Major Tax Changes: The 2025 One Big Beautiful Bill (OBBB)

The “One Big Beautiful Bill Act” (OBBB Act), signed into law by President Trump on July 4, 2025, represents a massive overhaul of federal tax policy. The expanse and complexity of the new tax bill cannot be understated. Given the breadth and recency of the bill, tax, financial, and legal professionals will need time to assess the impact and consider various planning strategies. This article includes a summary of the key areas affecting taxpayers with higher incomes and seniors.¹

Key Tax Changes Covered

• Individual Income Tax Rates, Brackets, Deductions
• Tax Rates and Brackets
• Standard Deduction
• New Senior Deduction and Existing Blind/Age 65+ Deduction
• State and Local Tax (SALT) Deduction Cap
• Alternative Minimum Tax (AMT)
• Charitable Donation Limits
• Itemized Deduction Limits for Taxpayers in the 37% Tax Bracket
• 529 Qualified Expense Expansion
• Qualified Small Business Stock (QSBS or Section 1202)
• Estate and Gift Tax Provisions
• Other Miscellaneous

Note: Darrow Wealth Management offers investment management and financial planning services; we do not provide tax advice. Please discuss your situation with a CPA or qualified tax advisor. 

Individual Income Tax Rates and Brackets

• The current individual income tax rates and brackets are made permanent. This includes the top individual income tax rate of 37%.
• The current brackets were set to expire at the end of the year and put top bracket back up to 39%.

Standard Deduction

The increased standard deduction amounts are made permanent and further increased.

• New Amounts (2025): $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly. These amounts will be adjusted annually for inflation.

New Senior Deduction

• • The OBBB introduced a new, temporary $6,000 deduction per person for taxpayers aged 65 and older.
  • The senior deduction is effective for years 2025 through 2028.
  • Income Limits for Senior Deduction: This $6,000 deduction phases out for Modified Adjusted Gross Income (MAGI) exceeding $75,000 for single taxpayers and $150,000 for married taxpayers.

Existing Blind/Age 65+ Deduction

• • The new “senior deduction” (above) is in addition to the existing blind/age 65+ deduction.
  • This means taxpayers will receive an extra $2,000 to the standard deduction for single filers or $1,600 for each eligible married filer.

State and Local Tax (SALT) Deduction Cap

• • The $10,000 cap on the SALT deduction is temporarily increased to $40,000, but not for taxpayers earning more than $500,000 per year.
  • Effective Dates: For years 2025 through 2029. Both the SALT cap and the income phaseout ranges will increase by 1% annually for 2026-2029 before reverting to $10,000 in 2030.
  • Income Limits: The $40,000 cap is phased downward (but not below $10,000) for taxpayers with MAGI over $500,000 and will be eliminated (capped at $10,000) for taxpayers with MAGI over $600,000.
  • As with current law, the SALT limit is the same regardless of whether the taxpayer is filing single or jointly. The limit for married filing separately will be $20,000 in 2025.

Alternative Minimum Tax (AMT)

The OBBB made the current AMT exemptions permanent while reducing the income phaseout limits to 2018 levels. This will have major implications for employees with incentive stock options (ISOs).

• AMT Exemptions:
  • • 2025 Rules: $88,100 for single and $137,000 for joint filers. These higher amounts were made permanent instead of sunsetting at the end of 2025.
    • 2026 Changes: The AMT exemption amounts in 2026 will be $90,100 for single filers and $140,200 for joint filers.
• AMT Exemption Phaseout Income Thresholds:
  • • 2025 Rules: $626,350 for single filers and $1,252,700 for joint filers.
    • 2026 Changes: Thresholds will reduce to 2018 levels: $500,000 for single and $1,000,000 for joint filers, indexed for inflation annually.
• AMT Exemption Phaseout Rate (income above threshold):
  • • 2025 Rules: Once a taxpayer’s AMT income reaches the exemption threshold, the phaseout rate is 25% of the dollar amount above the threshold. Single filers are totally phased out with income of $978,750 and joint filers $1,800,700.
    • 2026 Changes: Once a taxpayer’s AMT income reaches the exemption threshold, the phaseout rate will double to 50% of the dollar amount above the threshold, meaning the AMT exemption will be reduced twice as fast when income exceeds the threshold. The 2026 AMT exemption phase-out ranges are $680,350 for single filers and $1,280,400 for joint filers.

Charitable Donation Limits

New 0.5% floor on charitable contributions

• • For taxpayers who elect to itemize for taxable years after 2025, a new floor of .5% of AGI will apply.
  • As a simple example, a taxpayer with an adjusted gross income (AGI) of $500,000 would only be able to deduct donations in excess of $2,500.
  • The existing AGI-based limits will apply for deducting charitable contributions, such as the 60% of AGI limit on cash contributions to public charities. However, starting in 2026, the .5% of AGI floor will apply before calculating the year’s AGI-based limits for each type of charitable gift and recipient, including new ordering rules. The new 0.5% reduction may be carried forward to the following year (up to 5 years at most), but only if the contribution exceeds the AGI limit.

These changes will require additional planning for taxpayers, including considering the use of ‘bunching’ strategies to maximize the tax benefits of giving.

Smaller gifts don’t require itemizing deductions

• • In 2026, all taxpayers can donate $1,000 and deduct it ($2,000 married filing jointly) without needing to itemize deductions. This will be an above-the-line deduction.

Itemized Deduction Limits for Taxpayers in the 37% Tax Bracket

• Starting in 2026, taxpayers in the top 37% bracket face new limits on itemized deductions. Currently, that means those with taxable income above $626,350 for single files or $751,600 for joint filers.
• The new limitation reduces allowable itemized deductions by 2/37 of the lesser of:
  1. 1. The taxpayer’s total itemized deductions, or
     2. The amount that their taxable income and total itemized deductions exceeds the 37% income bracket threshold

Example:
A married couple has adjusted gross income (AGI) of $1.2M and $200,000 in itemized deductions, equaling taxable income of $1M. Because they are in the 37% tax bracket, their itemized deductions will be reduced by the lesser of:

1. 1. 1. Their itemized deductions = $200,000
      2. Their AGI plus itemized deductions minus the 37% bracket threshold = $448,400

Therefore, they will effectively lose $10,811 of itemized deductions (from $200,000 to $189,189).

529 Plan Expansion

• The OBBB expands the use of 529 plans to include K-12 expenses beyond tuition, such as fees for standardized tests, textbooks, and tutoring.
• In 2026, the annual limit for qualified K-12 education expenses increases from $10,000 to $20,000.
• The new law also adds post-secondary credentialing expenses such as certifications, licenses, exams, continuing education, and other costs.

Qualified Small Business Stock (QSBS or Section 1202)

The OBBB includes 3 provisions which significantly expand the benefits of QSBS. Unfortunately, these benefits will not extend to taxpayers who were shareholders prior to the exactment date of the bill.

Effective date for all provisions: QSBS issued after July 4, 2025 (which includes qualifying new exercises and stock purchases).

• Tiered Gain Exclusion: The previous 5-year holding period for 100% exclusion moves to a tiered system:
  • • 50% exclusion for stock held for at least 3 years but less than 4 years.
    • 75% exclusion for stock held for at least 4 years but less than 5 years.
    • 100% exclusion for stock held for at least 5 years.
• Increased Per-Taxpayer Gain Exclusion Cap
  • • The maximum per-issuer gain exclusion cap increases from $10 million to $15 million (and adjusting for inflation starting in 2027). The taxpayer will still benefit from the annual greater of test of the lifetime exemption or 10x basis.
• Increased Aggregate Gross Assets Threshold
  • • The corporate-level aggregate gross asset threshold for a company to qualify as a small business (and qualify for QSBS) increases from $50 million to $75 million (and adjusting for inflation starting in 2027).

Estate and Gift Tax Provisions

• The federal estate and gift tax exemption is permanently increased from $10 million to $15 million per person starting in 2026. The exemption will be indexed for inflation after 2026.
• In 2025, the exemption is $13,990,000 per person. This was originally set to sunset and decline to ~$7,000,000 per person in 2026 before the OBBB.

Other miscellaneous items:

• Mortgage insurance premiums: The deductibility of mortgage insurance premiums will be allowable starting in 2026.
• Health savings accounts: Under the new rule, all “Bronze” and “Catastrophic” plans offered on federal or state ACA exchanges now qualify as HDHPs, which will enable those taxpayers to contribute to a HSA if they wish
• Pass-through deduction (QBI): 20% deduction for qualified business income (“QBI”) of pass-through business structures. Limitations for higher income taxpayers and “specified service businesses” still apply.

Reminder: Don’t Let the Tax-Tail Wag the Dog

The sweeping OBBB is another great reminder of why taxpayers shouldn’t let tax planning take an outsized role in financial decision-making. After all, it seems every few years Congress rewrites the tax code! Therefore, we advocate focusing on what you can control and viewing taxes as a passenger when making financial decisions, instead of the driver.

 

 

Disclosure

This article is for general information only and shouldn’t be misconstrued as the rendering of personalized tax advice. Tax laws change and there are many nuances to the tax code, many of which are outside the scope of this article. We encourage you to discuss your situation with a CPA or qualified tax advisor.  Darrow Wealth Management offers asset management and financial planning services; we do not provide tax advice or tax preparation services.

 

[Last reviewed July 2025]

¹ While not an exhaustive list, some notable provisions of the OBBB that have been intentionally omitted from this article include tax changes on overtime and tips, auto loan interest deduction, child tax credit, and “Trump accounts” for minors given the number of issues requiring further clarity.