Understanding the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings sweeping changes to the tax code. It locks in many of the Tax Cuts and Jobs Act provisions and introduces a new set of deductions, credits, and planning opportunities.

Now that it’s law, there’s more clarity around what rules apply going forward, but the changes themselves can still be complex. Overall, OBBBA is likely to reduce taxes for many households by maintaining lower rates that were set to increase in 2026, though high earners may face complexities like the AMT bump zone.

This article walks through the major changes in plain language so you can understand what matters and where it may make sense to plan ahead.

1. Tax Brackets

The familiar TCJA income tax brackets (from 10% up to 37%) are now permanent. That means taxpayers avoided the scheduled jump in rates at the end of 2025. You keep the same structure going forward, which helps with planning and reduces uncertainty.

2. Standard Deduction

For 2026, the standard deduction is set at $15,750 for single filers, $31,500 for married filing jointly, and $23,625 for heads of household, with inflation indexing. Seniors, those aged 65 or older or legally blind, qualify for an additional standard deduction of approximately $1,500 per person for single or head of household filers, or $1,200 per spouse for married filing jointly, adjusted for inflation.

In addition, the bill adds a new $6,000 above-the-line deduction for individuals age 65 or older (or blind), or $12,000 per couple, available from 2025 through 2028. This was designed as an alternative to making Social Security benefits tax-free. Instead of exempting Social Security directly, this deduction reduces taxable income. It begins to phase out over $175,000 AGI for singles or $250,000 for joint filers, at a 6% rate above the threshold.

3. Itemized Deductions

SALT cap: The deduction cap for state and local taxes increases from $10,000 to $40,000, beginning in 2025. This expanded cap phases out for taxpayers earning above $500,000 and reverts to $10,000 in 2030.

Charitable giving floor: Starting in 2026, itemized charitable deductions only apply after you exceed a minimum of 0.5% of your AGI.
For example, if your AGI is $200,000, your first $1,000 ($200,000 x 0.5% = $1,000) of charitable donations doesn’t count toward a deduction. Only amounts above that floor are deductible.

High-income limitation: The value of itemized deductions is capped at 35% for those in the 37% bracket.

Non-itemizers can deduct up to $1,000 (single) or $2,000 (joint) in charitable contributions starting in 2026.

4. Below-the-Line Deductions: Tips, Overtime, and Auto Loans

From 2025 through 2028, taxpayers may deduct the following, even if they do not itemize:

• Up to $12,500 per individual or $25,000 per couple in qualified tips.

• Up to $12,500 per individual or $25,000 per couple in qualified overtime premium pay. Only the overtime premium portion counts. Qualified tips refer to gratuities earned in service-based roles, such as restaurant or hospitality work. Qualified overtime premium pay includes only the additional pay rate (e.g., time-and-a-half) for hours worked beyond standard hours.

• Up to $10,000 in interest on qualifying auto loans for new vehicles assembled in the United States.

These deductions are subject to income-based phaseouts. For the auto interest deduction, the phaseout starts at $100,000 MAGI for single filers and $200,000 for joint, ending fully at $149,000 and $249,000, respectively. These changes primarily benefit middle-income earners, particularly in service or hourly wage roles.

5. Child Tax Credit

The child tax credit increases to $2,200 per qualifying child beginning in 2025 and is now permanently indexed to inflation. The refundable portion remains limited to $1,400, with phaseout thresholds unchanged.

6. 529 Plan Flexibility

OBBBA expands the flexibility of 529 plans. In addition to college and K-12 expenses, 529 plans may now be used for a broader range of educational programs, including postsecondary credentialing, tutoring, dual-enrollment, job training, and apprenticeships. The K-12 withdrawal limit increases from $10,000 to $20,000 annually. Some qualified expenses for first-time home purchases and caregiving may also become eligible, pending final guidance.

7. “Trump” Accounts

For children born between 2025 and 2028, the government will open a new account at birth with a $1,000 deposit. Parents can contribute up to $5,000 per year, and the funds grow tax-deferred. Withdrawals may be used for college, job training, or a first home.

Details around implementation, provider options, and distribution rules are still being developed.

8. Section 199A: Qualified Business Income Deduction

The 20% deduction for qualified business income (QBI) from pass-through businesses is now permanent. This applies to sole proprietors, partnerships, S-corporations, and certain real estate investors. Income phaseouts and service business limitations remain in place. For 2025, the phaseout starts at $197,300 for single filers and $394,600 for joint. This offers long-term clarity for small business owners and self-employed individuals.

9. Estate and Gift Tax Exemption

Beginning in 2026, the lifetime estate and gift tax exemption rises to $15 million per person, indexed for inflation. For married couples, this means up to $30 million of assets may pass tax-free. This increase is now permanent.

10. Alternative Minimum Tax (AMT)

The AMT exemption amounts remain high, but the thresholds at which those exemptions phase out are lower. This creates a narrow "bump zone" where taxpayers may face marginal rates as high as 42%. For example, single filers between roughly $500,000 and $676,200, or joint filers between $1 million and $1.27 million, may be affected. Trusts and estates continue to use older, lower exemption levels.

11. Qualified Opportunity Zones

OBBBA makes the QOZ program permanent. Capital gain deferral becomes rolling on a 5-year timeline rather than ending in 2026. Investors still qualify for a 10% step-up in basis after five years and full exclusion after ten years.

The bill also introduces Qualified Rural Opportunity Funds (QROZs). These receive a 30% basis step-up after five years and have looser rules around "substantial improvement" to promote rural investment. Additional reporting requirements were added for both QOZs and QROZs.

12. Clean Energy and Other Provisions

Several clean energy tax credits created under the Inflation Reduction Act are being phased out earlier than planned:

• EV purchase credits end after September 2025

• EV charger installation credits end after June 2026

• Wind and solar projects must begin construction by June 2026 or be in service by December 2027

Methane fees are delayed for a decade. Biofuel tax credits continue through 2031.

Section 179 expensing (a tax deduction allowing businesses to deduct the full cost of qualifying equipment or property in the year of purchase) remains available at higher levels, and certain interest paid on new vehicle purchases becomes deductible within income limits.

The Qualified Small Business Stock (QSBS) exclusion increases from $10 million to $15 million.

What This Means for You

These changes offer valuable opportunities, but their complexities, such as income phaseouts and expiration dates, require strategic planning. To fully leverage these opportunities, it’s critical to work with a professional who can tailor strategies to your unique financial situation.

Frequently Asked Questions

Does this mean my tax rates won’t change anymore?
The individual tax brackets from the 2017 Tax Cuts and Jobs Act are now permanent. That means they won’t automatically revert to higher rates in 2026. However, Congress could always make changes in future legislation.

Is Social Security now tax-free?
Not exactly. Instead of making Social Security benefits tax-free, the law created a $6,000 deduction for seniors ($12,000 for couples) to reduce taxable income. It can help reduce taxes on Social Security, but it’s not a direct exemption.

Will the new deductions apply to me?
Many of the new deductions—like those for tips, overtime, and auto loan interest—apply to middle-income taxpayers. But most come with income phaseouts, so eligibility depends on your adjusted gross income.

How long will these changes last?
Some provisions are permanent, like the tax brackets and QBI deduction. Others, like the tip and overtime deductions, expire after 2028. Understanding the timeline is important when planning.

What if I’m a business owner?
The 20% QBI deduction is now permanent, which is a win for most pass-through business owners. The Section 179 expensing rules and QSBS exemption were also expanded. If you’re self-employed or own a business, these changes are worth reviewing closely.

Disclaimer: This article is provided for informational purposes only and is not intended as tax, legal, financial, or investment advice. The information presented reflects our understanding of the One Big Beautiful Bill Act as of its passage on July 4, 2025, and is subject to change based on future regulatory guidance or interpretations. Tax and financial planning is complex and depends on individual circumstances. We strongly recommend consulting with a qualified tax professional, financial advisor, or legal counsel to evaluate how these changes apply to your specific situation. Vaultis Private Wealth does not provide tax or legal advice.