One Big Beautiful Bill Act (OBBBA) Highlights for Individuals
JEANNE PYLE SCOTT, DIRECTOR, CPA, CTFA, CGMA
CENTENNIAL TAX & ACCOUNTING
On July 4th, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), a tax reform bill that codified a number of his campaign promises. The bill makes permanent several items from the Tax Cut & Jobs Act (TCJA) dating back to his first term which were set to expire on December 31, 2025, as well as introducing a number of new and temporary provisions. While the bill impacts taxes for both individuals and businesses, this summary will focus only on those items which relate to individuals.
Lower TCJA tax rates are made permanent. The OBBBA has permanently extended the current tax rates which came into effect with TCJA, ranging from 10% to the highest rate at 37%, a reduction from the top 39.6% rate that was slated to come back in 2026.
Higher standard deduction is here to stay. TCJA introduced a much higher standard deduction, drastically reducing the number of taxpayers who benefit from itemizing their deductions. OBBBA has made this higher standard deduction permanent.
New temporary senior deduction for those age 65 and older. The bill creates a new $6,000 per person deduction for seniors, $12,000 for a married couple who are both at least 65 years old for tax years 2025 – 2028. However, the deduction phases out for individuals with modified adjusted gross income (MAGI) over $75,000, and $150,000 for couples.
Temporary deduction for workers earning tip income and overtime pay. For tax years 2025 – 2028, eligible workers can deduct up to $25,000 of qualified tip income and $12,500 of qualified overtime wages. There are several factors to consider in determining whether these types of income qualify for the deductions, and these deductions phase out at income levels above $150,000 for single filers and $300,000 for couples.
Potentially higher state and local tax (SALT) caps. The current $10,000 maximum on the SALT deduction is increased to $40,000 for taxpayers with income under $500,000. Above that limit, the deduction phases down to a minimum of $10,000. This provision applies to tax years 2025 – 2029.
Charitable deductions for non-itemizers. Beginning in 2026, those taking the standard deduction can deduct up to $1,000 per person for charitable donations. It is important to note that only donations of cash qualify for this deduction, it does not include non-cash contributions such as those of household goods or clothing.
New floor on charitable deductions for itemizers. While OBBBA makes permanent the increased charitable deduction of up to 60% of adjusted gross income (AGI), it implements a floor which effectively means that only donations that exceed 0.5% of a taxpayer’s AGI are deductible. This provision does not take effect until 2026, which could motivate taxpayers to bunch planned charitable deductions for both 2025 and 2026 into the current year to avoid the 0.5% floor.
Limitation on itemized deductions for high-income taxpayers. For those in the 37% tax bracket, OBBBA limits the benefit of itemized deductions to 35%, effectively creating a 2% tax for those in the top tax bracket.
Temporary deduction for qualified auto loan interest. For tax years 2025 – 2028, taxpayers are entitled to a deduction of up to $10,000 of qualified interest paid on a new auto loan. The final assembly of the car must take place in the US and there are additional factors including income phaseouts, weight limits and restrictions on intended use which may negate the ability to take this deduction. Leased vehicles are not eligible for the deduction.
Higher estate and gift tax exemptions are made permanent. In 2026, the federal estate and gift tax exemptions are permanently increased to $15 million per person and annually indexed for inflation beginning in 2027.
While the above items highlight a number of the individual tax provisions that are a part of OBBBA, it is not an exhaustive list. You are encouraged to discuss how the bill might impact your own tax return with your tax advisor.