One Big Beautiful Bill Act: New Deductions, SALT Cap, and Expirations

The One Big Beautiful Bill Act, signed into law on July 4, 2025, as Public Law 119-21, is the largest set of federal tax changes since 2017. The One Big Beautiful Bill Act’s tax changes lock in the current income tax rates and higher standard deduction permanently, add new deductions for tip income, overtime pay, auto loan interest, and seniors, raise the child tax credit to $2,500, lift the SALT cap to roughly $40,000, push the estate tax exemption to $15 million per person, and repeal most clean energy credits on tight deadlines.

Here is what it means for the return you will file, and the planning you should do before the end of 2025.

The Rates and Standard Deduction Are Now Permanent

The biggest single effect of the law is what does not happen. Without it, the seven-bracket rate structure created by the Tax Cuts and Jobs Act would have expired on January 1, 2026, pushing the top rate back to 39.6 percent and raising most brackets in between. The OBBBA makes the 10, 12, 22, 24, 32, 35, and 37 percent brackets permanent.¹

For 2026, a single filer stays in the 12 percent bracket up to $50,400 and the 22 percent bracket up to $105,700. The 37 percent top rate starts above $640,600 for single filers and $768,700 for joint filers. The law also tweaked the inflation formula so each bracket is slightly wider than it would otherwise have been, a small ongoing tax cut for everyone.²

Long-term capital gains and qualified dividends continue to be taxed at 0, 15, or 20 percent. For 2026, the 0 percent rate reaches taxable income up to $49,450 for single filers and $98,900 for joint filers; the 20 percent rate begins above $545,500 and $613,700 respectively.³ The 3.8 percent Net Investment Income Tax still applies on top for high earners.

The larger standard deduction is also permanent. For 2026 it is $16,100 for single filers, $32,200 for married filing jointly, and $24,150 for heads of household.⁴ If the law had lapsed, those figures would have dropped to roughly $8,350 and $16,700. Personal exemptions remain eliminated, which matters most for large families whose lost exemptions are not fully offset by the higher standard deduction.²

The Alternative Minimum Tax is a similar story. The TCJA’s higher AMT exemption and phase-out thresholds are now permanent, with the phase-out starting at $500,000 for single filers and $1,000,000 for joint filers, both indexed for inflation.

New Deductions You Can Claim Starting in 2025

Four new deductions are the most immediate way the law changes what workers and retirees actually pay. All are available whether you itemize or take the standard deduction, and all four run from 2025 through 2028 only.

Tip Income

Employees and self-employed workers in occupations that customarily receive tips can deduct up to $25,000 in qualified tip income per year. The tips must be voluntarily given by customers and reported on a W-2 or 1099. The deduction phases out above $150,000 in modified adjusted gross income ($300,000 for joint filers), and workers in specified service trades or businesses under Section 199A are not eligible.⁵

One boundary worth knowing: the deduction lowers federal income tax only. Social Security and Medicare taxes on your tips are unchanged.

Overtime Pay

If you earn overtime required by the Fair Labor Standards Act, you can deduct the premium portion, generally the “half” in time-and-a-half. The cap is $12,500 for single filers and $25,000 for joint filers, with the same $150,000 / $300,000 income phase-out as the tip deduction.⁶

Auto Loan Interest

You can deduct up to $10,000 per year in interest paid on a loan used to buy a new, personal-use vehicle assembled in the United States. Eligible vehicles include cars, minivans, vans, SUVs, pickups, and motorcycles under 14,000 pounds gross weight. Used vehicles and leases do not qualify. The deduction phases out at $100,000 in modified adjusted gross income ($200,000 for joint filers), and you must include the vehicle identification number on your return.⁷

Senior Bonus Standard Deduction

Taxpayers 65 and older get an extra $6,000 deduction on top of the regular additional standard deduction that already exists for seniors. A married couple where both spouses qualify gets $12,000 combined. The bonus phases out once modified adjusted gross income exceeds $75,000 for single filers or $150,000 for joint filers.⁷

Families With Children

The child tax credit rises to $2,500 per qualifying child starting in 2025, up from $2,000, and is indexed to inflation in $100 increments. The phase-out thresholds stay at $200,000 for single filers and $400,000 for joint filers. The refundable portion, which you can receive even when your tax bill is zero, rises to $1,700 per child for 2025.² The $500 nonrefundable credit for other dependents, such as older children or elderly parents, continues.⁸

The adoption credit becomes partially refundable for the first time. Up to $5,000 of the credit is refundable for tax years after December 31, 2024, and that amount is indexed for inflation.⁹

The law also creates Trump Accounts, a new tax-advantaged savings vehicle for children. Every child born between January 1, 2025, and December 31, 2028, who has a valid Social Security number and is a U.S. citizen receives a one-time $1,000 federal seed contribution. Family, employers, and others can contribute up to $5,000 a year, and employer contributions of up to $2,500 annually are not counted as taxable income to the employee. Accounts cannot be funded before July 4, 2026.⁹

SALT Cap and Mortgage Interest

The $10,000 cap on the state and local tax deduction has been the sharpest edge of the TCJA for homeowners in high-tax states. The OBBBA raises it to roughly $40,000 for the 2026 tax year, with the cap increasing 1 percent per year, but it adds a phase-down. The higher cap is available in full to taxpayers with modified adjusted gross income under $500,000 ($250,000 for married filing separately). Above that threshold, the cap is reduced by 30 cents for every dollar of income over $500,000, until it drops back to $10,000. Middle-income homeowners in expensive markets get real relief; the highest earners are still capped at $10,000.

The mortgage interest deduction limit does not move. Interest is deductible on up to $750,000 of acquisition debt on your primary residence and one second home, the same cap the TCJA imposed for loans taken out after December 15, 2017. Mortgages originated before December 16, 2017, remain grandfathered under the older $1 million cap.¹⁰

Estate and Gift Tax Exemption

The estate and gift tax basic exclusion rises to $15,000,000 per person for 2026 and is permanent at that base. A married couple can potentially shield $30 million from federal estate tax. Without the law, the exemption would have dropped to roughly $7 million per person.¹¹ The annual gift tax exclusion for 2026 stays at $19,000 per recipient, and the estate tax rate above the exclusion remains 40 percent.

Business Owners and the Self-Employed

The Section 199A deduction for pass-through business income was set to expire after 2025. The OBBBA makes it permanent and increases the rate from 20 percent to 23 percent of qualified business income.² On $100,000 of qualifying profit, that is a $23,000 deduction instead of $20,000. The type-of-business and taxable-income limitations still apply, with phase-out thresholds indexed for inflation.¹²

Full 100 percent bonus depreciation is back and permanent for qualifying business property acquired after January 19, 2025. It had been phasing down 20 points per year since 2023 and was at 40 percent for 2025 before the law passed. The OBBBA also allows immediate deduction of the cost of building structures used in domestic manufacturing, agricultural production, and certain refining operations, a category the TCJA did not include.⁹

Domestic research and experimental costs can once again be deducted in the year they are incurred, for tax years beginning after December 31, 2024. Since 2022, the TCJA had required these costs to be amortized over five years, which had squeezed cash flow at R&D-heavy small businesses.⁹

The 21 percent flat corporate tax rate was already permanent under the TCJA and is unchanged by the OBBBA.

Clean Energy Credits Are Ending Soon

The law terminates or accelerates the sunset of most clean energy credits from the 2022 Inflation Reduction Act. If any of these credits factor into a purchase you were planning, the deadlines are close:

The $7,500 new clean vehicle credit, the $4,000 used clean vehicle credit, and the commercial clean vehicle credit are all eliminated for vehicles acquired after September 30, 2025.⁹
The residential clean energy credit covering solar panels, battery storage, and similar equipment is repealed for property placed in service after December 31, 2025.¹³
The energy-efficient home improvement credit (heat pumps, insulation, efficient windows) ends for property placed in service after 2025.
The builder’s credit for new energy-efficient homes ends for homes acquired after June 30, 2026.¹³

An EV purchase has to close by September 30, 2025, and a solar system has to be in service by December 31, 2025, to qualify.

529 Plans and HSAs

Starting July 5, 2025, 529 plan funds can pay for K-12 curriculum materials, textbooks, qualified tutoring, standardized testing fees like the SAT and ACT, and educational therapies for students with disabilities, on top of tuition. On January 1, 2026, the annual K-12 spending limit doubles from $10,000 to $20,000 per student. 529 funds can also cover postsecondary career credential programs, including apprenticeships, professional certifications, and vocational licenses. Rollovers from 529 plans to ABLE accounts, previously temporary, become permanent for tax years beginning after December 31, 2025.¹⁴

On January 1, 2026, bronze-tier and catastrophic health insurance plans become HSA-compatible, which opens HSA eligibility to enrollees who were previously locked out. People in direct primary care arrangements can also contribute to an HSA and use HSA funds tax-free for periodic direct primary care fees.⁹

What Expires and What Doesn’t

Some of the most valuable new features of the law are temporary. If you are building them into a financial plan, know the horizon.

Permanent: the individual income tax rates, the base standard deduction, the elimination of personal exemptions, the child tax credit at $2,500, the QBI deduction at 23 percent, 100 percent bonus depreciation, the $15 million estate tax exemption, the higher AMT thresholds, and the clean energy credit repeals.

Temporary, running 2025 through 2028: the tip income deduction, the overtime pay deduction, the auto loan interest deduction, the $6,000 senior bonus standard deduction, and the Trump Account seed contributions for newborns.²

Those temporary provisions expire after 2028 unless Congress extends them. Treat them as a four-year window, not a permanent feature of the code.

1
Internal Revenue Service. Federal Income Tax Rates and Brackets
2
Congress.gov. Tax Provisions in H.R. 1, the One Big Beautiful Bill Act
3
Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
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Internal Revenue Service. One, Big, Beautiful Bill Provisions – Individuals and Workers
6
Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
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Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
8
Internal Revenue Service. Understanding the Credit for Other Dependents
9
Internal Revenue Service. One, Big, Beautiful Bill Provisions
10
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
11
Internal Revenue Service. What’s New – Estate and Gift Tax
12
Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income
13
Congress.gov. IRA Tax Credit Repeal in the FY2025 Reconciliation Law Part 2
14
Internal Revenue Service. 529 Plans – Questions and Answers