Highlighted Tax Changes from the OBBBA

Trump’s New Tax Bill: What You’ll Want to Know

This would’ve been posted over a week ago, but after finding conflicting details in some of the resources I working off of, as well as incorrect information from Copilot, I started from scratch and spend 60+ hours trying to translate the cryptic wording in the bill itself, while reading through the sections of the tax code reference, to provide you with the most accurate information possible. I hope it helps.

By now you’ve probably heard about Trump’s One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4^th, giving Americans clarity around what taxes will look like going forward. What you’re probably wondering now is what was included in those 330 pages and how it may impact you.

At a high level, this was a high priority for the administration because Trump’s tax cuts under 2017’s Tax Cuts and Jobs Act (TCJA) were scheduled to expire at the end of the year. In addition to making many of those provisions permanent, the OBBBA also added new cuts and increased some existing ones. On top of that, many of the provisions are retroactive to January 1^st, allowing you to benefit from the tax cuts this year.

Another piece of good news is the software we use to review clients’ tax returns has already been updated to incorporate many of these changes, allowing us to illustrate how this may impact your taxes for 2025, as well as future years. While that’s something we plan on covering during our Fall Review Meetings, we’re more than happy to do that sooner if you are thinking of adjusting your withholdings or quarterly estimates.

What I’m going to do here is highlight the provisions I think you’ll be most interested in, along with some tips/insights related to select provisions.

Highlights from the Bill

Rather than a long narrative, I thought a before/after comparison would be more digestible. I also created a separate list for all the changes to Itemized Deductions (as the only item left unscathed was the 7.5% floor for medical expenses). And stay tuned for my full overview of the new Trump Accounts, which I’ve had a lot of fun writing, and should be posted here shortly.

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Abbreviations list is at the bottom of the page

[1] Some SF taxpayers in the 35% bracket (and HoH taxpayers in the 35% or 37% brackets) may have seen the TCJA rates/brackets result in a higher tax amount (ignoring any separate TCJA provisions that reduced taxable income).
[2] Assumes all brackets are indexed by 2% for 2026 (with the extra year of inflation adjustment for the 10% & 12% brackets) and the same taxable income in all 3 scenarios, isolating where each tax bracket ends, and the total tax calculation.
[3] Deduction phases out at a rate of 6% of MAGI over $150k for MFJ ($75k for all others). As a result, couples who are both 65+ effectively phaseout at $12 per $100 of MAGI in the phaseout range, while those with a spouse <65 (or unmarried) phaseout at $6 per $100.
[4] Credit phases out at $50 per $1k of MAGI over $400k for MFJ ($200k for all others). Unlike the CTC amount, the phaseout isn’t indexed.
[5] While the IRS issued final regulations in 2019, confirming that gifts made under TCJA’s temporarily increased lifetime exemption limits would not be clawed back into the estate if the donor dies after the exemption reverts to the lower scheduled limits in 2026, the IRS hasn’t issued any guidance as to whether that regulation will automatically extend to the new OBBBA limits. Also note that certain gifts are subject to a clawback, if the donor dies within 3 years of making them, which the 2019 regulation didn’t change.
[6] Instead of continuing to index from the 2025 amounts, all the indexing since 2018 is eliminated and the original TCJA amounts start indexing in 2026.
[7] Had this been retroactive for 2025 the phaseout would start 20% lower, with full phaseout 31% lower (29% lower for MFJ)
[8] For 2025 AMT Income, non-itemizers have their entire Standard Deduction added back to Taxable Income, while the only Itemized Deduction added back for itemizers is the SALT amount, with no cap on Total Itemized Deductions.
[9] Like the temporary deductions in 2020-2021, only cash donations qualify, and excluded gifts to DAFs and certain “pooled funds”
[10] No requirement to itemize deductions, phases out at $100 per $1k of MAGI over $150k ($300k for MFJ), and must be reported as overtime on W-2.
[11] No requirement to itemize deductions, phases out at $100 per $1k of MAGI over $150k ($300k for MFJ), and needs to be reported as taxable compensation subject to payroll taxes. The IRS will publish a list of eligible occupations by 10/02/2025, however occupations defined as a SSTB (as well as employees of SSTB) are ineligible.
[12] A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14k pounds that underwent final assembly in the US and is for personal use. The deduction phases out by $200 for every $1k of MAGI over $100k ($200k for MFJ).
[13] Retroactive to the beginning of the year, allowing newly eligible expenses from earlier in the year to qualify for distributions.
[14] Starting in 2026, the range over which the deduction would phaseout will be $75k higher than where the phaseout starts ($150k for MFJ). There will also be a minimum credit of $400 for those with non-passive QBI of at least $1k, both of which will be indexed starting in 2027.
[15] It appears that unused credits can continue being carried forward until fully used (unless subject to a separate limit on years carried forward).
[16] Must be a new vehicle, with a gross vehicle weight rating of less than 14k pounds, having underwent final assembly in the US. Eligible for $3,750 credit if for vehicles meeting critical mineral sourcing or battery component requirements ($7.5k if meeting both). Vans, SUVs, and Pickups the MSRP of the vehicle cannot exceed $80k ($55k for all others).
[17] Most commonly EV chargers. Limited to equipment installed in properties located in low-income or non-urban areas.

[18] The deduction phases down by 30% of MAGI above $500k ($250k for MFS), which is indexed by 1% through 2029, but will not be reduced below $10k. Starting in 2030, the deduction limit will drop to $10k, with no future indexing, and not subject to phasedown.
[19] This appears to be the case, based on the OBBBA’s wording. Educators taking the Standard Deduction would be subject to the $300 Schedule 1 cap.
[20] Prior to TCJA, professionals all expenses related to their gambling activities (e.g. travel, entry fees, etc.), except losses from wagers, as fully deductible business expenses on Schedule C (even if they were more than winnings), potentially resulting in a NOL to offset other income or be carried forward. While TCJA didn’t change to the itemized gambling loss deduction directly, it limited the amount of combined wagering losses and deductible business expenses related to gambling activities to 100% of gross winnings, eliminating the ability to one’s taxable income to be reduced by gambling-related activities.
[21] Once the 0.5% is calculated, it is then applied in a specific order, based on donation type, reducing the total contribution amount for the first in line by the floor, before moving to the next type, until the entire floor has been deducted. The order is (1) Capital Gain property contributed to non-public charities, (2) Capital Gain property contributed to public charities at fair market value, (3) cash contributions to non-public charities, (4) Qualified Conservation contributions, (5) Capital Gain property contributed to public charities using cost basis, and (6) cash contributions to public charities.
[22] After reducing contributions by the 0.5% AGI floor, using the ordering rules, the existing AGI-based limits are applied to the remaining totals for each to determine the maximum itemized deduction for that year. Any amounts not eligible in the current year get carried over for up to 5 years, however if any of those items were also reduced by the 0.5% AGI floor in the first step, that amount is added back to it when being carried over (i.e. it’s not permanently lost…yet)
[23] For those in the 37% marginal bracket, Total Itemized Deductions are reduced by 2/37 of the lesser of (1) Total Itemized Deductions or (2) the amount of Taxable Income (assuming a $0 Itemized Deduction amount) subject to the 37% marginal bracket.

The Play Now, Pay Later Plan

If you’re feeling like this all sounds too good to be true, and are wondering what you’re missing, refer back our June Recap for a summary of the projected impact of all these tax cuts on the US economy. Growing up, this is what my dad called the “Play now, pay later plan”. Even though he was usually referring to the way me and my brother were behaving at the time, it’s also a great way to describe the OBBBA.

Despite all of us loving tax savings, the projections point to the cost of these significantly outweighing the anticipated increase in GDP, with the difference being added to the already massive national debt figure. Let’s just hope that the nerds got it wrong, and their math is flawed, otherwise we could be heading into dark times in the not-too-distant future.

As it sits, just under $1 of every $5 the government takes in is used to cover the interest on its debt, with the only larger expenditure being Social Security. While Trump’s administration is the latest culprit, this has been a mounting problem compounded by one administration after another, on both sides of the aisle.

While this might sound like a rant, I bring this up because of the material impact it will likely have on bond markets going forward, as well as interest rates, the US Dollar, and tax rates.

Closing Thoughts

Assuming no change in taxable income, the OBBBA is all but guaranteed to reduce taxes for individuals. That said, because many of the more material provisions are subject to phaseouts, it is extremely important to manage income items you can control like capital gains, dividends, rental income, and Roth Conversions. For those over 70 ½ and giving to non-profits, doing those as QCD’s from an IRA has the dual benefit of counting towards any RMD due and reducing AGI (especially given the OBBBA provisions related to charitable giving).

Furthermore, while today’s historically low tax environment would typically encourage the shifting of 401(k) contributions from pre-tax to Roth, buying Uncle Sam out while taxes are low, crunch the numbers before making any changes. Since pre-tax contributions reduce AGI, if shifting to Roth contributions results in the phaseout of any benefits, the effective tax rate on those Roth contributions wouldn’t just be your marginal tax rate, but also the lost tax savings from those phaseouts!

That’s a wrap my friends. Don’t hesitate to reach out if you have questions or want to discuss the specific impact the OBBBA will have on your taxes going forward. In the meantime, get out there and enjoy the rest of the summer with friends and family!

Laurence

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