Written by Nate Green, CFP®, Emily K. Diaz, MAcc, CPA, CFP®, Joseph A. Patterson, CFP®, and Ryan P. Pollock, CPA
On July 4, 2025, the One Big Beautiful Bill (OBBB) was signed into law, bringing with it a host of tax changes that will affect nearly every American household. While the name may be lighthearted, the implications are significant, especially for those focused on long-term financial planning.
Our team has reviewed the legislation and is already incorporating its provisions into our financial planning process and conversations. Here’s a breakdown of what you need to know.
Key Provisions Made Permanent from the 2017 Tax Cuts and Jobs Act (TCJA)
- Lower Tax Brackets: The lower rates will remain in place, with the top bracket holding at 37%.
- Higher Estate Tax Exemption: The TCJA doubled the estate tax exemption from roughly $5.5M to over $11M, indexed for inflation. This was scheduled to sunset at the end of 2025, with the exemption set to drop by half. With the OBBB, the higher exemption will now be permanent, starting at $15M in 2026, and will be indexed for inflation.
- Increased Standard Deduction: The higher standard deductions under TCJA will continue, with personal exemptions permanently eliminated. The deductions are now $15,750 for individuals and $31,500 for joint filers.
- Other provisions from the TCJA were made permanent, including the Qualified Business Income (QBI) deduction, increased exemption and income phaseouts for Alternative Minimum Tax (AMT), an expanded child tax credit, and a cap on the mortgage interest deduction of $750k of principal.
New Senior Deduction and Taxation of Social Security Benefits
- Senior Deduction: A new deduction of $6,000 per person over age 65 was established and is phased out above income (MAGI) of $75,000 (single)/$150,000 (joint). This will take effect in 2025 and will remain in place through 2028.
- Note: the Social Security Administration blog posted an article on July 3 noting the OBBB “ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income tax on their benefits.” This post caused some confusion, as the OBBB has not changed the taxation of Social Security benefits. However, when the new $6,000 senior deduction is added to the existing standard deduction ($17,750 for a single filer age 65+), the total $23,750 of deductions would offset the average Social Security benefit of $24,000/year, according to the analysis cited. Notably, this computation does not include any other sources of taxable income. Most Foster & Motley retired clients have taxable income in addition to Social Security benefits to be considered. Because the new senior deduction phases out at income levels exceeding $75,000 (single)/$150,000 (joint), high-income retirees will not be impacted by this new provision.
- It’s also worth noting that the new senior deduction is available to those age 65 and over (with the above-mentioned income phaseouts), regardless of whether they are yet collecting Social Security benefits.
New Provisions
- SALT (State and Local Tax) Deduction: The OBBB temporarily increases the SALT deduction from $10,000 to $40,000 ($20,000 for Married Filing Separate) and will increase 1% each year. There’s a 30% phaseout for incomes over $500,000, and the deduction reverts to $10,000 in 2030.
- Trump Accounts: New tax-advantaged savings accounts will be available starting in 2026 for children under 18. These accounts will have an annual contribution limit of $5,000. Employers can also contribute. A $1,000 government-funded contribution will be available for children born between 2025 and 2028. No distributions can be taken until the year the beneficiary turns 18. Funds will grow tax-deferred. Earnings (but not principal) will be taxable upon distribution.
- Note: For clients interested in saving for their children’s or grandchildren’s college, a 529 account offers tax-free growth (if used for education) and has higher contribution limits than the Trump Accounts.
- Charitable Deductions: Beginning in 2026, new provisions include:
- Non-itemizers: Those who don’t itemize deductions can claim up to a $1,000 (single)/$2,000 (joint) as a deduction on top of the standard deduction.
- Itemizers: For those who itemize deductions, there is a 0.5% of adjusted gross income floor for charitable gifts. Gifts in excess of the floor are deductible.
Other Changes
- Limitation on Itemized Deductions: Beginning in 2026, itemized deductions are limited to 35% for those in the 37% bracket. Given this change, individuals in the 37% bracket in 2025 may have the opportunity to accelerate deductions from 2026 into 2025 to maximize the 37% deduction.
- 529 Plans: Tax-free distributions from 529s can now be taken for a broader variety of expenses, including K-12 books & materials, as well as post-secondary credentialing expenses. In 2026, the maximum withdrawal for K-12 expenses will be raised from $10,000 to $20,000 per year.
- Tip & Overtime Income: New deductions are available for up to $25,000 for tips and $12,500 ($25,000 Joint) for overtime pay. Both are phased out above $150,000 (single)/$300,000 (joint) MAGI. These provisions are effective from 2025 through 2028.
- Car Loan Interest: Interest up to $10,000 will be deductible for new vehicles assembled in the U.S., regardless of whether the taxpayer itemizes deductions. This benefit phases out above $100,000 (single)/$200,000 (joint) MAGI. This deduction is in effect from 2025 through 2028.
- Scholarship Granting Organization Credits: Taxpayers can claim a $1,700 non-refundable credit beginning in 2027 for gifts made to Scholarship Granting Organizations. This amount is lowered by any credit claimed at the state level.
- Premium Tax Credit: For those using the Healthcare Insurance Marketplace, the bill made several changes to eligibility with various effective dates.
- Green Tax Credits: The sunset of several green credits has been accelerated, with the clean vehicle credit ending 9/30/25 and the energy efficient home improvement credit ending 12/31/25.
What This Means for You
The OBBB offers both clarity and complexity. For many, it removes the uncertainty of a looming tax cliff in 2026, both for income and estate taxes. For others, it introduces new planning opportunities—and a few new wrinkles.
Whether it’s optimizing deductions, planning charitable gifts, or revisiting estate strategies, we’re here to help you make the most of the new landscape.
The OBBB contains many provisions, including a number of business tax law changes. This summary focuses on the individual provisions that would most impact Foster & Motley clients. For more information, see this summary and the full text of the bill here.
If you have questions about how the OBBB affects your situation, reach out to your financial advisor to schedule some time to review. We’re ready to walk through the details with you.