The One Big, Beautiful Bill Act (OBBBA): What Changed for Your 2025 Taxes
If you haven't updated your tax strategy since the Tax Cuts and Jobs Act (TCJA) of 2017, now's the time.
President Trump signed the One Big, Beautiful Bill Act (OBBBA) into law on July 4, 2025, making it the biggest tax overhaul in eight years.
Some changes help most taxpayers: permanent tax rates, higher standard deductions, and new deductions for tips and overtime.
Others are targeted: adoption credits, car loan interest, and senior deductions. And some beneficial credits are ending this year.
Here's what changed, who it affects, and what you should do before filing your 2025 return.
Guide Sections
The IRS phases out many benefits if your MAGI exceeds the $150,000. MAGI is your adjusted gross income (AGI) with certain amounts added back in.
Part 1: Universal Tax Changes
Tax Rates and Brackets Are Now Permanent Under OBBBA
OBBBA permanently locks in the current tax rates. Without this change, rates would have increased at the end of 2025. OBBBA maintains inflation-indexed tax brackets.
Personal Exemptions Eliminated, Standard Deduction Increased for Tax Year 2025
The Tax Cuts and Jobs Act (TCJA) eliminated personal exemptions while significantly raising the standard deduction for taxpayers who don't itemize. OBBBA locks in both provisions permanently.
Future years will see inflation adjustments to these amounts.
State and Local Tax (SALT) Deduction Cap Raised to $40,000 Under OBBBA
The state and local tax deduction has been capped at $10,000 under TCJA. This limit applies only to taxpayers who itemize.
Part 2: Worker Benefits
No Tax on Tips: $25,000 Deduction for Tip Income Under OBBBA
Workers who customarily receive tips can now deduct up to $25,000 of that tip income each tax year under OBBBA.
To benefit from this deduction, your tip income must be reported on your tax return.
This applies to both W-2 employees and independent contractors.
New Deduction for Overtime Pay (Up to $12,500 or $25,000)
OBBBA introduces a deduction for qualified overtime compensation. To qualify, overtime must meet the requirements of the Fair Labor Standards Act Section 7.
To benefit from this deduction, your overtime income must be included in your income.
Key details:
Part 3: Family & Education Benefits
Child Tax Credit Permanently Increased to $2,200 Under OBBBA (Starting 2025)
OBBBA makes several changes to the child tax credit starting in 2025:
Trump Accounts: New Tax-Advantaged Savings for Children Under 18 (Starting 2026)
Under OBBBA, financial institutions can now offer Trump accounts starting in 2026. These tax-advantaged savings accounts are available to parents with children under age 18.
The federal government seeds eligible accounts with $1,000 per child under a pilot program. This applies to U.S. citizens born from January 1, 2024 through December 31, 2028.
529 Plans Under OBBBA: $20,000 Annual Limit and Expanded K-12 Expenses Starting 2026
In 2026, OBBBA raises the annual distribution limit from 529 savings plans:
OBBBA also expands eligible K-12 expenses to include:
- Curriculum and curricular materials
- Books and instructional materials
- Online educational materials
- Tutoring or educational classes outside the home
- Testing fees
- Dual enrollment fees for higher education courses
- Educational therapies for students with disabilities
Part 4: Age-Based Benefits
No Tax on Social Security: $6,000 Senior Deduction for Ages 65+
Individuals age 65 or older at tax year-end qualify for a new OBBBA deduction.
Part 5: Homeownership & Auto
New Deduction for Car Loan Interest (Up to $10,000)
Under OBBBA, you can deduct interest on car loans. Qualifying loans must be for new U.S.-assembled vehicles purchased after December 31, 2024.
Mortgage Insurance Premium Deduction Permanently Restored Under OBBBA (Starting 2026)
OBBBA reinstates the mortgage insurance premium deduction permanently starting in 2026.
Part 6: Charitable Giving & Adoption
Charitable Contribution Deduction (Starting in 2026)
In 2026, OBBBA allows non-itemizers to deduct charitable donations:
If you itemize deductions, OBBBA adds a 0.5% AGI floor. Your charitable deduction gets reduced by 0.5% of your adjusted gross income.
Adoption Credit: Now Partially Refundable Up to $5,000 Under OBBBA (2025)
OBBBA changes the adoption tax credit starting in 2025:
Part 7: Special Situations
OBBBA Limits Gambling Loss Deduction to 90% of Losses Starting in 2026
Under current tax rules, gambling loss deductions are capped at the total amount of gambling winnings reported for the year.
OBBBA adds a new 90% limitation on gambling loss deductions starting in 2026.
Here's how it works:
- If you win $10,000 and lose $8,000, you can currently deduct the full $8,000
- Starting in 2026, you can only deduct $7,200 (90% of $8,000)
- You pay tax on $2,800 instead of $2,000
Part 8: What's Ending in 2025
OBBBA Terminates EV, Solar, and Home Energy Credits (Ending September-December 2025)
OBBBA terminates several clean energy tax credits in 2025:
- New clean vehicle credit (ends September 30, 2025)
- Previously-owned clean vehicle credit (ends September 30, 2025)
- Energy efficient home improvement credit (ends December 31, 2025)
- Residential clean energy credit (ends December 31, 2025)
Part 9: Understanding OBBBA and Your Next Tax Filing
Understanding OBBBA and Your Next Tax Filing
OBBBA is complicated. These changes will affect different people in different ways depending on your income, filing status, and current deductions.
If you're not sure how the law affects you, talk to someone who can walk through your specific situation.
Schedule a tax planning call to see how OBBBA affects your 2025 taxes.
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