Congress passed the One Big Beautiful Bill Act (OBBBA) this summer, and it’s living up to its name with sweeping changes to the individual tax code. If you’re wondering how it affects your personal taxes, including deductions and credits, you’re not alone.
Here’s a breakdown of the most important changes that are easy for all to understand—time to plan ahead for 2025 and beyond.
One Big Beautiful Bill Act (aka OBBBA)
Lower Tax Rates and a Bigger Standard Deduction
The reduced tax rates established under the Tax Cuts and Jobs Act (TCJA) have become permanent. This means there will be no sudden jump in your tax bracket after 2025.
This seems like good news for many, but makes itemizing deductions a far reach for most. Remember, itemized deductions include medical expenses, sales or income tax, real estate tax, property tax, charitable contributions, and mortgage interest.
The standard deduction is also going up:
$23,625 for heads of household
$15,750 for single filers
These will adjust for inflation in future years.
Deductions for Seniors as part of the One Big Beautiful Bill Act
Personal exemptions remain suspended, but there’s a new win for older Americans:
A $6,000 deduction is available for qualifying individuals age 65 or older, from 2025–2028. Yes. This deduction only lasts for 4 years. Will it be extended or renewed? Your guess is as good as mine.
This phases out for higher incomes and requires a valid Social Security Number and (if married) a joint return.
Family and Child Tax Benefits as part of the One Big Beautiful Bill Act
Some major family-friendly changes were made permanent or expanded:
The Child Tax Credit increases to $2,200 per child, with inflation indexing and stricter rules with Social Security Numbers. This credit still has income-based phaseouts, which is an important consideration for higher-income earners.
The Child and Dependent Care Credit now covers up to 50% of qualifying expenses for lower-income families, with sliding scale benefits for others.
Adoption Credit: This credit is now partly refundable and recognizes tribal special needs determinations.
New Deductions for Working Americans
This provision is often referred to as no tax on tips or overtime. While this sounds great, there are strict rules to follow. Remember, these are also temporary deductions, allowing workers to reduce taxable income from 2025 to 2028. Yes. Once again, only four years. Whether it will be renewed is yet to be seen.
No Tax on Tips: Deduct up to $25,000 of qualified tips. There are strict rules around this deduction that you need to be aware of. This includes an income limitation.
No Tax on Overtime: Deduct up to $12,500 of overtime wages. While this sounds great, it is only no tax on the “extra half” of the overtime income. This could severely limit the use of the deduction from income. It is also a reduction from adjusted gross income, and it has strict reporting and filing requirements.
Car Loan Interest: Deduct up to $10,000 in interest for new, U.S.-built vehicles. This deduction also has very strict rules to follow, including limitations on income and phase-outs of the deduction. There are strict reporting requirements that must be met in order to qualify.
Small Business Owners and 1099 Workers
The Qualified Business Income (QBI) deduction under Section 199A has been improved for most taxpayers.
This deduction was introduced with the Tax Cuts and Jobs Act in 2017 and was scheduled to sunset. The OBBBA made it permanent.
The phase-in threshold increases to $75,000 ($150,000 joint). This means more taxpayers with income above the limits can benefit even from a partial deduction before limitations fully apply.
A $400 minimum deduction is introduced for active business income, with adjustments for inflation.
Remember, this deduction becomes limited to those in specified service businesses.
Estate and Gift Tax as part of the One Big Beautiful Bill Act
For high-net-worth individuals:
The estate and gift tax exemption jumps to $15 million (indexed for inflation) starting in 2026. This is good news for those with a high net worth who wish to pass it on to their heirs.
The Alternative Minimum Tax (AMT)
The higher AMT exemption and phaseout thresholds are now permanent, giving more certainty for high-income taxpayers.
Mortgage, SALT, and Itemized Deductions
Here’s what’s changing for those who itemize:
Mortgage Interest: $750,000 cap is now permanent; mortgage insurance counts as interest.
Casualty Losses: Deductible for both federal- and state-declared disasters.
Miscellaneous Deductions: Most remain suspended, except for educator expenses (now broader).
Pease Limitation: A new formula reduces high-income deductions, starting at the top bracket.
SALT Deduction Cap: Temporarily increased to $40,000 ($20,000 MFS) through 2029, but with limitations to income.
As I’ve said before, those who itemize are so small in number at this point that I don’t see this as particularly valuable to most taxpayers.
Education and Student Loan Changes as part of the One Big Beautiful Bill Act
Student Loans: Loan forgiveness for death or disability is now permanently tax-free — even for private loans. This appears to be good news for many individuals with student loans.
Employer Student Loan Payments: Exclusion is now permanent and inflation-adjusted. I don’t know many who fall under this program.
529 Plans: Expanded to cover more K-12 and credentialing expenses, with a new $20,000 annual cap. Saving for education just got slightly better if you plan to use a 529 plan.
Charitable Giving as part of the One Big Beautiful Bill Act
Taxpayers who don’t itemize can now deduct up to $1,000 (or $2,000 for joint filers) for qualified charitable donations. Only cash contributions to specific organizations will be counted for this purpose. This provision doesn’t take effect until the 2026 tax year, so there will be no help in 2025.
Learn more about taking charitable contributions, including how to have good record-keeping to be allowed for this deduction.
A floor of 0.5% of AGI is applied to individuals, and 1% of taxable income to corporations.
New “Trump Accounts” for Kids
A brand-new savings tool for children under 18:
Contribute up to $5,000 per year.
Employers and nonprofits can contribute, too.
A $1,000 pilot contribution from the government is included for newborns from 2025 to 2028. Again, this is limited to a few tax years, and we have yet to see how it will be truly implemented.
New Rules for Compliance
To claim many of these new deductions or credits, you must:
Provide a valid Social Security Number. Ensure that all your children receive one when they are born, as you won’t be able to claim the child tax credit without it.
File jointly if married (in most cases). Married filing separately will disqualify you for many of these new provisions.
Report detailed information (especially for tips, overtime, and car loan interest). This means more record-keeping for both the taxpayer and employers.
Final Thoughts
The OBBBA is one of the biggest overhauls to the individual tax code in years. Whether you’re a W-2 employee, small business owner, parent, or retiree, these changes will likely affect how you file and plan starting in 2025.
Keep checking back here, as this is part one of a seven-part series that will dive deeper into all the topics and break them down into easy-to-digest posts.
