One Big Beautiful Bill - A summary under the scope of personal finance.

In light of the recent One Big Beautiful Bill (OBBB) being signed into law, I have put together a precise summary of important changes in the bill that have a direct impact on your personal income tax and financial plans. Please feel free to share this blog with friends and family who may also benefit from knowing these changes.

As the bill gets implemented, there will be nuances that require further clarification and instructions from the IRS. For now, enjoy this long read to stay informed and keep a finger on the pulse of the OBBB. If you have any questions or want to discuss how these changes affect your specific situation, please reach out to schedule a time to talk.

1. Permanent Extension of Reduced Tax Rates

The bill makes the reduced federal income tax rates from the 2018 Tax Cuts and Jobs Act permanent, preventing them from expiring in 2026. The current tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% will continue indefinitely, although future legislation could still change them. Income thresholds for each bracket will continue to adjust annually for inflation. Additionally, the bill includes a provision that appears to add an extra year of inflation adjustment for the 10%, 12%, and 22% brackets, which may slightly expand these brackets starting in 2025, although further clarification is expected on how this adjustment will be applied.

2. Permanent Extension and Increase of Standard Deductions

The bill makes the higher standard deductions from the 2018 Tax Cuts and Jobs Act permanent, preventing them from reverting to lower pre-2018 levels in 2026. It also increases these deductions starting in 2025. The base standard deduction amounts for 2025 will be:

· Single: $15,750 (up from $15,000)

· Married Filing Jointly: $31,500 (up from $30,000)

These amounts will continue to adjust annually for inflation. The additional standard deductions for those 65 and older remain unchanged under the bill, allowing for:

· Single (65+): an additional $2,000

· Married Filing Jointly (65+): an additional $1,600 per qualifying spouse

These additional deductions will also continue to adjust with inflation each year. Note that these standard deduction amounts are separate from the potential extra $6,000 deduction for individuals 65 and older under other provisions of the bill.

3. The Extra $6,000 Personal Exemption for Those 65 and Older

Starting in 2025 and lasting through 2028, a new $6,000 personal exemption will be available for individuals 65 or older, in addition to standard deductions. Personal exemptions were previously eliminated under the 2018 tax law, but this exemption has been added as a temporary measure.

The exemption amount is $6,000 per qualifying individual. Single filers 65 or older can claim $6,000, while Married Filing Jointly filers can claim $6,000 per spouse if each is 65 or older by year-end.

Income phaseouts apply:

· For Single filers, the exemption begins to phase out at $75,000 gross income and is fully phased out at $175,000.

· For Married Filing Jointly, the phaseout begins at $150,000 and ends at $250,000.

4. No Changes to Social Security Taxation

The bill does not change how Social Security benefits are taxed, they remain subject to federal income tax, and no new exemptions were added. Please be aware of claims that suggest Social Security is now tax-free as they are incorrect. However, the bill does increase standard deductions and exemptions for many taxpayers, including those 65 and older, which may reduce total taxable income. As a result, many Social Security recipients may pay less in overall taxes, including on their Social Security income, even though the benefits themselves are still taxable.

5. No Extension of Enhanced ACA Premium Tax Credits

The bill does not extend the expanded Affordable Care Act (ACA) premium tax credits that were first introduced under the American Rescue Plan in 2021 and extended by the Inflation Reduction Act through 2025. These enhancements removed the income cap of 400% of the federal poverty level and increased the amount of credits available, making coverage more affordable for many. Without an extension, these enhancements will expire after 2025, and in 2026, ACA premium tax credit rules will return to the previous structure: individuals with incomes above 400% of the federal poverty level will no longer be eligible for credits, and credit amounts will decrease for those who remain eligible.

The bill does make one change to ACA plans: beginning in 2026, all bronze and catastrophic plans purchased through the ACA exchange will qualify as High Deductible Health Plans, allowing policyholders to contribute to Health Savings Accounts (HSAs). Currently, most of these plans do not meet the requirements for HSA eligibility, so this will expand options for ACA plan holders starting next year. Medicare enrolled people will NOT be able to contribute to an HSA.

For those who are enrolling in the ACA plans (also known as Obamacare), it’s likely that your monthly health insurance premium will increase from 2026 going forward.

6. Temporary Increase to SALT Deduction Limit

For those who use itemized deduction, the bill temporarily raises the State and Local Tax (SALT) deduction limit from $10,000 to $40,000 per return for tax years 2025 through 2029, before the permanent $10,000 cap resumes. This applies to both Single and Married Filing Jointly filers, while Married Filing Separately filers have a $20,000 cap. The limit will increase by 1% annually for inflation during this period.

The increased SALT deduction phases out for higher incomes. For 2025, the phaseout begins at a MAGI (Modified Adjusted Gross Income) of $500,000 (Single and Married Filing Jointly) and fully phases out at $600,000, reducing the cap by 30% of the income over $500,000. The deduction cannot drop below the base $10,000 limit. For example, a taxpayer with $550,000 MAGI will have a SALT deduction limit of $25,000 [$40,000 – ($550,000 - $500,000) x 30%)]. The income phaseout thresholds will also adjust 1% annually for inflation.

For those who are using itemized deduction and paying more than $10,000 in state and local taxes, the temporary SALT deduction may help reduce your income taxes for those 5 years.

7. Permanent Charitable Deduction for Standard Deduction Filers

Starting in 2026, the bill allows taxpayers who use the standard deduction to also claim an additional deduction for charitable donations. This provision, similar to a temporary COVID-era measure but with higher limits, provides:

· Up to $1,000 for Single filers

· Up to $2,000 for Married Filing Jointly filers

There are no income phaseouts and these limits will not adjust for inflation. Taxpayers who itemize deductions cannot claim this additional charitable deduction, as their charitable giving would already be included in their itemized deductions.

You no longer must itemize to take deduction on your charitable donations up to the deduction limits.

8. Ending of Electric Vehicle and Energy Efficiency Tax Credits

The bill ends several tax credits related to energy and electric vehicles:

· Electric Vehicle Credits: Tax credits for electric vehicle purchases will end for vehicles acquired after September 30, 2025.

· Energy Efficiency Home Improvement Credits: Credits for qualifying energy-efficient home improvements (such as doors, windows, skylights, insulation, and air sealing) will end for improvements made after December 31, 2025.

· Residential Clean Energy Credits: Credits for installing residential renewable energy systems (including solar, wind, geothermal, and battery systems) will end for expenditures made after December 31, 2025.

After these dates, taxpayers will no longer be eligible for these credits on new purchases or improvements.

9. Temporary Deduction for Car Loan Interest Up to $10,000

From 2025 through 2028, taxpayers can deduct up to $10,000 of car loan interest from income, regardless of whether they take the standard deduction or itemize. To qualify, the vehicle must have been finally assembled in the United States, and the loan must be taken out in 2025 or later.

The deduction phases out for higher incomes:

· Single filers: phaseout begins at $100,000 MAGI and ends at $150,000.

· Married Filing Jointly: phaseout begins at $200,000 MAGI and ends at $250,000.

The deduction is reduced by 20% of the income above the phaseout thresholds, reducing the benefit to zero within these ranges. A single person would lose all if his $10,000 deductibility after $150,000 MAGI, and a couple would lose all of their $10,000 deductibility after $250,000 MAGI.

10. New AGI Threshold for Deducting Charitable Donations

Starting in 2026, the bill adds a new requirement for taxpayers who itemize deductions: charitable donations will only be deductible to the extent they exceed 0.5% of Adjusted Gross Income (AGI).

For example, if your AGI is $100,000 and you donate $2,000 to qualified charities, you will only be able to deduct $1,500 [$2,000 donation minus $500 (the 0.5% of $100,000 AGI threshold)]. This functions similarly to the existing 7.5% AGI threshold for medical expense deductions and will apply permanently going forward.

11. Permanent Cap on Mortgage Interest Deduction Limit

The bill permanently extends the reduced mortgage size limit for interest deductions established under the 2018 tax law. Previously, interest could be deducted on up to $1,000,000 of mortgage debt, but for mortgages taken out after 2017, the limit was reduced to $750,000, set to revert back in 2026.

Under the new law, the $750,000 mortgage debt cap for deducting interest on first and second homes will remain in place permanently, rather than returning to the higher $1,000,000 limit.

12. Permanent Elimination of Miscellaneous Itemized Deductions

The bill permanently extends the elimination of miscellaneous itemized deductions, which began under the 2018 tax law. Previously, taxpayers could deduct expenses such as tax preparation fees, investment management fees, and unreimbursed employee expenses, but these were suspended through 2025. Under the new law, these deductions will remain unavailable permanently, rather than returning after 2025.

13. Temporary Tip Income Exclusion Up to $25,000

From 2025 through 2028, up to $25,000 per person of tip income will be excluded from federal income tax, though it will still be subject to Social Security and Medicare taxes. This applies to lines of work where tips are “customarily and regularly” received, with additional details on qualifying jobs expected later.

The exclusion phases out for higher incomes:

· Single filers: phaseout begins at $150,000 MAGI and fully phases out at $400,000.

· Married Filing Jointly: phaseout begins at $300,000 MAGI and fully phases out at $550,000.

The exclusion reduces by 10% of the income above the phaseout thresholds, gradually lowering the $25,000 exclusion to zero within these ranges.

14. Temporary Overtime Pay Exclusion Up to $25,000

From 2025 through 2028, taxpayers can exclude up to $12,500 (Single) or $25,000 (Married Filing Jointly) of overtime pay from federal income tax. This income will still be subject to Social Security and Medicare taxes.

The exclusion applies to overtime pay as defined under the Fair Labor Standards Act, with additional details expected for clarification.

The exclusion phases out at higher incomes:

· Single filers: phaseout begins at $150,000 MAGI, ending at $400,000.

· Married Filing Jointly: phaseout begins at $300,000 MAGI, ending at $550,000.

The exclusion is reduced by 10% of the income above the phaseout thresholds, gradually reducing the benefit to zero within these ranges.

15. Creation of “Trump” Savings Accounts for Children

Starting in 2026, a new “Trump” savings account will be available for children under 18, functioning similarly to an IRA. Contributions can only be made while the child is under 18, with a maximum annual contribution of $5,000 (inflation-adjusted after 2027), there is no tax deduction on the contribution.

The government will automatically contribute $1,000 per year for every child born between 2025 and 2028, and will open accounts for these children.

Investments in these accounts will be limited to index ETFs or mutual funds with expense ratios of 0.1% or lower. Distributions cannot be made until the year the beneficiary turns 18, after which normal IRA distribution rules will apply, including a 10% penalty for withdrawals before age 59½ unless an exception applies. Earnings will be taxed as ordinary income upon withdrawal, while contributions will be returned tax-free. Qualified distributions after age 18 for qualified purposes such as education, first-home buying, start a business will be taxed at capital gains rate.

Further IRS guidance is expected to clarify implementation and tracking requirements for these accounts.

16. Permanent Extension of the QBI Deduction

The bill permanently extends the Qualified Business Income (QBI) deduction established under the 2018 tax law, which was previously set to expire after 2025. This deduction allows many owners of pass-through businesses—such as sole proprietors, partnerships, and S corporations—to deduct up to 20% of their qualified business income on their personal tax returns.

The bill also increases the income thresholds for the deduction's phase-out, especially for specified service trades or businesses (SSTBs, such as law, financial advisory, accounting, consulting, physicians, therapist offices) where the thresholds are now $75,000 for single filers and $150,000 for joint filers. A new minimum deduction of $400 is introduced for taxpayers with at least $1,000 of QBI from an active trade or business, adjusted for inflation. The bill maintains the existing phase-out structure for the QBI deduction. Unlike previous proposals, the OBBB does not make dividends from qualified "business development companies" eligible for the QBI deduction. These changes aim to provide more stability and clarity for taxpayers utilizing the QBI deduction.

17. Permanent Extension and Increase of Lifetime Estate and Gift Tax Exemption

The bill permanently extends the increased lifetime estate and gift tax exemption amounts established under the 2018 tax law, which were previously set to revert to lower levels in 2026. Additionally, starting in 2026, the exemption will receive an extra increase.

Currently, the 2025 lifetime exemption is $13,990,000 per person, with annual inflation adjustments. Under the new law, the exemption will be set at $15,000,000 per person starting in 2026, higher than it would have been with inflation alone. This amount will continue to adjust annually for inflation in future years.

This is welcome news for ultra-high-net-worth individuals, as it allows a greater portion of their wealth to be transferred to heirs before the 40% estate tax applies. For those with assets exceeding $15 million, there are legitimate estate planning tools available to ensure the legacy is preserved for future generations and charitable causes.

Disclosure: The information provided by Inclusive Wealth Financial Planning LLC in this newsletter is for general informational purposes only and does not constitute tax, legal, or financial advice. Each individual’s situation is unique, and laws may change or require further interpretation as guidance is released. Before making any decisions or changes based on the content of this newsletter, please consult with your CPA, attorney, and financial advisor to determine what is appropriate for your specific circumstances.