The One Big Beautiful Bill Act (the “BBB”) was passed by Congress on July 3, 2025, following a dramatic 218-214 vote in the U.S. House of Representatives. President Trump, on July 4th, then signed the legislation into law, marking a major legislative victory for the President’s second-term domestic agenda. Taxpayers now want to know how the nearly 900 pages of provisions in the BBB will impact their tax returns and tax planning for this year and beyond.
Unlike the major tax overhauls in 1986 and 2017, which introduced sweeping tax law changes, the BBB instead makes permanent many of the key provisions from the 2017 Tax Cuts and Jobs Act (“TCJA”). Most taxpayers would have faced increased tax bills had the expirations from the TCJA come to fruition at the end of this year as scheduled. Thus, perhaps the biggest effect of the BBB is the certainty that it provides on a number of major tax provisions. Though not inclusive of the entire bill, the summary below highlights many key issues for individual taxpayers.
INDIVIDUAL TAX RATES
The BBB makes permanent the individual tax rates set by the TCJA in 2017 ‑10%, 12%, 22%, 24%, 32%, 35% and 37%. All brackets continue to be indexed for inflation. Without this provision, the expiration of the TCJA would have reinstated the pre-TCJA top marginal rate of 39.6%, increasing the tax burden for many high-income earners.
STANDARD DEDUCTION, ITEMIZED DEDUCTIONS AND PERSONAL EXEMPTIONS
The standard deduction — the amount taxpayers get to subtract from income if they don’t itemize deductions — was increased significantly by the TCJA and is now permanent. Effective as of January 1, 2025, the amounts are $15,750 for a single filer, $23,625 for a head of household filer and $31,500 for married individuals filing jointly. The amounts are adjusted for inflation beginning in 2026. The additional standard deduction for taxpayers 65 and older (or blind) remains in place – $2,000 for single filers, and an extra $1,600 per qualifying spouse in a married filing jointly return. This permanent increase will simplify taxes for many, as the number of filers that itemized deductions dropped from 30% pre-TCJA to less than 10% since the TCJA increased the amounts. One strategy to consider is bunching deductions. This means grouping deductible expenses for multiple years into a single year to exceed the standard deduction threshold. This allows you to itemize in the “bunching” year to take full advantage of those deductions. Taxpayers who are charitably inclined could front-load multiple years of planned gifts in one year by contributing to a donor-advised fund and then utilizing the donor-advised fund to distribute funds to charities in future years when they may not exceed the standard deduction.
The BBB makes permanent the elimination of miscellaneous itemized deductions, suspended initially by the TCJA. The provision creates an exception of educator expenses, which remain deductible ($300 per eligible educator, $600 if filing jointly and both are eligible educators).
The legislation also makes permanent the repeal of the “Pease” limitation, which, prior to the TCJA, had reduced itemized deductions by 3% of AGI above a certain threshold. While this repeal offers some relief, it comes with a new limitation for taxpayers in the top tax bracket. Beginning in 2026, taxpayers in the top marginal tax bracket (currently 37%) will face a hard cap on itemized deductions. Specifically, allowable deductions will be reduced by a formula that subtracts 2/37 of the lesser of: (1) total itemized deductions, or (2) the amount by which taxable income (plus deductions) exceeds the 37% bracket threshold. The goal of this limitation is to reduce the value of itemized deductions for top earners, who currently receive the largest benefit. For example, under current law, a taxpayer in the 37% bracket effectively saves 37 cents in taxes for every $1 of deductions claimed. Under the new rule, that benefit would shrink slightly: by reducing the deduction amount by 2/37, the tax savings per dollar of deduction falls from 37 cents to 35 cents. In other words, the “2/37” formula serves as a built-in adjustment to reduce the effective tax benefit by two percentage points—preserving some value while narrowing the advantage for the highest earners.
The TCJA suspended personal exemptions, and the BBB has permanently eliminated them.
STATE AND LOCAL TAX DEDUCTION (“SALT”)
The state and local tax deduction was capped by the TCJA at $10,000. The SALT provision in the BBB increases the individual limit to $40,000 indexed for 1% increases through 2029. Unless extended by future legislation, the cap will revert to $10,000 in 2030. The deduction would also be subject to a phaseout for modified adjusted gross income (“MAGI”) greater than $500,000 in 2025, $505,000 in 2026 and similar 1% increases thereafter, but the deduction would not be reduced below $10,000. Taxpayers should consider the timing of income, if possible, to avoid the phaseout.
CHILD TAX CREDIT
The BBB makes permanent the Child Tax Credit, increasing the nonrefundable credit from $2,000 to $2,200 and indexing it for inflation. It was set to revert to $1,000 after 2025. To qualify for the credit, the child must be under 17 years of age at the end of the tax year.
MORTGAGE INTEREST
The $750,000 mortgage interest deduction has been made permanent. It is not indexed for inflation. This applies to acquisition indebtedness, which means loans used to buy, build or substantially improve a primary or secondary residence. The disallowance of a home equity debt deduction has been made permanent (loans secured by one’s home but not used for acquisition indebtedness). Prior to the TCJA, the limit was $1,000,000, and that limit is grandfathered for those loans originating before December 15, 2017, or on a refinanced mortgage relating to that initial mortgage acquired prior to December 15, 2017. The BBB also restores the deductibility of mortgage insurance premiums permanently starting in 2026.
ESTATE TAX
The gift and estate tax exemption and the generation skipping transfer (“GST”) tax exemption were increased under the TCJA in 2017 to $10 million, indexed for inflation annually. As of 2025, those exemptions indexed are $13.99 million. The TCJA was scheduled to expire at the end of 2025, which would have reduced the exemptions to their levels prior to TCJA – a reduction of approximately 50%. The BBB increases these exemptions to $15 million in 2026, adjusted for inflation going forward and makes them permanent. The permanent increased exemptions allow individuals to engage in estate planning and lifetime gifting strategies with more certainty.
We note that the permanence may remove a sense of urgency to execute on estate tax mitigation strategies prior to the end of the year. However, it does not negate the need to continually review and update one’s plan. As history has shown, “permanency” is a relative term when it comes to tax legislation, and these transfer tax changes could be reversed by a future Congress and administration. And, for those who are approaching a taxable estate, making gifts using exemption as early as possible pushes appreciation out of the taxable estate using exemption at the current value. There are also numerous non-tax reasons to engage in estate planning, including probate avoidance, incapacity planning, business succession planning, fiduciary considerations and proper asset management.
CHARITABLE CONTRIBUTIONS
The BBB contains two key new provisions for charitable contributions. Starting in 2026, individuals who do not itemize deductions can claim a charitable deduction of up to $1,000 (or $2,000 for married couples filing jointly). For those who do itemize, charitable contributions are deductible to the extent they exceed 0.5% of adjusted gross income (“AGI”). So, a filer with $250,000 of MAGI would only be able to deduct contributions above $1,250. Taxpayers who want to avoid the limitation in 2026 should consider accelerating deductions in 2025. Charitably-inclined individuals age 70 and one-half or older might consider making cash charitable contributions directly from an IRA – also known as a Qualified Charitable Distribution (QCD). This strategy could be more beneficial to the taxpayer if they no longer itemize their deductions due to the large increase in the standard deductions, or to avoid the new 0.5% AGI floor. By making a QCD from an IRA, the taxpayer is directly lowering taxable income dollar-for-dollar.
TRUMP TAX BREAKS
While the President’s pledge to eliminate tax on Social Security payments did not materialize in the BBB, the bill contains a provision that provides a $6,000 deduction per person age 65 or older for single filers with income up to $75,000 and joint filers up to $150,000 before phasing out.
The BBB contains a “no tax on overtime” provision that allows a deduction up to $12,500 for single filers with income up to $150,000 and $25,000 for joint filers with income up to $300,000 for qualified overtime pay.
There is a “no tax on tips” provision that allows for a deduction up to $25,000 for single filers with income up to $150,000 and joint filers with income up to $300,000 before phasing out.
The BBB also has a “no tax on car loan interest” provision that allows deduction for up to $10,000 of interest on new car loans. The vehicle must be assembled in the U.S. with the vehicle serving as security for the loan.
All four of these provisions are in effect for tax years 2025-2028.
TRUMP ACCOUNTS
The BBB also introduces Trump Accounts, which are specialized savings accounts designed for parents to invest in the future of their children. They are regulated and treated similarly as IRA accounts. Children under age 18 are eligible, and contribution can begin 12 months after the enactment of the bill. Contributions must be cash, limited to $5,000 (indexed for inflation beginning in 2027) and can only be made in calendar years prior to the child turning 18. Distributions are allowed starting in the calendar year the child turns 18. Qualifying distributions are subject to the reduced long-term capital gains tax rate if used for higher education, first-time home purchase or starting a small business. Distributions taken for any other reason will be taxed as ordinary income. Withdrawals of contributions are non-taxable. The remaining balance of the account should be withdrawn by the time the beneficiary turns 31 to avoid the funds being taxed as income. To encourage participation, the legislation includes a one-time federal credit of $1,000 for beneficiaries born between 2025 and 2028.
QUALIFIED BUSINESS INCOME DEDUCTION
The BBB makes permanent the Section 199A qualified business income deduction, with no change to the current 20% deduction percentage. Additionally, the bill expands the limitation phase-in window from $50,000 for single filers ($100,000 for married filing jointly) to $75,000 for single filers ($150,000 for married filing jointly). For taxpayers with at least $1,000 of QBI from one or more sources in which they materially participate, the bill allows for a minimum QBI deduction of $400. The provision provides certainty for small business owners and self-employed individuals as the deduction was set to expire at the end of this year.
GREEN ENERGY
The legislation ends several green energy provisions, many of which were introduced or expanded under the 2022 Inflation Reduction Act, which marks a significant shift in federal energy policy. Clean Vehicle Credits for new and used vehicles now must be placed in service by September 30, 2025 (previously December 31, 2032). The Alternative Fuel Vehicle Refueling Property Credit now requires that the installation of electric vehicle charging equipment at a taxpayer’s personal residence needs to occur by June 30, 2026 (previously December 31, 2032). The deadline for qualifying for the Energy Efficient Home Improvement Credit is now December 31, 2025 (previously December 31, 2032), and the deadline for qualifying for the Residential Clean Energy Credit is now December 31, 2025 (previously December 31, 2034).
ALTERNATIVE MINIMUM TAX (“AMT”)
The TCJA set higher exemptions and phaseouts for the Alternative Minimum Tax – dramatically reducing the number of taxpayers subject to the AMT — but these were scheduled to expire at the end of this year. The BBB makes permanent the increased AMT exemption and phaseout thresholds effective December 31, 2025. However, starting in 2026, the AMT exemption phaseout thresholds will be reduced to $500,000 for single filers and $1 million for joint filers – effectively resetting those amounts to where they were when TCJA was first enacted in 2018. Another change arriving with the BBB is an acceleration in the phaseout rate. It increases from 25% to 50% in 2026, meaning that for every dollar of income above the threshold, fifty cents of the AMT exemption is lost. The result will be to moderately increase the likelihood of AMT exposure for certain high-income taxpayers. In summary, the inclusion of permanent AMT exemptions and phaseouts in the BBB enables a significant number of taxpayers to continue to avoid AMT. The acceleration of the phaseout may catch more high-income earners in AMT in 2026 compared to 2025.
While the One Big Beautiful Bill Act introduces several new tax provisions, in large part, the bill makes permanent many of the sweeping tax law changes from the 2017 Tax Cuts and Jobs Act. These permanent extensions and modifications, along with new laws, present planning opportunities for taxpayers to consider with their advisor.
FOR MORE INFORMATION, PLEASE REACH OUT TO:
Jonathan Henry, CFP®, CPA
Senior Wealth Advisor, Principal
jhenry@trustcompanyofthesouth.com
Disclosures:
This communication is for informational purposes only and should not be used for any other purpose, as it does not constitute a recommendation or solicitation of the purchase or sale of any security or of any investment services. Some information referenced in this memo is generated by independent, third parties that are believed but not guaranteed to be reliable. Opinions expressed herein are subject to change without notice. These materials are not intended to be tax or legal advice, and readers are encouraged to consult with their own legal, tax, and investment advisors before implementing any financial strategy.
