On the Fourth of July this year, President Donald Trump signed into law a monumental piece of legislation known as the One Big Beautiful Bill Act (OBBB). It ushers in sweeping tax breaks for millions of Americans.
Permanent TCJA Provisions
Trump fought to maintain some key provisions of the TCJA that were set to expire in 2026. And he succeeded in that regard. So let’s see what stuck.First, the seven tax brackets established under the TCJA will remain the same. This means the lowest earners will fall under the 10 percent bracket and the highest earners would be in the 37 percent tax bracket. Prior to the TCJA, the highest tax bracket was set at 39.6 percent.
Next, the doubled standard deduction would also remain in place. For 2025, the standard deduction will increase to $15,750 for single filers, $31,500 for joint filers, and $23,625 for heads of households. These amounts would be indexed for inflation each year after 2025.
Moreover, while the TCJA set the state and local tax (SALT) deduction cap to $10,000, the OBBB increases the SALT deduction cap to $40,000 for joint filers and $20,000 for separate filers. Beginning in 2026, the cap will increase by 1 percent each year, before it reverts back to $10,000 in 2030.
However, the SALT cap would begin to phase out for those with incomes above $500,000 if filing jointly or $250,000 if married and filing separately. But the phase-out levels would also increase by 1 percent each year from 2026 through 2029. And in 2030, the $10,000 SALT cap would apply to single and joint filers regardless of income and be made permanent.
In addition, the mortgage interest-rate deduction would remain at $750,000 in mortgage debt or $375,000 for single filers. This limit applies to debt used to buy, build, or substantially improve a primary or secondary residence. However, the pre-TCJA limit of $1 million, or $500,000 if married filing separately, would still apply to mortgages acquired before December 16, 2017.
To claim the mortgage insurance premium deduction, adjusted gross income must be below $100,000, or $50,000 for married individuals filing separately. The deduction begins to phase out for incomes above these thresholds.
Affluent homeowners would also be happy to hear that the lifetime gift and estate tax exclusion increases to $15 million for single filers and $30 million for those married filing jointly in 2026. These exclusions would be indexed for inflation each following year.
Trump Account for Kids
American children born between Jan. 1, 2025, and Dec. 31, 2028, would be eligible for a new savings account with an introductory investment of $1,000 from the government. Children would have access to the account’s funds once they reach age 18. Parents could also open Trump accounts for kids born before 2025, but they won’t receive the $1,000 seed money.More Uses for HSAs and 529 Plans
The OBBB also allows 529 college savings plan funds to be used tax-free on more expenses, such as fees for testing, tutoring outside the home, and educational therapies for students with disabilities.No Tax on Tips and Overtime
The OBBB eliminates taxes on tips up to $25,000 through 2028. Moreover, it does away with taxes on overtime pay up to $12,500, or $25,000 if married and filing jointly, through 2028.Senior Tax Deduction
Americans aged 65 or older will get a $6,000 tax deduction in addition to the $2,000 they can currently deduct. The additional deduction begins to phase out for incomes of $75,000 for single filers and $150,000 for joint filers.Auto Loan Interest Deduction
Those who purchased vehicles with a final assembly that took place in the United States could deduct up to $10,000 in car loan interest. However, modified adjusted gross income (MAGI) would need to be $100,000 or less for individuals or $200,000 or less for those who are married filing jointly.The Bottom Line
The OBBB brings about major tax cuts to Americans. It makes certain aspects of the TCJA permanent, such as the raised standard deduction and current tax brackets. Some additions, like no taxes on tips and overtime, are temporary through 2028. And the law also introduces new provisions such as Trump accounts for children and a new senior deduction.The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.
From The Epoch Times