On July 4th, the One Big Beautiful Bill Act (OBBBA) was signed into law, and with it came a number of changes for current and future tax law.
Over the next four weeks, we will break down these changes and how they will impact tax planning for our clients going forward.
In Part I of our series, we focus on the big picture changes that the bill signed into law.
We will explore what this means for you, whether you are a high-earning professional, a retiree, or a business owner, in future blogs in this series.
Let’s get started!
2025 Tax Changes You Should Know About
Here is a high-level overview of general changes, including those to general tax brackets, SALT Cap, and estate and gift taxes. If you would like to learn more about how the US Tax Bracket System works, explore this blog, which illustrates tax brackets with a simple story.
Tax Brackets Made Permanent
Possibly the most significant portion of the bill is that the current tax brackets (originally put in place through the 2017 Tax Cuts and Jobs Act (TCJA)), have been made permanent.
These tax brackets were initially set to expire at the end of 2025, which would have meant a reversion to the pre-2017 brackets, which would have increased tax rates across the board. Taxpayers can now comfortably plan forward without this risk.
The permanent tax brackets are shown in the below chart for 2025 (and will be adjusted for inflation going forward).
Increased SALT Cap
For taxpayers who itemize deductions, a limitation was put in place through the TCJA that only allowed $10,000 of deductions to be taken for state, local, and real estate taxes.
The 2025 tax changes increased this cap to $40,000 ($20,000 for single filers), which will provide further deductions for some higher-income taxpayers and/or taxpayers who live in higher tax states. This $40,000 cap does get decreased for filers with incomes (as defined by Modified Adjusted Gross Income) over $500,000 and reverts back to $10,000 for filers over $600,000 in income.
This cap is temporary for tax years 2025-2029.
Estate and Gift Tax
The TCJA doubled the estate and gift tax when the bill passed, and that amount was set to expire at the end of 2025, reverting back to the pre-TCJA amounts. The OBBBA permanently increased the estate tax from its current value of $13.99 million per person ($27.98 million per couple, to $15 million per person ($30 million per couple).
Beginning in 2027, this amount will be adjusted annually for inflation. This exemption provides clarity for high-net-worth families, meaning that fewer estates are impacted by the federal estate tax of 40%.
Charitable Giving
The most complex of these changes is in the form of new charitable giving rules. These rules will affect any taxpayer, whether they itemize deductions or not, given the unique nature of some of the new provisions:
For non-itemizing taxpayers
- New “above-the-line” deduction: Non-itemizing taxpayers can deduct a limited amount of cash donations without itemizing:
• $1,000 for single filers.
• $2,000 for married couples filing jointly. - Exclusions: This deduction applies only to cash contributions and does not include gifts to donor-advised funds (DAFs) or private non-operating foundations.
For itemizing taxpayers
- New 0.5% AGI floor: Charitable contributions are only deductible to the extent that they exceed 0.5% of the taxpayer’s Adjusted Gross Income (AGI).
• For example, if your AGI is $400,000, you must donate more than $2,000 (0.5%) before any of your contributions can be deducted. - Ceilings remain: The pre-existing AGI limits for deductions, such as the 60% of AGI cap for cash contributions to public charities, continue to apply.
For High-income taxpayers
- 35% cap on itemized deductions: The tax benefit of all itemized deductions, including charitable contributions, is capped at 35% of a high-income taxpayer’s AGI. This reduces the after-tax value of deductions for those in the highest tax bracket.
Welcome to our Tax Series for 2025 Changes Under the OBBBA
Over the coming weeks, we will continue to unpack these changes and their effect on tax planning going forward. We are honored to partner with you as we navigate these changes together!
If you have any questions sparked by this blog or the tax changes in general, please don’t hesitate to contact us; we’re always happy to help.
