,001 – $66,000 |
| 22% | $66,001 – $112,000 |
| 24% | $112,001 – $199,000 |
| 32% | $199,001 – $253,000 |
| 35% | $253,001 – $626,000 |
| 37% | Over $626,000 |
MISCELLANEOUS 2% EXPENSES
OBBBA permanently eliminates the miscellaneous 2% itemized deduction.
Planning Opportunity: Convert non-deductible investment expenses into deductible business expenses through structures like lender management arrangements for family offices.
STANDARD DEDUCTION & PERSONAL EXEMPTIONS
OBBBA makes permanent both the enhanced TCJA standard deduction and the elimination of personal exemptions.
2026 Standard Deductions:
- Married Filing Jointly: $32,200
- Head of Household: $24,150
- Other Filers: $16,100
Key Observation: While TCJA’s larger standard deduction reduced itemizers, the increased SALT cap in OBBBA will likely push more taxpayers back to itemizing in 2025-2026.
SECTION 199A QUALIFIED BUSINESS INCOME DEDUCTION
The 20% pass-through business deduction becomes permanent with modest improvements for specified service trade or business (SSTB) owners in the wage/investment limitation calculation. High-income SSTB owners still face deduction phaseouts.
EXCESS BUSINESS LOSS LIMITATION
Now permanent with inflation adjustment, base year reset to 2024.
2026 Allowable Loss Limits:
- Single: $256,000
- Married Filing Jointly: $512,000
This reduction from previous years may impact taxpayers with substantial business losses.
ALTERNATIVE MINIMUM TAX (AMT)
OBBBA permanently preserves TCJA’s higher AMT exemption but reverts phaseout thresholds to 2018 levels effective 2026:
Phaseout Thresholds (2026+):
- Married Filing Jointly: $1,000,000
- Other Filers: $500,000
- Indexed for inflation after 2026
Critical Change: AMT exemption phaseout rate increases from 25% to 50%, accelerating the elimination of exemptions at higher incomes.
Impact: More high-income taxpayers will face AMT in 2026.
Planning Note: Provides certainty for taxpayers holding incentive stock options (ISOs) or shares from ISO exercises—critical for equity compensation planning.
QUALIFIED MORTGAGE INTEREST DEDUCTION
OBBBA permanently caps mortgage interest deduction at $750,000 ($375,000 if married filing separately) and permanently eliminates home equity interest deductions.
CASUALTY LOSSES
OBBBA makes permanent TCJA’s restriction on personal casualty loss deductions but adds an exception for state-declared disasters.
Important Reminder: Despite TCJA limitations, taxpayers can still claim losses for:
- Federally and state-declared disasters
- Ponzi scheme losses
- Other losses on transactions entered into for profit (see CCA 202511015)
ENHANCED CHILD TAX CREDIT (CTC)
Permanent Changes Effective 2025:
- Non-refundable CTC increases to $2,200 for 2025
- Amount indexed for inflation for tax years after 2025
- TCJA phaseout thresholds made permanent:
- Single: $200,000
- Married Filing Jointly: $400,000
- Not indexed for inflation—real value of credit will decline for higher earners over time
STRATEGIC IMPLICATIONS
The permanency of these provisions transforms tax planning from short-term maneuvering around sunset dates to a long-term wealth management strategy. Key considerations:
- Itemization Analysis: With higher SALT caps, revisit itemization vs. standard deduction annually
- Business Structure: Section 199A permanency makes pass-through structures more attractive long-term
- AMT Exposure: High earners should model AMT impact given lower phaseout thresholds and faster phaseout rates
- Investment Planning: Convert non-deductible expenses to deductible where possible, given the permanent elimination of miscellaneous deductions
- Equity Compensation: ISO planning benefits from AMT certainty
The “non-changes”—making temporary provisions permanent—may ultimately have a greater impact than the new provisions OBBBA introduced.
New Tax Provisions Under the One Big Beautiful Bill Act
OBBBA introduced numerous new tax provisions affecting individual taxpayers, creating both opportunities and limitations requiring strategic year-end planning.
ITEMIZED DEDUCTION LIMITATIONS
Overall Itemized Deduction Cap (2026+) While OBBBA permanently repealed the Pease limitation, it introduced a new restriction for top earners. Taxpayers in the 37% bracket face a 2% reduction in itemized deduction tax benefits, effectively capping benefits at 35%.
Planning: High-net-worth taxpayers should accelerate itemized deductions (especially charitable contributions) into 2025 before this limitation takes effect.
CHARITABLE CONTRIBUTION CHANGES
New Charitable Contribution Floor (2026+) All itemizers face a new 0.5% AGI floor on charitable deductions—only contributions exceeding this threshold are deductible.
Example: Taxpayer with $200,000 AGI cannot deduct the first $1,000 in charitable gifts.
Planning Strategies:
- Accelerate charitable giving into 2025 to avoid the floor
- If approaching excess charitable carryover threshold, consider contributing enough to trigger carryover status—floor-limited amounts carry forward to future years
60% AGI Cash Contribution Limit Made permanent for cash contributions to public charities.
Non-Itemizer Charitable Deduction (2026+) Non-itemizers can deduct up to $1,000 ($2,000 joint) in cash contributions to public charities annually.
Exclusions:
- Non-cash gifts (clothing, household goods)
- Gifts to Section 509(a)(3) supporting organizations
- Donor advised fund (DAF) contributions
- Prior year charitable carryovers
This below-the-line deduction is permanent.
STATE AND LOCAL TAX (SALT) DEDUCTION
Enhanced Caps with Phaseout (2026-2029)
- Deduction Caps: $40,000 (most filers) / $20,000 (MFS)
- Phaseout Begins: MAGI over $500,000 (most) / $250,000 (MFS)
- Minimum Floor: $10,000 (most) / $5,000 (MFS)
- Annual Increase: Caps and thresholds rise 1% annually through 2029
- Post-2029: Reverts to $10,000 TCJA cap
Critical Impact: Taxpayers in the phaseout range ($500,000-$600,000 MAGI) face an effective tax rate increase of 30% due to the loss of the SALT deduction.
Planning:
- Consider prepaying 2026 state/local taxes in December 2025
- Manage income to stay below punitive phaseout thresholds where possible
Pass-Through Entity Tax (PTET) No changes—business owners can continue using state PTET workarounds to avoid SALT cap restrictions on entity-level state taxes.
SENIOR CITIZEN DEDUCTION (2025-2028)
Taxpayers 65+ receive temporary $6,000 additional deduction with phaseout:
- Phaseout Begins: MAGI over $150,000 (MFJ) / $75,000 (other)
- Availability: Itemizers and non-itemizers
- Not indexed for inflation
Note: Stacks with standard deduction and existing additional standard deduction for seniors 65+. Represents partial fulfillment of campaign pledge to eliminate social security taxation (benefits remain taxable).
QUALIFIED SMALL BUSINESS STOCK (QSBS) ENHANCEMENTS
For stock acquired after July 4, 2025:
- Per-issuer gain exclusion cap: Increases to $15 million
- Gross assets ceiling: Increases to $75 million
- Graduated holding periods:
- 50% exclusion after 3 years
- 75% exclusion after 4 years
- 100% exclusion after 5+ years
- Inflation adjustment: Begins 2027
Planning: Carefully evaluate C-corporation vs. pass-through entity structures for startups given enhanced QSBS benefits.
EDUCATION-RELATED PROVISIONS
Scholarship Tax Credit (Starting 2027) $1,700 annual credit for cash contributions to scholarship granting organizations (SGOs) providing K-12 scholarships. No charitable deduction allowed for credited amounts.
Enhanced 529 Plans (Effective July 4, 2025)
New K-12 Eligible Expenses:
- Curriculum materials and books
- Online educational materials
- Tutoring services
- Standardized testing fees
- Dual enrollment higher education expenses
- Educational therapies for students with disabilities
Increased Annual K-12 Withdrawal Limit: $20,000 per beneficiary (starting 2026)
New Postsecondary Expenses: Professional credentialing (CPA exam fees, licensing fees, etc.)
Note: New expense categories took effect upon July 4, 2025 enactment—may provide 2025 tax benefit.
TRUMP CHILD ACCOUNTS (2026+)
New tax-favored savings accounts for U.S. citizens under 18:
Government Contribution: $1,000 for every U.S. citizen born 2025-2028
Individual Contributions:
- Up to $5,000 annually (inflation-adjusted) from birth through age 17
- No distributions until age 18
Employer Contribution Exclusion: Up to $2,500 (inflation-adjusted)
Investment Restrictions: U.S. equity index funds only (expense ratios ≤0.1%)
Distribution Rules:
- Traditional IRA rules apply
- Contributions returned tax-free
- Earnings taxed at ordinary rates
- Pre-59½ distributions allowed for:
- Qualified college expenses
- First-time home purchases
- Penalties apply for nonqualified distributions
Earliest Account Availability: July 4, 2026
Planning: Trump accounts offer retirement savings head start, but 529 plans often remain superior for education-focused families.
VEHICLE LOAN INTEREST DEDUCTION (2025-2028)
Temporary Deduction: Up to $10,000 of interest on new car loans for U.S.-assembled vehicles
Eligibility:
- New car loans originated or refinanced (without balance increases) 2025-2028
- Available to non-itemizers
Phaseout:
- Begins: MAGI over $200,000 (MFJ) / $100,000 (other)
- Eliminated: MAGI at $250,000 (MFJ) / $150,000 (other)
TIPS DEDUCTION (Through 2028)
New below-the-line deduction for qualified tip income:
Deduction Amount: Up to $25,000 of qualified tips
Phaseout: MAGI over $150,000 (single) / $300,000 (joint)
Eligible Tips:
- Voluntary, non-negotiated
- Paid by patron
- Cash or charged
- From occupations customarily receiving tips pre-2025
IRS Guidance: Proposed regulations (Sept. 22, 2025) list eligible occupations
Important: Federal employment taxes and likely state/local income taxes still apply to excluded tip income.
Electronic Payment Mandate
In March, President Trump signed Executive Order 14247, which requires all federal disbursements and receipts—including tax payments and refunds—to be processed electronically. Under the order, the IRS will cease issuing paper refund checks after September 30, 2025. Notably, the order does not set a deadline for taxpayers to transition to electronic tax payments.
At present, certain taxpayers may be unable to comply with this mandate and may require an exception or alternative payment solutions from the U.S. Treasury. These include, but are not limited to:
- International taxpayers restricted by foreign banking regulations that prevent ACH transactions through the U.S. banking system
- Taxpayers without an ITIN or SSN, such as certain foreign nationals, who cannot access electronic payment platforms
- Trusts and estates, which currently lack a direct-deposit option for refunds
Taxpayers who can comply should transition to electronic payments as soon as practicable. For example, trusts should establish an Electronic Federal Tax Payment System (EFTPS) account promptly, as enrollment can take several weeks and trusts are not eligible to use IRS Direct Pay. Individuals should likewise be encouraged to adopt one of the electronic payment methods available on the IRS website.
Taxpayers who are unable to comply due to IRS system limitations, legal restrictions, or other regulatory barriers should continue to file and pay their tax obligations using existing methods while awaiting further guidance from the Treasury Department.
Self-Employment Taxes
The IRS continues to successfully challenge the treatment of ordinary income allocated to state-law limited partners, recharacterizing it as subject to self-employment tax. In Sorobon (T.C. Memo 2025-52) and Denham (T.C. Memo 2024-114), the Tax Court applied a functional analysis, focusing on the actual roles and responsibilities of the limited partners rather than their formal titles.
In both cases, the court concluded that the limited partner exception did not apply because the individuals were “limited partners in name only.” Their active involvement in day-to-day operations made them resemble employees rather than passive investors, subjecting their income to self-employment tax.
This remains a developing area of tax law, and fund managers and investment professionals should closely monitor these rulings when structuring partnerships and allocating income.
High-Net-Worth Taxpayers Under Increased Scrutiny
In September, Congressional Democrats reintroduced the Billionaires Income Tax Act, a proposal to impose a wealth-based tax on the nation’s wealthiest individuals. The proposal would require affected taxpayers—those meeting specified adjusted gross income and asset thresholds—to annually mark-to-market their tradeable assets, pay an interest charge on deferred tax related to non-tradeable assets, and recognize gain on gifts and bequests. It would also eliminate several widely used deferral strategies, including qualified small business stock (QSBS), qualified opportunity zones, and Section 1031 exchanges. While the proposal has little chance of advancing in the current Congressional environment, it reflects a broader trend of tax policy discussions focused on high-net-worth individuals.
Earlier in 2025, President Trump and some Republicans also floated the concept of a millionaires’ tax, with proposals ranging from a new 40% top marginal rate on income over $1 million to reinstating the 39.6% top rate for income exceeding $2.5 million. Neither proposal was included in the One Big Beautiful Bill Act (OBBBA).
Although federal action in this area appears unlikely in the near term, state-level initiatives targeting wealthy taxpayers are gaining momentum. In California, a proposal known as the 2026 Billionaires Tax Act would impose a wealth tax on resident billionaires and could appear on the November 2026 ballot if it qualifies. In Washington state—historically without an income tax—lawmakers are considering a 9.9% tax on income over $1 million. Additionally, New York City mayor-elect Zohran Mamdani has proposed a 2% surcharge on city residents earning more than $1 million annually.
Together, these proposals underscore a continued focus by lawmakers—particularly at the state level—on increasing the tax burden for the nation’s highest-income and highest-net-worth taxpayers.
Conclusion
If you have questions on how the above information may impact your tax situation, feel free to contact Huckbee CPA for a complimentary consultation.
