This month, we present our first electronic copy of the Advisor's Bulletin. We hope that you enjoy our new format. As always, please reach out to us with any questions you might have.
On July 4, 2025, President Trump signed House Resolution 1 (HR1), the One Big Beautiful Bill Act (OBBBA) into law after its narrow passage in both the House and the Senate.
The final version of OBBBA was slightly different from the bills originally passed, as both congressmen and senators struggled to reconcile the differences between the lower and upper chambers.
Here are a few highlights of the OBBBA:
- The federal income tax rates scheduled to sunset at the end of this year were extended.
- Certain taxpayers older than 65 received a bonus deduction against taxable income.
- The estate tax exemption was stabilized at an amount slightly higher than its current level.
- The pass-through business deduction was retained with slight modifications.
The OBBBA’s provisions affect the tax-planning decisions that many of our clients will make in 2025 and beyond. Read on for a summary of key features and the potential implications for planning.
Provisions of the OBBBA
The final version of the OBBBA can be found at this link:
https://www.congress.gov/119/bills/hr1/BILLS-119hr1enr.pdf
The pdf document contains provisions affecting hundreds of different areas of government policy. We have selected a few key areas which we believe are of the most interest to financial professionals.
Extension of Federal Income Tax Rates
The OBBBA permanently extends the federal income tax rates and brackets created by the Tax Cut and Jobs Act (TCJA) in 2017. These were scheduled to sunset at the end of this year until the new law was enacted.
Here is a chart comparing the brackets and rates for someone married filing jointly for 2024 and 2025:
Source: https://www.kiplinger.com/taxes/tax-brackets/602222/income-tax-brackets
Going forward, the taxable income amounts associated with each tax bracket will be adjusted for inflation.
Enhancements to Individual Tax Deductions
The OBBBA has increased the size of certain tax deductions for many of our clients.
STANDARD DEDUCTION
The standard deduction is available to taxpayers who do not itemize deductible expenses on their returns. The original 2025 amount will rise from $15,000 to $15,750 for single filers. It will increase from $22,500 to $23,625 for heads of household and $30,000 to $31,500 for joint filers.
These amounts will be adjusted for inflation going forward and are scheduled to be permanent.
SENIORS
The new law creates an additional deduction for seniors age 65 or older from 2025 through 2028.
The new deduction is $6,000 for each taxpayer older than 65—or $12,000 for a married couple filing jointly. The good news is that the new deduction is on top of the extra standard deduction of $3,200 already available for jointly filing taxpayers where both spouses are older than 65. The other good news is that the extra $6,000 is also available for senior taxpayers who itemized instead of claiming the standard deduction.
However, there is also bad news. The bonus senior deduction is phased out at a rate of 6 percent of the amount of the household’s modified adjusted gross income exceeds $75,000 (single) or $150,000 (joint). That means households with more than $175,000 of gross income (single) or $250,000 (joint) will be fully phased out of the additional senior deduction.
Where a couple is married, both spouses’ bonus senior deductions are reduced simultaneously by the phaseout.
Here’s an example of the bonus deduction calculation:
Howard Sprague (71) and his wife Eunice (63) are a married couple who will earn $210,000 of gross income in 2025. They will choose to claim the standard deduction on their joint federal income tax return.
The Spragues will claim the following deductions against their taxable income in 2025:
- the regular standard deduction of $31,500,
- the senior deduction of $2,000 available to Howard, and
- a portion of the bonus senior deduction available to Howard.
The bonus deduction would be reduced by 6 percent for every dollar the Spragues gross income exceeds $150,000. In this case, the excess is $60,000—so the reduction would be $3,600. That would leave a net bonus deduction available to Howard of $2,400.
Neither senior deduction would be available to Eunice because she is younger than 65.
SALT
Before 2018, state and local income and property taxes were generally federally income tax-deductible as an itemized expense.
The TCJA limited the federal income-tax deduction for state and local taxes (SALT) to $10,000, or $5,000 for married persons filing separately.
The OBBBA has increased the maximum SALT deduction to $40,000, effective immediately. The maximum available deduction will increase by 1 percent per year through 2029. The maximum is reduced by half for married taxpayers filing separate returns.
The limit on the SALT deduction is reduced by 30 percent for those with modified adjusted gross income above $500,000 or above $250,000 for married persons filing separate returns. The income-based reduction cannot lower the SALT deduction below $10,000, or $5,000 for married persons filing separate returns.
This SALT maximum deduction is scheduled to revert to $10,000 beginning in 2030.
CHARITABLE DEDUCTIONS
OBBBA creates a charitable deduction for taxpayers who do not itemize in the maximum amount of $1,000 for single taxpayers and $2,000 for married persons filing jointly. This provision will be available starting with tax year 2026.
To qualify for the new deduction, contributions must be made in cash directly to a qualified public charity. Contributions to donor-advised funds and supporting organizations do not qualify.
Also beginning in 2026, taxpayers who itemize will only be able to claim a deductible charitable contribution to the extent that the amount contributed exceeds .5 percent of the person’s adjusted gross income (AGI).
In 2026, taxpayers in the highest federal income tax bracket will have the tax benefit of a charitable deduction reduced slightly.
Finally, OBBBA has extended the enhanced 60 percent of AGI cap on deductions for cash contributions to public charities. The limit was scheduled to drop to 50 percent at the end of this year.
QUALIFIED OPPORTUNITY ZONES
The new law permanently extends the qualified opportunity zone (QOZ) program with certain modifications and enhancements. Without these modifications, investments in OZs after December 31, 2026, would have no longer been eligible for OZ tax benefits. These tax benefits included the ability to defer capital gains recognition on the sale of non-QOZ assets by reinvesting in QOZ assets.
The QOZ program has changed as a result of the OBBA:
- The types of properties eligible for QOZ treatment have changed.
- The new rules favor certain rural area properties for QOZ treatment.
- QOZs are subject to new reporting requirements.
The new QOZ rules are complex, and it is expected that clarifying regulations will be needed to sort out some of the unanswered questions.
Business Provisions
The OBBBA has many provisions affecting our business-owning clients.
PASS-THROUGH TAX DEDUCTION
The new law permanently extends the Section 199A passthrough deduction, which allows some owners of pass-through business entities up to 20 percent deduction for qualified business income.
BONUS DEPRECIATION AND SECTION 179 EXPENSING
The OBBBA increases the maximum Section 179 deduction from $1,000,000 to $2,500,000 for items such as office furniture, computers, or software. The higher limit applies permanently for tax years beginning in 2025. The expansion benefits small to midsize businesses because the availability begins to be phased out if a business spends more than $4 million on Section 179 assets in 2025.
The new law restores a 100 percent bonus depreciation for qualified property, which had been reduced to 60 percent for 2024. The full bonus depreciation rate applies only to property both acquired and placed in service after January 19, 2025, unless under a written binding contract dated before then.
New Trump Accounts
Trump accounts are IRA-style accounts for minors and designated under new Revenue Code Section 530A. Annual contributions are after-tax and capped at $5,000. The account grows tax-deferred. Funds cannot be accessed before age 18, unless as a rollover.
A qualified child born between 2025 and 2028 with U.S. child and parent citizenship can receive a one-time $1,000 federal contribution.
The tax treatment of distributions from the Trump accounts would depend on how they would be used. Distributions used for qualified expenses (e.g., higher education costs) are taxed at capital gains rates, and other distributions are taxed at ordinary rates. An additional 10 percent tax is imposed on taxable nonqualified distributions prior to age 30.
On the taxpayer’s thirty-first birthday, the account matures, and any balance will be treated as having been distributed.
Changes to Federal Estate Tax Rules
The OBBBA permanently increases the federal estate, gift, and generation-skipping tax exemptions to $15 million ($30 million for married couples) beginning in 2026. The exemption would continue to be indexed for inflation going forward.
The federal estate tax rate continues to be 40 percent.
The GST exemption is likewise increased to $15 million in 2026 and is scheduled to align with the federal estate tax exemption going forward.
Enhancement of 529 and ABLE Account Rules
The OBBBA enhances 529 plan flexibility by
- increasing the K–12 expense cap from $10,000 to $20,000 and allowing use for curriculum, books, tutoring, online tools, dual enrollment, and educational therapy—applicable to public, private, and religious schools; and
- including postsecondary expenses such as tuition, fees, books, testing, and continuing education tied to certain approved programs.
The new law also makes permanent
- the ability for working beneficiaries to make additional contributions to ABLE accounts up to their compensation or poverty line—whichever is less—and
- the ability to make rollovers from 529 plans to ABLE accounts for the same beneficiary or family member.
Other Changes
Here is a short summary of some of the other changes made by OBBBA:
1. Allows farmers to elect to treat the sale of farmland as a four-year installment sale.
2. Creates a lifetime borrowing cap of $257,500 for federal student loans.
3. Eliminates the employer deduction for providing on-premises employee meals.
4. Makes HSA participation possible for bronze-level ACA participants.
5. Eliminates federal income tax on qualified tips and qualified overtime pay.
6. Changes the alternative minimum tax phaseout rules.
7. Limits the deduction for casualty losses to government-declared disaster areas.
8. Eliminates the clean vehicle credit after September 30, 2025.
OBSERVATIONS
Here are a few observations with regard to the OBBBA that are not directly related to the impact on federal taxes.
Effect on National Debt
Based on Congressional Budget Office (CBO) estimates, the OBBBA will increase the federal budget deficit by $4.1 trillion over the 2025–2034 period. See https://www.crfb.org/blogs/senate-obbba-charts. The current federal debt is about $36.7 trillion.
Complexity
Much of what is included in the OBBBA seems complex. For example, the new senior bonus deduction described earlier in this article—with its income-based reduction—is not simple. The new rules on itemized charitable deductions are also a bit head-scratching in
- creating a floor before deductions can be taken and
- slightly reducing the value of the deduction for high-income taxpayers.
On the positive side, extending current federal income tax brackets permanently (whatever that means) is a victory for simplicity.
Prognosis
According to https://www.ceicdata.com/en/indicator/united-states/government-debt--of-nominal-gdp, the current debt-to-GDP ratio for the federal government is more than 120 percent. While economists do not agree on a percentage that can be sustained before the economy collapses, the U.S.’s ratio is high compared to its peers.
While many of the provisions of the OBBBA are labeled as permanent, it’s hard to imagine what that actually means in Washington. The new law passed with razor-thin margins in the Republican-controlled Congress. When the party in control of the legislature changes in the future—which seems certain based on history—the entire Revenue Code seems likely to be subject to change.
Opportunities
Here are a few opportunities financial professionals and their best clients ought to consider going forward:
1. Take advantage of income taxes being “on sale.” It seems likely that federal income tax rates will rise in the future due to national debt concerns. That means strategies such as Roth conversions or income acceleration are more attractive.
2. Since federal estate tax rules have seemed to stabilize, make long-term adjustments. The rules around federal estate taxes have been relatively stable—multimillion-dollar exemption amount and spousal portability—since 2011. For those who still have an estate tax problem and have not yet made tax-management plans, life insurance in an irrevocable trust is still an attractive tool.
3. Business owners should continue to invest in the operations. The OBBBA extended the availability of the business pass-through deduction and expanded some rules with regard to business expensing and bonus depreciation. The federal government is rewarding certain businesses for investing—so owners should pay attention.
Conclusion
It’s a big deal that the OBBBA extended lower federal income tax rates permanently. That portion of the new law is likely to have the greatest impact for most of our best clients.
The rest of OBBBA seems to have made minor changes to many different things. For example, elimination of the tax deduction for employer-provided meals seems strangely targeted. Also, the ability for someone selling a farm to elect four-year installment treatment appears to be weirdly specific.
Having said that, the OBBBA is now the law of the land. We have an opportunity to explain its provisions to our clients and prospects as we help them make tax plans for the rest of 2025 and the coming year.