Wealth Planning Insights
One Big Beautiful Bill
Keith Fenstad, CFP®, July 2025
The One Big Beautiful Bill (OBBB) was signed into law by the president on July 4th after making its way through congress. There are many new provisions regarding income taxes and some important updates to the estate tax laws that will impact many Tanglewood clients. Below is a summary of that we think are some of the most impactful.
The current seven tax brackets (10%, 12%, 22%, 24%, 33%, 35%, 37%) that were introduced by the Tax Cuts and Jobs Act of 2017 and set to expire in 2026 are made permanent. There’s also a small extra inflation adjustment for only the lowest three brackets.
Now of course it goes without saying that NOTHING is “permanent” when it comes to tax law. In this context permanent means there is no sunset or future expiration until some future Congress votes to change it.
On the deduction front, the standard deduction is slightly enhanced. Starting this year, it will be $31,500 for joint filers, $23,625 for head of household, and $15,750 for all other filers, inflation adjusted thereafter. An increase of $1,500 / $1,125 / $750 respectively.
The Pease Limit which took a 3% “haircut” on total itemized deductions for high income earners cancelled by the TCJA is now permanently repealed.
The use of Miscellaneous itemized deductions (primarily unreimbursed employee expenses, tax prep fees, investment-related expenses) is permanently repealed.
Mortgage interest deduction cap remains at $750,000 of principal.
The OBBB raises the controversial State And Local Tax (SALT) deduction cap to $40,000 for tax years 2025 through 2029. The cap gets only a 1% annual inflation adjustment each year over that period. However, the SALT deduction gets reduced back toward $10,000 as Adjusted Gross Income (AGI) exceeds $500,000. It is fully phased out at $600,000 of AGI. For those in that $500k to $600k AGI range, this becomes a very important planning threshold. The additional $100k of income can effectively raise taxable income by $130K.
There is a new 0.5% floor on itemized charitable contributions. This is like the phaseout for deductible medical expenses where you have to be above the floor to start taking a deduction.
Regardless of whether a taxpayer is taking the standard deduction or itemizing, there are several new “above-the-line” deductions.
A new $1,000 per taxpayer above-the-line deduction for charitable contributions ($2,000 for joint filers). We had a similar provision for a $500 deduction in 2020 to spur giving during COVID era.
Starting in 2025 and continuing through 2028, seniors age 65 and older will be allowed to deduct $6,000 per person ($12,000 for married filing joint). This too starts to get phased out when income exceeds $75,000 single / $150,000 joint filers and becomes fully phased out at $175,000 individual and $250,000 joint. Essentially the backdoor way of alleviating the tax on Social Security income. Essentially the backdoor way of alleviating the tax on Social Security income.
A maximum deduction of $25,000 applicable to "Qualified Tips". The IRS plans to publish eligible occupations within 90 days. This tip income however is still subject to employment taxes. The deduction is phased out at $300,000 AGI for married filers and $150,000 for others It’s fully phased out at $550,000 for married, $400,000 for others.
A tax deduction against overtime pay is also included. "Qualified Overtime," is defined straightforwardly as pay in excess of a worker’s regular rate. The deduction is to $25,000 for joint filers and $12,500 for all others. This too gets phased out at $300,000 AGI for MFJ, $150,000 for others, fully phased out at $550,000 for MFJ, $275,000 for others.
Both the deduction applicable to Tips and Overtime is effective for 2025 and expires at the end of 2028.
Other notable changes include.
The increase in the Alternative Minimum Tax exemption amounts were made permanent, however exemption phaseout thresholds were reset back to what they were in 2018 - $500,000 for singles and $1,000,000 for married filing joint. It also doubled the rate of phase out from 25% to 50% steepening the claw back for higher income earners.
The OBBB allows a deduction up to $10,000 of interest paid on new car loans for US-assembled vehicles purchases made in 2025 through 2028.
The bill expands qualified 529 expenses doubling the K-12 withdrawal limit from $10,000 to $20,000. It also adds new categories of qualified expenses including online resources, tutoring, high school dual-credit fees, educational therapies for students with disabilities, and exam costs, such as SAT fees. Also, workforce training, on-the-job training, apprenticeships supporting students pursuing vocational or alternative educational paths.
A new tax-preferred savings account dubbed “MAGA Program” allows for the creation of a new account for qualifying children born between January 1, 2025 and January 1, 2029. Up to $5,000 per year is allowed by a parent or guardian for children until 8 years old. The government will add $1,000 to see the account. There are specific qualifications for investing in broad market US Index stock funds.
Finally on the estate planning side of things the big news here is the lifetime estate and gift tax exemptions which were facing a significant reduction at the end of 2025 was permanently increased to $15,000,000 per person indexed to inflation beginning in 2026. That’s a combined $30,000,000 for spouses putting the threat of estate tax exposure for many clients further out on the horizon.
These new rules present new and meaningful planning opportunities for nearly all clients. At Tanglewood we are prepared to help - using advanced modeling tools and an experienced team of Wealth Advisors. Together we can develop a personal, multi -year plan to not only look year by year, but over a lifetime.