What The New Tax Bill Means for You

The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. It’s a major update to the tax code, making permanent many of the rules first introduced in 2017 under the Tax Cuts and Jobs Act (TCJA) and adding new deductions and credits. Several of these provisions could significantly affect your tax strategies—both positively and negatively, so I wanted to share a summary.

Key Tax Changes

1. TCJA Rates Are Now Permanent
   • Income tax brackets from the 2017 TCJA are here to stay, offering a bit more long-term (OK, fine: medium-term) clarity for tax planning.
2. Standard Deduction Increased – In 2025, the standard deduction is:
   • $15,750 (Single)
   • $23,625 (Head of Household)
   • $31,500 (Married Filing Jointly)
   • It is anticipated that these will continue to be adjusted for inflation annually.
3. SALT Cap Increased (Temporarily)
   • From 2025–2029, the State and Local Tax (SALT) deduction cap rises to $40K for MFJ (unchanged for singles/HOH).
   • Phaseout alert: Begins at $500K AGI and fully phases out by $600K.
   • Marginal tax rate in this phaseout zone may exceed 45%!
   • Note: This is a big potential win for unmarried couples in high-tax states where you earn >$500K together but neither of you is way over individually.
4. Itemized Deduction Limitation for Top Earners Starting in 2026, those in the 37% bracket face a cap that limits the tax benefit of itemized deductions to 35% of AGI, using a formula that reduces itemized deductions by 2/37 of the lesser of: (a) total deductions or (b) excess income over the threshold.
5. Mortgage & Charitable Deduction Changes
   • The $750K cap on mortgage acquisition indebtedness (married filing jointly), with $375K limit for married separate filers, is now permanent.
   • Charitable deductions subject to a 0.5% AGI floor starting in 2026.
   • New $1,000 (single) / $2,000 (MFJ) charitable deduction for non-itemizers in 2026 (cash only, not to DAFs).
6. 20% Qualified Business Income (QBI) Deduction Now Permanent
   • Phaseout thresholds remain ($197,300 single / $394,600 MFJ).
   • New minimum $400 deduction if you have at least $1,000 of “active” business income and materially participate in the business.
   • Broader phaseout range starts in 2026, easing qualification.
   • Phaseout remains more punitive for business owners in what the tax code calls “Specified Service Trade or Businesses” (SSTBs), which include law, medicine, accounting, consulting, and other professional services.
7. AMT Phaseouts Create New “Bump Zone”
   • AMT exemption remains $137K (MFJ).
   • Phaseout has been lowered and now starts at $1M (MFJ) with 50% phaseout rate—marginal AMT rate can hit 42%

Temporary Deductions: 2025–2028 Most of these deductions are available as below-the-line deductions (do not reduce AGI), but you can claim them even if you don’t itemize. However, they phase out at higher income levels:

*Auto loan interest does reduce AGI Child & Education Provisions

1. Child Tax Credit Expanded

• • Increased to $2,200 per child (the refundable portion of the credit remains $1,700).
  • Phaseouts: $200K–$243K (Single/HOH), $400K–$443K (MFJ)

2. 529 Plans Expanded

• • K–12 withdrawals up to $20K/year (starting 2026)
  • Now includes: tutoring, test prep, continuing ed, therapies, credentialing (e.g. CFP courses)
    • Rules apply to any distributions taken after 7/4/2025.
    • Note: States (like Illinois) do not make these changes as quickly as the federal government, so be sure to check before you utilize these benefits if your state allows a tax deduction when you contribute, as you could trigger a recapture of the state deduction.

3. Trump Accounts (2025–2028 births)

• • $1,000 seed deposit (opt-in required)
  • $5,000 total annual contribution cap (includes $2,500 potential contribution from employer).
  • No access to funds until age 18; distributions taxed like traditional IRAs thereafter.
  • Investment restrictions: U.S. equity index funds only, max 0.1% fees.
  • Can contribute starting July 1, 2026 and ending the year the child turns 17.

Qualified Small Business Stock (“QSBS”) QSBS is a special type of stock that may allow investors to exclude up to 100% of the capital gains from federal taxes when they sell it, if certain requirements are met. This powerful tax benefit is governed by Section 1202 of the Internal Revenue Code. QSBS Definition: Qualified Small Business Stock (QSBS) is stock that meets all of the following criteria:

1. Issued by a C Corporation The company must be a domestic C-corp, other than a few excluded industries (like law, accounting, finance, hotels, restaurants, etc.).
2. Gross Assets ≤ $75million (up from previous limit of $50 million) At the time the stock is issued, the company’s gross assets must not exceed $75 million.
3. Original Issuance The investor must acquire the stock directly from the company (not on the secondary market).
4. Active Business Requirement At least 80% of the company’s assets must be used in the active conduct of one or more qualified businesses.

The OBBBA introduced new tiered gain exclusion rules for QSBS acquired after July 4, 2025:

• • Held < 3 years: 0% exclusion
  • Held 3–4 years: 50% exclusion
  • Held 4–5 years: 75% exclusion
  • Held 5+ years: 100% exclusion

Additional Updates:

• • exclusion increased to $15M, indexed for inflation (up from $10M)
  • Changes in QSBS treatment with respect to AMT and taxation for heirs at death.
  • QSBS rules before July 4, 2025 remain unchanged (100% exclusion after 5 years, $10M limit)

Roth Conversions: Proceed Strategically While tax rates remain favorable, new phaseouts for deductions make Roth conversions more delicate:

• • Converting too much could eliminate eligibility for tips/overtime/auto interest/senior deductions.
  • Consider multi-year conversion plans to stay within lower brackets and preserve deductions.
  • Monitor for AMT exposure and Medicare IRMAA