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Key Individual Taxpayer Takeaways of the One Big Beautiful Bill Act (OBBBA)
By Elijah Long, CPA, Associate
The One Big Beautiful Bill Act (OBBBA) is a comprehensive piece of legislation that affects nearly every American. Since being signed into law on July 4, 2025, there has been significant discussion about the impacts it will have on both businesses and individual taxpayers. For individual taxpayers, here’s what you need to know to prepare for the next filing season.Permanent Extensions of Key TCJA Provisions
The following list details the provisions in the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025 and are now permanent.- Tax Brackets: Makes the TCJA’s individual tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37% permanent.
- Standard Deduction: Permanently increased to: $31,500 for Married Filing Jointly (MFJ); $15,750 for Single; $23,625 for Head of Household (HOH)
- Personal Exemptions: Still eliminated, but a new $6,000 exemption is introduced for seniors (65+) from 2025 to 2028, phasing out at $150,000 MAGI (MFJ) or $75,000 (S/HOH/MFS).
- SALT Deduction: Temporarily raised to $40,000 in 2025 but begins phasing down to $10,000 for income exceeding $500,000. These thresholds would increase by 1% each year from 2026 through 2029. In 2030, the SALT cap would revert to $10,000.
- Child Tax Credit (CTC): Increased to $2,200 per child starting in 2025, indexed for inflation, with the refundable portion made permanent.
- Bonus Depreciation: Deduction limitation permanently restored to 100% for property placed in service after 1/19/25.
- Qualified Business Income Deduction (QBID): The 20% QBID deduction is made permanent; QBID, the income threshold for phaseout, increased to $75,000 (single) and $150,000 (MFJ)
Taxes and Deductions on Tips
The OBBBA introduces a new, temporary deduction designed to support workers in traditionally tipped occupations. For tax years 2025 through 2028, taxpayers may claim an annual deduction of up to $25,000 for qualified tip income reported on Forms W-2, 1099-K, 1099-NEC, or 4317. This deduction is available to both itemizers and non-itemizers. However, it begins to phase out once a taxpayer’s modified adjusted gross income (MAGI) exceeds $150,000 for single filers and $300,000 for joint filers.Qualifications for Tip Deductions
To qualify, the tips must be voluntarily paid in an occupation that the IRS determines to have “traditionally and customarily” received tips before 2025. Importantly, the business in which the tips are earned cannot be a specified service trade or business under Section 199A, and additional limitations apply to self-employed business owners, individuals, and independent contractors. On Form W-2, employers will be required to report qualifying tips of their employees. The Treasury Department is granted broad authority to issue regulations and guidance on the implementation of this provision. Within 90 days of enactment, the IRS is expected to update withholding tables and define which occupations qualify as traditionally tipped, as well as clarify what constitutes a voluntary tip. These rules will be critical for both employers and employees to ensure proper compliance and maximize the benefit of this new deduction.Qualified Overtime Pay Deductions
From tax years 2025 through 2028, individuals may claim an above-the-line deduction for qualified overtime pay. This deduction caps at $12,500 per year for single filers and $25,000 for joint filers. However, the deduction begins to phase out when Modified Adjusted Gross Income (MAGI) exceeds $150,000 for single filers and $300,000 for joint filers.Eligibility for Qualified Overtime Pay Deductions
- The overtime pay must meet the definition of ”qualified overtime pay” under the Fair Labor Standards Act (FLSA) of 1938.
- The income must be reported on a W-2 or 1099-NEX.
Charitable Contributions Deductions
Beginning in 2026, taxpayers who take the standard deduction may also claim a new below-the-line deduction for charitable contributions:- Up to $1,000 for single filers
- Up to $2,000 for married couples filing jointly
Key Limitations for This Special Charitable Deduction
- Contributions must be cash gifts.
- Donations to donor-advised funds are not eligible.
Car Loan Interest Deduction
The OBBBA introduces a new, temporary deduction designed to support vehicle ownership for middle-income taxpayers. For tax years 2025 through 2028, individuals may claim a deduction of up to $10,000 for interest paid on a qualified passenger vehicle loan, regardless of whether they itemize deductions. This deduction begins to phase out once modified adjusted gross income (MAGI) exceeds $100,000 for single filers and $200,000 for joint filers.Qualifications for Car Loan Interest Deductions
To qualify, the final assembly of the vehicle must take place in the United States. The vehicle must also be a qualified passenger vehicle, which generally includes a new car, minivan, van, sport utility vehicle, pickup truck, or motorcycle with a post-2024 loan to purchase. Lease financing is not deductible under this provision. These restrictions are designed to ensure that the deduction supports personal-use vehicle purchases that contribute to domestic manufacturing and transportation access.Lifetime Gifting & Estate Tax Exclusions
Beginning in 2026, the OBBBA introduces a permanent increase to the unified federal estate and lifetime gift tax exemption, raising it to $15 million per individual. This means individuals can transfer up to $15 million in assets—either during their lifetime or at death—without incurring federal gift or estate taxes.Key Features of Lifetime Gifting & Estate Tax Exclusions
- The exemption will be annually indexed for inflation ensuring periodic adjustments to reflect rising costs.
- This provision is permanent under the OBBBA.
End of Energy Related Credits
Several energy-related tax credits are phasing out under the OBBBA. Here are the key deadlines:Clean Vehicle Credit
- Applies to both new and used qualifying vehicles.
- Must be acquired before September 30, 2025, to be eligible.
Energy Efficient Home Improvement Credit
- No longer available for property placed into service after December 31, 2025.
Alternative Fuel Vehicle Refueling Property Credit
- Cannot be claimed for property placed into service after June 30, 2026.
Residential Clean Energy Credit
- Terminated after December 31, 2025.
- Taxpayers may still claim 30% of qualified expenditures made before 2026, as long as the property was placed into service after 2021.