The One Big Beautiful Bill: Highlights for Individual, Estate, and Gift Taxes

The Impact of the OBBB on Individual Taxpayers

Generally, the OBBB achieved its goal of extending many of the TCJA provisions, along with adding additional rules regarding specific items like taxation of tips and overtime pay.

The OBBB does change law impacting individual taxpayers as highlighted below:

Tax Rates and Brackets: The OBBB makes permanent the existing seven tax brackets created by the TCJA (10%, 12%, 22%, 24%, 32%, 35%, 37%); it does not create a higher tax rate for wealthy individuals that was being floated at one time. Brackets will continue to increase for inflation.

Standard Deduction: The OBBB makes permanent – and slightly increases – the standard deduction that was nearly doubled by the TCJA. The deduction will be increased based on inflation. The larger standard deduction essentially includes the reduction in income formerly provided by personal exemptions and a smaller standard deduction under pre-TCJA tax law.

Personal Exemptions: Many taxpayers may remember reductions to adjusted gross income (AGI) for personal exemptions. This item would have returned with the expiration of the TCJA but is now permanently eliminated by the OBBB.

Deduction for Seniors: The OBBB provides for a temporary $6,000 senior deduction (or exemption) for tax years 2025 through 2028 for individuals who are age 65 or older, with the benefit phasing out when modified AGI exceeds $75,000 for singles and $150,000 for married filing jointly taxpayers. The deduction is allowed to senior taxpayers who either claim the standard deduction or itemize deductions. It is not indexed for inflation. This provision is likely a compromise provision to the President’s goal of making Social Security benefits not taxable.

Itemized Deduction Benefit Limited: Beginning in 2026, a new provision places an overall limit on the tax benefit of miscellaneous itemized deductions (including SALT deductions, charitable contributions, and mortgage and investment interest) for the highest income earners at essentially 35%. This impacts the highest bracket taxpayers only (the 37% bracket is reached at roughly $626,000 of taxable income for single taxpayers and $752,000 for married filing jointly taxpayers using 2025 brackets). The provision specifically excludes a reduction for the qualified business income deduction.

Miscellaneous Itemized Deductions Not Allowed: The OBBB permanently denies the TCJA’s non-deductibility of almost all miscellaneous itemized deductions like tax preparation fees, investment fees and professional fees incurred with IRS audits and assessments. Only educator expenses are allowed as a miscellaneous itemized deduction.

State and Local Tax (SALT) Deduction Limitation: For tax years beginning in 2025, the OBBB retroactively increases the cap on SALT deductions to $40,000 (excluding a small 1% increase annually) for tax years through 2029, after which it is scheduled to return to $10,000. The deduction would also be subject to a phaseout for modified AGI greater than $500,000 in 2025 and similar 1% increases thereafter. It would not be reduced below $10,000. More importantly for business passthrough business owners, there would be no SALT limitation for passthrough entities.

Charitable Deduction For Non-Itemizers: Beginning in 2026, non-itemizing individuals can deduct up to $1,000 (or $2,000 for married couples filing jointly). This provision is permanent.

Charitable Deduction Floor Established: The OBBB establishes a floor for the deduction of charitable contributions for taxpayers who itemize. Beginning in 2026, charitable contributions will only be deductible to the extent they exceed 0.5% of AGI. A limited carryforward provision is provided for the disallowed portion; the excess may be carried forward if the taxpayer has other charitable carryforwards from the year.

Cash Contributions Allowed Up to 60% of AGI: The Senate also added a provision to the OBBB that makes the 60% AGI limitation for cash contributions to public charities permanent.

Home Mortgage Interest Deduction: The OBBB makes permanent the TCJA limitations on the deductibility of home mortgage interest at $750,000 of mortgage indebtedness (otherwise set to increase to $1,000,000 if the TCJA provisions expired). Home equity indebtedness is not separately deductible unless it qualifies as “acquisition indebtedness.”

Automobile Loan Interest Deduction: The OBBB establishes a new temporary deduction (also allowed to non-itemizers) for tax years 2025 through 2028 for “qualified passenger vehicle loan interest” on debt incurred after December 31, 2024, for the purchase of a personal use automobile secured by the debt. The automobile must be a new vehicle (car, minivan, SUV, pickup truck or motorcycle under 14,000 pounds) and final assembled in the U.S. There is a limit on the amount of interest deductible ($10,000) and limits on deductibility when modified AGI exceeds $100,000 ($200,000 in the case of a joint return).

Deduction for Tips Earned: This provision temporarily creates a limited above-the-line deduction for “qualified tips” received by an individual in an occupation (Treasury will publish a list within 90 days of enactment) that “customarily and regularly” receives tips during tax years 2025 through 2028. A qualified tip is one that must be paid voluntarily, is not subject to negotiation and is determined by the payor. The deduction is allowed for both employees receiving a W-2 and independent contractors receiving a 1099-K, 1099-NEC or reported by the taxpayer on Form 4317. The deduction is limited to $25,000 and begins to phase out when the taxpayer’s modified AGI exceeds $150,000 ($300,000 for married filing jointly).

Deduction for Overtime Pay: This provision temporarily creates a limited above-the-line deduction for “qualified overtime compensation” received by an individual during tax years 2025 through 2028. Qualified overtime compensation means overtime compensation paid to an individual required under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed. The deduction is limited to $12,500 ($25,000 in the case of a joint return) and begins to phase out when the taxpayer’s modified AGI exceeds $150,000 ($300,000 for married filing jointly).

Exclusion from Income of Gain on Section 1202 Qualified Small Business Stock: Taxpayers investing in certain small “C” corporations can achieve significant capital gain income exclusions of up to 100% of gains (or even over $500 million in gains in an extreme example) when selling stock that qualifies as Section 1202 Qualified Small Business Stock (QSBS). The OBBB makes substantial modifications and improvements to existing law, adjusting the QSBS exclusion to provide tiers (50% for stock held for three years; 75% for four years; 100% for five) for newly acquired stock while also increasing the eligibility for exclusion by raising the limit on the corporation’s gross assets at the time of stock issuance from $50 million to $75 million. Because Section 1202 has existed since 1993 and the rules have evolved over the years, it’s critical to understand your specific facts before the amount of gain eligible for exclusion can be determined.

Personal Casualty Losses: This provision permanently limits the itemized deduction for personal casualty losses resulting from federally declared disasters. When a loss is attributable to a disaster declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, the loss is deductible only to the extent of the sum of the individual’s personal casualty gains plus the amount by which aggregate net disaster-related losses exceed 10% of the individual taxpayer’s AGI as an itemized deduction. In any taxable year beginning after December 31, 2017, all other personal casualty losses – such as a fire that totally destroys a personal residence not caused by a federally declared disaster – are deductible only to the extent that the losses do not exceed the individual’s personal casualty gains.

NOTE: Qualified disaster losses are a special subset of a personal federally declared disaster loss and are not a miscellaneous itemized deduction subject to the above rule.

Child Tax Credit: Provides for a permanent increase in the child tax credit to $2,200 (indexed for inflation) for eligible taxpayers for tax years beginning in 2025. The OBBB also makes permanent the income phaseout threshold amounts of $400,000 for taxpayers filing jointly and $200,000 for all other taxpayers.

Adoption Credit: Formerly nonrefundable, the OBBB makes $5,000 of the total credit refundable ($17,280 for 2025 as adjusted for inflation). It did not change the income levels when the credit begins to phase out (at income levels roughly between $259,000 and $299,000 for 2025).

Qualified Elementary and Secondary Scholarship Tax Credit: The OBBB creates a tax credit not to exceed $1,700 (reduced by any state credit allowed) available to U.S. citizens or U.S. resident individuals equal to “qualified contributions” made to a “scholarship granting organization.” Various additional requirements and restrictions apply. The effective date is for tax years beginning after December 31, 2026.

Student Loan Debt Discharge: The OBBB makes permanent the exclusion from gross income the discharge of student loan debts due to death or disability.

Alternative Minimum Tax: The OBBB preserves the TCJA’s AMT exemption amounts but increases the phaseout rate to 50% (versus 25% under current law), accelerating the claw-back for upper income taxpayers.

Additional Miscellaneous Items: The OBBB permanently terminates other provisions, including the deduction for moving expenses and the determination of the amount of wagering losses allowed as a deduction.

The Impact of the OBBB on Estate and Gift-Related Provisions

Estate and Gift Tax Exemption: The OBBB makes permanent and increases the unified estate and gift tax exemption to an inflation-indexed $15 million for taxable years beginning after December 31, 2025. The generation-skipping transfer tax exemption is also permanently increased to an inflation-indexed $15 million.

Education Savings Accounts (provides enhanced gifting opportunities): The use of §529 Accounts offers the ability to save for future primary, secondary and college education expenses in a tax-efficient manner by providing for tax-free growth on principal contributed and allowing for tax-free withdrawals when used for qualified education expense. The funding of §529 plans can also offer valuable gift and estate planning benefits for parents and grandparents, though these rules are outside the scope of this guide.While many current rules surrounding 529 Accounts remain the same, the OBBB enhances educational planning by expanding the definition of “qualified higher education expenses” to include additional expenses eligible for K-12 usage (but excluding from the definition expenses incurred in homeschooling), such as curriculum and curricular materials, books or other instructional materials, online educational materials, certain tutoring expenses, educational therapies and fees for standardized testing, college admission examinations and advanced placement tests. These elementary and secondary school expenses are considered qualified higher education expenses for all purposes of §529. The OBBB also doubles the amount of allowed withdrawals for elementary and secondary school tuition and expenses from $10,000 annually per beneficiary to $20,000.

If you have questions about how the OBBB may affect you or your family, please reach out to us at [email protected].

This article is part of our ongoing series on the potential impact of the One Big Beautiful Bill. You may view our full library on our OBBB Resource Center.

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