One Big Beautiful Bill Act — Individual Tax Provisions
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act, a comprehensive 870-page measure that touches nearly every part of the U.S. economy. Among its many provisions, the Act makes permanent and expands several tax benefits for individuals that were originally introduced under the Tax Cuts and Jobs Act (TCJA). While we covered the business-related updates in our previous issue, this summary focuses on the key individual tax changes.
Standard Deduction
Previously, the standard deduction was scheduled to drop in 2026—cutting in half from the 2025 amounts. The new law not only prevents that drop but also increases the deduction starting in 2025.
Individuals will be able to claim $15,750, heads of household $23,625, and married couples filing jointly $31,500.
These higher amounts are now permanent.
Temporary Deduction for Seniors
From 2025 through 2028, individuals aged 65 or older can claim an extra $6,000 deduction. For married couples filing jointly, each spouse may claim the full amount if both are 65 or older and meet income requirements. The deduction begins to phase out at a MAGI of $75,000 for single filers and $150,000 for joint filers. It applies whether the taxpayer itemizes or takes the standard deduction, and a valid Social Security number is required.
The deduction is reduced by six cents for every dollar above the income threshold and phases out completely at $175,000 for single filers and $250,000 for joint filers.
Example: If you’re single with a MAGI of $100,000—$25,000 over the threshold—the deduction is reduced by $1,500 (6% of $25,000), leaving you with a $4,500 deduction.
Child Tax Credit and Other Dependent Credit
The Act permanently creates an enhanced child tax credit of $2,200 (beginning in 2025) for qualifying children under 17. The Act also permanently retains the current, higher income phase-out thresholds ($200,000 for singles and $400,000 for MFJ).
The Act also makes permanent the $500 nonrefundable credit for other dependents who do not qualify for the child tax credit, including those over the age of 16, and makes permanent a requirement that the child and at least one parent have a social security number.
| CREDIT | TAX YEAR | MAX CREDIT PER DEPENDENT | REFUNDABLE? | INCOME PHASE-OUT THRESHOLD | SSN REQUIREMENT |
| Child Tax Credit (CTC) | 2024 | $2,000 | Up to $1,700 (ACTC) | $200K/$400K | Only child needs work-eligible SSN |
| Child Tax Credit (CTC) | 2025 | $2,200 | Up to $1,700 | Same | Both child and filer must have work-eligible SSNs |
| Other Dependent Credit | 2024-25 | $500 | Non-refundable | $200K/$400K | Dependent needs SSN or ITIN; filer rules per IRS |
Child and Dependent Care Credit
Starting in 2026, the Act raises the maximum percentage of qualifying expenses used to calculate the credit from 35% to 50%. However, as income increases, the percentage is gradually reduced.
| TAX YEAR | CREDIT RATE (%) | MAX EXPENSE LIMIT | MAX CREDIT (1 CHILD) | MAX CREDIT (≥2 CHILDREN) | REFUNDABLE? |
| 2025 | 35% | $3,000/$6000 | $1,050 | $2,100 | No |
| 2026 & later | 50% | $3,000/$6,000 | $1,500 | $3,000 | No |
Home Mortgage Interest Deduction
The law permanently sets the limit on mortgage debt eligible for interest deduction at $750,000, a cap originally introduced by the TCJA. The deduction no longer includes home equity loans unless the funds are used to buy, build, or significantly improve the home. Additionally, beginning in 2026, premiums for mortgage insurance will also be deductible.
State and Local Tax Deduction Limit
Starting in 2025, the SALT deduction cap increases to $40,000 and gradually rises each year through 2029, adjusted for inflation. In 2030, it reverts to $10,000. For higher-income earners, the deduction begins to phase out once income exceeds $500,000 in 2025, with the threshold adjusting annually through 2029. However, the deduction will never drop below $10,000. Importantly, the Act does not impact current workarounds, such as pass-through entity taxes (PTET).
Example: A couple with $550,000 in AGI in 2025 exceeds the $500,000 threshold by $50,000. With a 30% phaseout, $15,000 of their deduction is disallowed. Starting from the $40,000 cap, they can still deduct $25,000 in SALT.
Charitable Giving
For those who do not itemize, the Act introduces a permanent charitable deduction: $1,000 for individuals and $2,000 for couples filing jointly, starting after 2025.
For those who do itemize, a new rule requires that charitable contributions must exceed 0.5% of adjusted gross income (AGI) before they can be deducted.
Overall Itemized Deduction Limitation
Before the Tax Cuts and Jobs Act (TCJA), itemized deductions were subject to a limitation known as the 3%/80% rule. If a taxpayer’s adjusted gross income (AGI) exceeded a set threshold, their itemized deductions were reduced by the lesser of:
(a) 3% of the excess AGI over that threshold, or
(b) 80% of the total itemized deductions.
The TCJA repealed this rule, but it was scheduled to return in 2026. However, the OBBBA permanently repeals the 3%/80% limitation. Instead, it introduces a new rule.
Beginning in tax year 2026, a new overall cap on itemized deductions will take effect for taxpayers in the 37% tax bracket. This cap limits the benefit of itemized deductions to a maximum effective tax rate of 35%. Additionally, for those in the highest tax bracket, itemized deductions will be subject to a “2/37th rule,” which effectively reduces the tax benefits associated with these deductions.
Personal Car Loan Interest Deduction
From 2025 to 2028, individuals may deduct interest on car loans—up to $10,000 annually—for personal-use vehicles, provided the loan is secured by a first lien and the vehicle is assembled in the U.S. The deduction phases out for incomes between $100,000 and $150,000 for single filers, and between $200,000 and $250,000 for joint filers.
Tip Income Deduction
The Act also allows a temporary deduction—up to $25,000—for qualified tip income reported on tax forms such as the W-2, 1099-K, or 1099-NEC. Available from 2025 through 2028, this deduction applies only to workers in traditionally tipped occupations. It begins to phase out once income reaches $150,000 for individuals and $300,000 for joint filers. The deduction requires that the tip be voluntary and the taxpayer not work in a specified service trade or business.
Overtime Pay Deduction
For tax years 2025 through 2028, individuals may deduct up to $12,500 in qualified overtime pay, with the limit doubling to $25,000 for joint filers. This applies to overtime required under the Fair Labor Standards Act and must be reported separately on tax forms. The deduction phases out at the same income levels as the tip income deduction.
End of Clean Energy and Vehicle Credits
The Act eliminates several clean energy incentives. Clean vehicle credits—including for both new and used electric vehicles—will end for purchases made after September 30, 2025.
Residential energy efficiency credits for items like windows, doors, and solar panels will no longer be available for installations made after December 31, 2025. Commercial energy efficiency deductions also expire for construction starting after June 30, 2026.
If you’re unsure how the OBBBA might affect you, our team can help assess the tax impact and provide guidance on strategies to reduce your tax burden. Please call 215.675.8364 or email us to speak with a CPA today.
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