By Robert Lange, EA
The One Big Beautiful Bill Act was signed into law earlier this month, and with it comes new changes to the tax code. This act carries a slew of new provisions all across the board, but today we’ll delve into the tax related changes that may be relevant to you.
Summary Breakdown
TCJA 2017 tax brackets and higher standard deduction made permanent.
2025 Standard Deduction increasing to $31,500 for joint filers; $23,625 for Heads of Households; $15,750 for single and MFS filers.
Child tax credit increases to $2,200
New Senior Deduction
Up to a $6,000 additional deduction per eligible taxpayer
Eligibility: 65+ years old
Full deduction if MAGI is $75,000 or lower for single filers; $150,000 or lower for joint filers, phased out if income above listed amounts
Tax Deductions on Overtime and Tips
Can deduct up to $25,000 of tips; up to $12,500 of OT income
Certain professions excluded from deduction
Charitable deductions even if you take standard deduction in 2026
Up to $1,000 deduction for single filers; up to $2,000 for joint filers, starting in Tax Year 2026
Auto loan interest can now be deducted
Must be a new car purchased after December 31st, 2024
Vehicle must have final assembly in the US.
Other eligibility restrictions may apply
1. Tax Cuts and Jobs Act changes made permanent
At its base, the One Big Beautiful Bill Act addressed the elephant in the room. Most of the tax changes made in 2017 under the TCJA were set to expire after 2025, but now they are made permanent. This includes a higher standard deduction, lower tax rates across most brackets, and a higher child tax credit, just to name a few.
This continues to shift most taxpayers away from itemizing, utilizing the higher standard deduction each year. Since the inception of the TCJA, it is estimated that only 10% of taxpayers itemize their deductions, while the other 90% leveraged the standard deduction. Under the OBBBA, it is likely that those trends will continue. The standard deduction for 2025 will rise to $31,500 for joint filers, $23,625 for Heads of Households, and $15,750 for single and separate filers. Additionally, the Child Tax Credit gained another $200 for a maximum of $2,200 per child 16 or under.
2. Rising limits on State and Local Tax Deductions
One change to an itemized deduction, however, may see a shift in the direction of itemization this next year. Under the TCJA, tax payers could deduct the amount of tax they paid to their state and locality during the year, but only up to a limit of $10,000. Meaning if in 2024 you paid property tax of $4500, local income tax of $2500, and state income tax of $3200, you were capped out on the deduction amount you could’ve claimed, leaving a $400 deduction at the door.
Now, under the OBBBA, that limit rises to $40,000 for those with a yearly income under $500,000 ($250,000 for married filing separately). Above that, the increase is phased out by 30% until it’s back to the old limit of $10,000 at $600k gross income.
This change may see some taxpayers choosing to itemize if their state and local tax had been hampered by the limit in the past, especially if they were high income earners, owned multiple properties, or for those who made particularly large purchases throughout the year.
3. New Additional Senior Deduction
In addition to the rising standard deduction, a new benefit has arisen for qualified seniors. Taxpayers who are 65 years of age or older by the end of the tax year may receive up to a $6,000 additional deduction per eligible taxpayer. That means that joint filers both over age 65 may receive a deduction up to $12,000 for 2025, regardless of whether or not they itemize.
This new deduction is limited by yearly income, beginning to phase out at $75,000 ($150,000 for joint filers), and tapering off entirely at $175,000 ($250,000 for joint filers). This provision also is set to expire at the end of 2028.
The bottom line: Qualifying seniors filing from 2025 -- 2028 may see a significant reduction in their taxable income, regardless of if their only source of income is from Social Security.
4. Tax Deduction on Overtime and Tips
Another of the more anticipated points is the move to make tips and overtime non-taxable. This is coming in the form of a deduction, however it includes a handful of limits.
Up to $25,000 of tipped income can be deducted from income starting in 2025, regardless of whether a taxpayer is itemizing or taking the standard deduction. This deduction is available for all filers under an income limit of $150,000 ($300,000 for joint filers), and is reduced gradually as income rises above those limits until it's eliminated entirely.
For overtime pay, the situation is similar. The first $12,500 of overtime pay ($25,000 for joint filers), can be deducted from income regardless of itemizing status. The income limits are the same as well, at $150,000 and $300,000 respectively, with a tapering decrease as income rises past that.
There are, however, new guidelines disallowing this deduction for certain business fields, including health, law, accounting, consulting, athletics, brokerage services, and farming.
At the end of the day, many tip and overtime earners may find a portion of their respective income tax free, leading to a tax break in these next few years.
5. New Charitable Deduction Rules
One of the most commonly utilized provisions within the existing tax code is deducting yearly charitable giving. However, what many people have overlooked, is that because of the higher standard deduction, many taxpayers no longer itemize and don’t see this deduction come to fruition.
However, under the new act starting in Tax Year 2026, there is now a $1000 ($2000 for filing joint) above-the-line deduction for non-itemizers, meaning that if you take the standard deduction, you’ll receive some benefit after all.
This comes at a slight cost, as now when itemizing, charitable deductions are only tallied after donating half a percent of your gross income. In other words, a household with income of $100,000 donating $10,000 every year to qualified charities will only see $9500 reflected on their itemized deductions.
Overall, this may be a sizable change for taxpayers who donate frequently each year but never enough to itemize, at the cost of those who do.
6. Auto Loan Interest Deduction for New Car Purchases
This deduction may affect far less taxpayers than the others, but it's worth mentioning. Under prior tax code, interest that accrued on certain loans could be tax deductible, but that only applied to mortgages, student loans, certain investment loans or business loans. Now, loans used to purchase eligible vehicles in 2025 may see the interest deductible through 2028.
The deduction is limited to $10,000 per year, and begins to phase out when income exceeds $100,000 ($200,000 for filing joint). It also only applies to vehicles with final assembly in the United States, and must be purchased brand new after December 31st, 2024.
The exemptions for this deduction seem longer than the inclusions, so if you’re concerned about qualifying for a new vehicle purchase, we’ll be happy to help determine if you’re eligible for this deduction in coming years.
Conclusion
There are many provisions under the OBBBA we didn’t cover, including the estate and gift tax adjustments, some of the repealed energy credits, and many of the changes to business tax provisions, but for many tax taxpayers, just the changes listed above may see a significant difference in their returns than prior years.
If you’re concerned about filing for 2025, or qualifying for any of these deductions, Munn Tax Services would be happy to help.
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