OBBBA – Individual Key Provisions

OBBBA – Individual Key Provisions

The One Big Beautiful Bill Act (#OBBBA) takes effect in 2025 and stops the automatic tax hikes scheduled for 2026. If you will be filing individual taxes in 2026 or beyond, you will want to know what is new, why it matters, and how it could affect your plans. Signed into law on July 4, 2025, this law is worth paying attention to—so let’s break down what it means for you.

This is part 1 of 3 part series on OBBBA and outlines the Individual Key Provisions. For Business Key Provisions and Energy Key provision refer to part 2 and part 3 respectively.

1. Individual Income Tax Rates
   • Locks in lower tax rates permanently. Before the OBBBA, several rates were scheduled to rise automatically in 2026.
   • Protects middle-class taxpayers from inflation-driven bracket creep
2. Standard deduction – It permanently eliminates personal exemptions and increases the standard deduction.
   • Single & MFS: $15,750 (indexed)
   • HoH: $23,625 (indexed)
   • MFJ: $31,500 (indexed)
   • Effective: Jan 1, 2025
3. State and local tax (SALT) cap – If you itemize deductions, the SALT cap just got a big boost under the OBBBA. It went up from $10,000. Here’s the breakdown:
   • 2025: $40,000
   • 2026: $40,400
   • 2027–2029: increases 1% per year
   • 2030 and later: reverts to $10,000.
   • Income phase-down: Starts at $500,000 AGI (2025), indexed for inflation.
   • Additionally, there would be no SALT limitation for pass- through entities.
   • Effective: Jan 1, 2025
4. Enhanced deduction for seniors – If you’re 65 or older, the OBBBA gives you a little extra breathing room on your taxes.
   • Claim an additional $6,000 deduction, or $12,000 for a married couple if both spouses qualify.
   • File Jointly to qualify. Married filing separately – MFS do not qualify.
   • This is in addition to the standard deduction (extra relief) for seniors.
   • Phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
   • Valid SSN required.
   • Effective: 2025 through 2028.
5. Child tax credit (CTC) – The OBBBA makes the Child Tax Credit more generous—and permanent. A win for families juggling the cost of raising kids.
   • Credit: $2,200 per child, with $1,400 refundable (adjusted for inflation)
   • Phaseout: $200,000 (single), $400,000 (MFJ)
   • Requirements: To claim the credit, both the taxpayer (or spouse) and the qualifying child must have valid Social Security numbers issued before the tax return is due.
   • Other dependent credit: $500, now permanent
6. Mortgage interest deduction.
   • $750,000 limit is now permanent
   • Includes mortgage insurance premiums (effective 2026)
   • Interest on home-equity debt remains excludable from the definition of qualified residence interest.
7. Casualty loss deduction– The OBBBA brings some relief when disaster strikes.
   • The deduction for losses from casualties (like fires, storms) is extended permanently.
   • It is now expanded to include “State declared disasters”, not just federally declared ones.
   • Definitions clarify what counts as a disaster (hurricanes, tornadoes, storms, floods, tsunamis, etc.).
   • Effective date: Jan 2026.
   • Effect: Taxpayers affected by disasters declared by their state can deduct personal and business casualty losses on their tax returns, giving more relief after local disasters.It’s not just a line on a tax return, it’s a small measure of support when life hits hard.
8. Miscellaneous itemized deductions – Permanently removed. Effective 2026
9. Educator expenses preserved and expanded – The OBBBA continues to recognize the incredible work teachers do. Educators can still claim the standard above-the-line deduction, and those who itemize can now deduct even more out-of-pocket expenses. Included costs are:
   • Classroom supplies, books, and other instructional materials.
   • Computer equipment, software, and related services.
   • Professional development course fees, including reasonable travel and lodging expenses.
   • COVID-19 protective items like masks and disinfectants.
   • Athletic and non-athletic supplies for health and physical education courses
   • New Deduction (Effective 2026): Starting in the 2026 tax year, the OBBBA introduces an additional itemized deduction for unreimbursed expenses with no dollar limit and no 2% AGI floor, which was previously a requirement for miscellaneous itemized deductions
10. Pease limitation (itemized deductions phaseouts) – Permanently removes the overall limitation on itemized deductions (known as the Pease limitation) and replaces it with a new overall limitation on the tax benefit of itemized deductions. The number of itemized deductions otherwise allowable would be reduced by 2/37 of the lesser of:
    • the amount of the itemized deductions or
    • the amount of taxpayer’s taxable income that exceeds the start of the 37% tax rate bracket.
    • Effective 2026
11. Moving expenses deduction
    • Permanently terminates deduction (except for Armed Forces).
    • Effective 2026
12. Wagering losses
    • Limits losses from wagering transactions to 90% of the amount of such losses, only to the extent of winnings.
    • Effective 2026
13. Charitable deduction for non-itemizers (Cash deductions only)
    • Creates a charitable contribution deduction of $1,000 for single filers or $2,000 for MFJ for certain charitable contributions. The deduction is permanent.
    • Effective 2026
14. Charitable deduction for individuals who itemize (Cash deductions only)
    • New Floor for Itemizers: Only contributions exceeding 0.5% of AGI are deductible.
    • Example: A taxpayer with a $1 million AGI must make over $5,000 in contributions before any deduction is available.
    • Deduction Value Cap: Taxpayers in the highest tax bracket can only receive a maximum 35% tax benefit from charitable deductions (instead of full 37% marginal rate).
    • Permanent 60% AGI Limit: The existing rule allowing cash contributions to public charities to be deducted up to 60% of AGI is made permanent and will not expire as previously scheduled.
    • Effective 2026
15. No tax on tips– The OBBBA gives some relief to workers in traditional tipped occupations by allowing a deduction for reported cash tips up to $25,000 and is effective 2025 through 2028
    • Creates a deduction (not exclusion) for reported cash tips.
    • Income phase-out: Begins at $150,000 AGI (single) and $300,000 AGI (joint)
    • Not allowed for certain professional/service businesses, requires SSN and joint filing if married.
    • Trade or business rule: For self-employed individuals who receive tips in a trade or business, the deduction cannot exceed the net income (before this deduction) from that specific trade or business. This means a deduction generally is not allowed if a net loss is reported. 
    • QBI Section 199A(c)(4) now excludes amounts deductible under Sec. 224, so no double benefit.
    • Extension of Tip Credit to Beauty Services
16. No tax on overtime– The OBBBA gives relief for workers by allowing a deduction for the overtime premium—the pay you earn above your regular rate. More money in the pocket for those working overtime.
    • Max deduction: $12,500 single and $25,000 joint
    • Excludes: Any qualified tips (Sec. 224).
    • Same AGI phase-out as tips: Starts at $150k / $300k.
    • Requires SSN and joint filing if married.
    • Applies only to FLSA-required overtime.
    • Effective 2025-2028
17. No tax on car loan interest – OBBBA allows deduction for interest on new personal, U.S.-assembled passenger vehicles, with the vehicle serving as security for the loan. For those financing a new car, this deduction can help reduce the bite of interest payments—making your ride a little less expensive in the long run.
    • Limits:
      • $10,000 annual interest cap/Yr
      • Phases out above $100,000 AGI (single) / $200,000 AGI (joint)
    • Vehicle must be:
      • New
      • Under 14,000 lbs.
      • Final assembly in the U.S.
    • Requirements:
      • Loan after Dec 31, 2024
      • First lien
      • Vehicle assembled in the U.S.
      • VIN must be reported.
      • Lenders must report interest to IRS.
      • Excludes leases, salvage vehicles, commercial/fleet vehicles.
      • Effective: 2025 – 2028
18. Adoption credit
    • Makes $5,000 of the credit refundable; inflation adjusted.
19. 529 plan qualified expenses – The OBBBA expands 529 plan benefits, allowing funds to cover more K–12 and homeschool costs as well as postsecondary credentialing expenses.
    • New highlight: CPA credentialing expenses, including exam fees, are now eligible.
20. Dependent care assistance programs: The maximum annual amount excludable from income under a Sec. 129 dependent care assistance program increases from $5,000 to $7,500 under the act.
    • Effective 2026.
21. Child and dependent care credit – The act permanently increases the amount of the child and dependent care tax credit from 35% to 50% of qualifying expenses. Since the qualifying expenses have increased, it will mean higher credits for qualifying taxpayers.
    • Effective 2026.
22. Bicycle commuting reimbursements – The act permanently excludes qualified bicycle commuting reimbursements from the list of qualified transportation fringe and other commuting benefits, making them taxable to employees.
    • Now, any employer reimbursements for bicycle commuting expenses are considered taxable income to the employee, although employers can still deduct the expense as a business expense.
23. Student loan discharge
    • Student loans (federal and private) discharged due to death or total disability are excluded from taxable income permanently.
    • SSN required to claim the exclusion
    • Effective for discharges after 2025
24. Excise tax on remittance transfers – OBBBA Introduces a 1% excise tax on remittance transfers funded by physical instruments.
    • Cash
    • Money orders
    • Cashier’s checks
    • Other similar physical instruments by individuals to foreign recipients
    • Effective 2026.
25. Estate and gift tax exemption – The amount of money you can pass on without paying federal estate or gift tax is increased:
    • From $5 million (base amount) to $15 million per person.
    • For married couples, this can effectively mean up to $30 million if planned correctly.

The One Big Beautiful Bill Act delivers real wins for individual taxpayers, from locked-in lower rates and boosted deductions to fresh relief on tips, overtime, and car loans—putting more money back in your pocket starting 2025. Families, seniors, and workers alike stand to benefit, so seize these changes to optimize your tax strategy now.

If you found this article on Individual Key Provisions helpful, you may also want to read our post on Trump Accounts.

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Disclosure: This material has been prepared for informational purposes only. It is not intended as a substitute for personalized professional advice. You should consult your own tax advisors or contact us if you need help with implementing any ideas shared on this page.