As with most spending/tax bills that are signed into law, there end up being more questions than answers, with the IRS left to figure out the details. Even so, we are fielding questions from many clients about the impact of this law on their specific situations, so we wanted to provide some information around what we believe are likely the most impactful parts of this bill.
Tax Brackets Will Not Change
Tax brackets and standard deductions set up in 2017’s Tax Cuts and Jobs Act (TCJA) are now permanent. This is fairly straight forward, though it should be noted that the standard deductions for 2025 have increased to $15,750 single/$31,500 joint.
Additional Senior Tax Deduction
One of the more frequent questions on the OBBB surrounds the new additional senior tax deduction. Individuals over the age of 65 with incomes less than $75,000 (single)/$150,000 (joint) can now claim an additional $6,000 per person deduction on top of the standard deduction and the current 65+ or blind deduction.
For example, an eligible couple both 65+ with $100K in Modified Adjusted Gross Income (MAGI) could claim a total standard deduction of $46,700 in 2026. There is a phaseout for use of this deduction which effectively means that those with MAGI over $175,000 (single) or $250,000 (joint) will not be eligible.
Finally, there is no provision as a part of the new legislation that changes the taxability of Social Security benefits, despite being a part of previous versions of this bill.
SALT Deduction Increases
State and Local Tax (SALT) deductions and the limitation on them was a major piece of the TCJA. The OBBB now increases the potential SALT deduction to $40,000 for a household, starting in 2026 and sunsetting in 2030.
There is of course a phase out of this down to a minimum of $10,000. This so called “phase down” reduces the deduction by 30% of the amount by which a household’s MAGI exceeds $500,000. The MAGI limits are the same for all filing types, except those married filing separately will have income limits reduced by half.
This could have more meaningful tax impacts on those taxpayers with MAGI between $500,000 and $600,000 who pay significant state and local taxes, plus had other itemized deductions. Each dollar earned over $500,000 has a double impact of both reducing their SALT deduction and increasing their taxable income. We anticipate more analysis from tax experts on this so that proper planning can be done with our clients, so stay tuned.
529 Plans – Eligible K-12 Expenses Expanded
Section 70413 of the OBBB expands the list of K-12 expenses eligible to be paid using 529 Savings Plan assets. Originally annual K-12 expenses were limited by $10,000 per year. This limit has doubled to $20,000 per year and now can include expenses like:
- Expenses for curriculum materials, textbooks, instructional materials, and online education materials
- Costs for tutoring provided outside the home, if the tutor is unrelated to the student and meets specific qualifications
- Fees for standardized tests, AP exams, and college admission exams
- Dual enrollment fees for postsecondary programs (e.g., college courses taken in high school)
- Educational therapy costs for students with disabilities, including occupational, behavioral, physical, and speech-language therapies
Estate Tax Exemption Raised
Section 70106 of the OBBB increased the federal exemption amount to $15 million per person ($30 million per couple) starting in 2026, with inflation adjustments in future years. This is a welcome extension for wealthy individuals, many of whom have worked on gifting some assets now in preparation for the reversion of the estate tax exemption back to around $7 million.
Tax Breaks for Business
The Section 199A Qualified Business Income deduction was made permanent, which allows a 20% deduction for pass-through income for certain businesses. In addition, the phaseout amounts were increased and rules for service businesses modified so that more taxpayers may take advantage of this break.
Also, the OBBB significantly expands the potential capital gains exclusions for holders of Qualified Small Business Stock, in Section 1202. For stock owners to take advantage of this exclusion, the business must be a qualified C Corporation, create a product and not just offer services, and the taxpayer must acquire the stock in an original issue of the company. If the stock is held for at least five years, a taxpayer can exclude a gain of up to $10 million or 10 times the cost basis when sold (whichever is larger).
Other provisions:
- No tax on tips up to $25,000 per taxpayer (available 2025-2028)
- No tax on overtime up to $12,500 per taxpayer (2025-2028)
- Repeal of Clean Energy Credits for new electric vehicles, charging equipment, and home energy improvements, with terminations between September 30,2025 and June 30, 2026.
- Car loan interest deduction for new purchases of passenger vehicles assembled in the US (2025-2028).
- Restarting and expanding the Qualified Opportunity Zone program for investments in designated areas of the country (2027-2033).
That’s a lot to digest. Of course, we and certainly your tax professional will be reviewing the law and further clarifications from the IRS in the weeks and months to come. We are happy to answer questions you may have!