Unpacking the Tax Provisions of the One Big Beautiful Bill Act
By Nathan Alexandar
ALMOST FORTY YEARS AGO IN 1986, the American income tax system was heavily reformed, reducing the top incremental tax bracket from 50% down to 33% and capping capital gain rates at 28%. Since then, Americans have become accustomed to an ever-changing tax code and the repeated question, “What should I be doing now?” In July, the One Big Beautiful Bill Act was signed into law, extending many provisions of the previous tax law set to expire at the end of 2025, and also adding several new individual tax measures. Many of you may be asking that question once again.
Often people tend to focus on new deductions and credits, and of course they have their place in planning, but the most effective tax planning focuses on maintaining the most level income over the longest horizon and managing the lowest overall incremental effective tax rate. In other words, the goal is to pay tax at the lowest legitimate rate over the longest horizon. It’s more a smoothing action than a shifting of your lifestyle to accommodate a new deduction or credit that will lead to the greatest long-term (even intergenerational) savings.
At TCV, we see tax planning as an integral part of your financial stewardship regardless of what is new. Sound estate planning, gifting, Roth IRA conversions, dealing with low basis stock concentrations, Qualified Charitable Distributions from an IRA, and saving money regularly with Health Savings Accounts (to name a few options) are important considerations all the time no matter what particular tax environment we find ourselves in this moment.
While I will not be able to touch on all the tax changes contained in this legislation, in this article I will unpack some key elements to encourage you to begin a tax planning discussion with your TCV team and your CPA tax advisors. Pay particular attention to permanent vs. temporary as some provisions have been made permanent in the code while others are only around for a few years. Remember also that many provisions are reduced or phased out completely at various income levels, so have an understanding of your Adjusted Gross Income (AGI) in an average year to see which tax changes may impact you and which may be unavailable at your income level.
The Basics—Tax Rates and Standard Deduction:
- Tax brackets have been permanently reformed, which means they will remain in effect unless and until a future Congress passes a new law to change them. Rates range from 10% to 37%, continuing the rates we have had in effect since 2018, including unchanged capital gain rates of 0%, 15%, and 20%.
- The Standard Deduction, also made permanent, ranges from $15,750 for single filers to $31,500 for married filing jointly (MFJ) and will be adjusted for inflation hereafter. Many households who have found themselves claimingthe Standard Deduction will very likely continue that pattern, although as explained below there are several new provisions affecting itemized deductions.
- The federal Estate Tax and Generation-Skipping Transfer (GST) Tax exemption is increased to $15 million and adjusted for inflation hereafter for people who make gifts or die after December 31, 2025, and this increased exemption is now permanent. Individuals should be mindful that many states have estate tax with lower exemptions.
- C Corporations have a continuation of the 21% corporate tax rate that has been in effect since 2018, and this also has been made permanent.
Repealed:
- Clean Energy Credits for plug-in and electric vehicles and energy and solar improvements to personal residences have been repealed, with the vehicle credit repeal effective September 30, 2025, and other energy-related tax credits eliminated as of December 31, 2025, so when planning to make an energy-related improvement to your home, do not take an anticipated credit into account. Some energy-related tax incentives remain for businesses.
New or Enhanced Deductions for Individuals:
- The State and Local Tax (SALT) deduction cap of $10,000 has been a source of great frustration for folks who pay a high amount of state income taxes plus property taxes, and the good news is that a temporary increase to $40,000 ($20,000 for MFS) is in place from 2025 through 2029. This increase will phase out with Modified Adjusted Gross Income (MAGI) of $500,000-$600,000, but will not be reduced below $10,000. In 2030 the cap will revert to $10,000.
- For seniors with MAGI below $75,000 ($150,000 MFJ) there is a new $6,000-per-person Enhanced Deduction for Seniors which is designed to help offset impact of the taxation of Social Security, which has not otherwise been changed. There has been widespread confusing reporting that implied Social Security benefits would not be taxed, which is not the case at all. This new deduction is a temporary offset from 2025-2028. During these years, a senior below the income threshold can claim the Standard Deduction as well as this new Enhanced Deduction in the same year.
- For folks who do not have enough deductions to itemize on their tax return but do donate cash to qualified charities, there is a new Charitable Deduction of $1,000, or $2,000 per married couple, which can be taken along with the Standard Deduction and the Enhanced Senior Deduction. On the other hand, those that itemize and contribute to charities will experience a new permanent 0.5% of MAGI floor on charitable contributions, and cash contributions to charities are further limited to 60% of AGI. Beyond this, a new $1,700 credit (not deduction, but credit) per taxpayer per year is available for cash contributions to certain Scholarship Granting Organizations, with much more clarification and guidance on this new credit still pending.
- Workers who earn less than $150,000 ($300,000 MFJ) will be able to take advantage of a new tax deduction of up to $25,000 of Qualified Tip Income, and separately $12,500 ($25,000 MFJ) of Overtime Income. Both of these deductions are temporary through 2028. While much guidance is expected here, we know that the tip deduction is only available for occupations which commonly receive tips, so a restaurant employee presumably may claim the deduction while an engineer may not.
- To incentivize American auto purchases, certain personal vehicles may qualify the purchaser for the deduction of interest on automobile financing of up to $10,000, but this will phase down with income of $100,000 ($200,000 MFJ) and is temporary through 2028. It is also important to note that final assembly must be in the USA.
- The Child Tax Credit is now a permanent $2,200 per Qualified Child (of which $1,700 is refundable) for families with income below $200,000 ($400,000 MFJ).
- A new savings vehicle has been created for minor children who are US citizens, which operates similarly to a Traditional IRA and is called a Trump Account. Children born between January 1, 2025, and December 31, 2028, will receive an initial government-funded contribution of $1,000 and individuals that contribute their own funds may qualify for additional credits. Needless to say, we expect much more information on this entirely new savings vehicle and how families can take advantage for their children.
Restrictions and Limitations for Individuals:
- For those purchasing their own health insurance, the Premium Tax Credit which was available for individuals with income at or below 400% of the Federal Poverty Level is now restricted to those with income at or below 100% of the Federal Poverty Level. Anyone currently claiming the Advance Premium Tax Credit should promptly speak to their tax advisor for guidance about continuing a credit that, based on annual income, may now require full repayment.
- A taxpayer with multiple properties and multiple mortgages may only deduct the interest on a cumulative loan amount of $750,000, so plan ahead to understand deduction limitations if you are considering a new mortgage on top of other existing mortgages that would exceed this overall balance.
- For those taking itemized deductions, starting in 2026 there is a permanent overall limitation on itemized deductions, which are capped at $0.35 on the dollar for taxpayers in the highest, 37% bracket.
- Student loan debt discharge is considered taxable income unless it was discharged because of death or disability, or unless mandated by some other federal agency. This is an evolving issue with much more clarification needed and expected.