Understanding the One Big Beautiful Bill and Its Tax Changes

Signed into law by President Trump on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) is a sweeping tax and spending package that extends many provisions of the Tax Cuts and Jobs Act (TCJA), which were scheduled to sunset at the end of 2025. In addition to preserving lower tax rates, the bill introduces new deductions, credits, and planning opportunities for individuals, families, and businesses.

While some provisions are permanent, many include income-based phaseouts and expiration dates. As with the TCJA, thoughtful and proactive planning will be essential to maximize benefits and navigate potential pitfalls. Below, we provide a high-level summary of what has changed for individuals and business owners, when these provisions take effect, and how they might affect your financial plans. As always, we welcome the chance to discuss how these changes fit with your broader goals.

Key Individual Tax Changes

Tax Brackets & Standard Deduction

Tax Brackets

The 2017 tax brackets (10%–37%) are made permanent, with continued indexing for inflation.

Standard Deduction

The bill makes the TCJA’s higher standard deduction amounts permanent and retroactive to 2025:

• $15,750 for Single or Married Filing Separately
• $23,625 for Head of Household
• $31,500 for Married Filing Jointly

Planning Tip: Revisit withholding and estimated tax payments with your tax professional to reflect permanent bracket changes and changes to the standard deduction.

State and Local Income Tax (SALT) Deduction Cap

Effective for 2025, the SALT deduction is temporarily increased from $10,000 to $40,000 through 2029 for taxpayers with modified adjusted gross income (MAGI) under $500,000. Unless new legislation is passed, it will revert back to $10,000 starting in 2030.

The deduction phases out for MAGI between $500,000 and $600,000, with a flat $10,000 deduction applying to those with MAGI above $600,000.

Note: Earlier versions of the bill proposed limiting the deductibility of state and local taxes for pass-through entities. These provisions were not included in the final legislation. Pass-through entity tax (PTET) elections remain available under current law.

Planning Tip: If your income is near the $500,000 threshold, consider strategies to manage or reduce modified adjusted gross income (MAGI) in order to preserve eligibility for the enhanced SALT deduction. Techniques such as retirement plan contributions, charitable giving via qualified charitable distribution from an IRA, or deferring income may help you stay below the phaseout range and fully benefit from the temporary increase. You should also be mindful of the timing of your property tax and state estimated tax payments. Accelerating or “bunching” these payments into a single tax year, to the extent possible, may help maximize the available deduction while the higher cap is in effect.

Personal Exemption & Additional Deduction for Seniors

Personal Exemption

The OBBBA permanently sets the personal exemption to $0, continuing the change originally enacted under the TCJA.

Additional Deduction for Seniors

Seniors age 65 and older will receive a new, temporary “bonus” deduction from 2025 through 2028:

• $6,000 for a single filer over the age of 65 (Phaseouts beginning when MAGI exceeds $75,000).
• $12,000 for a married couple filing jointly if both taxpayers are over the age of 65 (Phaseouts beginning when MAGI exceeds $150,000).

This bonus deduction for seniors is in addition to the existing age-based increase to the standard deduction and helps reduce taxable income for older taxpayers. Here’s how it stacks up:

Example 1: Single Filer, Age 65 or Older (assuming MAGI below phaseout levels)

• Base Standard Deduction (2025): $15,750
• Age-Based Add-On: $2,000
• OBBBA Bonus Deduction: $6,000
• Total Deduction: $23,750

Example 2: Married Couple, Both Age 65 or Older (assuming MAGI below phaseout levels)

• Base Standard Deduction (2025): $31,500
• Age-Based Add-On: $3,200 ($1,600 per spouse)
• OBBBA Bonus Deduction: $12,000 ($6,000 per spouse)
• Total Deduction: $46,700

This expanded deduction serves to reduce taxable income and will indirectly reduce taxes on Social Security benefits for many seniors, a promoted policy goal of the bill.

Charitable Giving Provisions

A New Above-the-Line Deduction for Non-Itemizers

Taxpayers who do not itemize may now claim an “above the line” deduction of up to $1,000 (Single) or $2,000 (Married Filing Jointly) for charitable contributions.

Why This Matters: Under previous law, only taxpayers who itemized could deduct charitable contributions. Now, even if you claim the standard deduction, you can still receive a tax benefit for charitable giving. This is called an above-the-line deduction. It directly reduces your adjusted gross income (AGI), which not only lowers your taxable income but may also help you qualify for other tax benefits that phase out at higher AGI levels.

AGI Floor for Itemized Charitable Deductions

For individual taxpayers who do itemize, the new law imposes a 0.5% AGI floor, meaning you can only deduct charitable contributions that exceed 0.5% of your AGI. For corporations, the threshold is 1% of taxable income.

Example: If your AGI is $100,000, only the portion of charitable contributions above $500 would be deductible.

60% AGI Limit Made Permanent

The law permanently extends the rule allowing cash contributions to qualified public charities to be deductible up to 60% of a taxpayer’s AGI in a given year. Contributions exceeding that limit can still be carried forward for up to five years. Taxpayers should also remember that the tax code continues to allow for gifts of appreciated stock to public charities and private foundations, subject to AGI limits of 30% and 20%, respectively.

Credit for Funding Scholarships

The bill creates a 100% dollar-for-dollar credit for contributions to organizations which grant scholarships to elementary and secondary schools, limited to the greater of 10% of AGI or $1,700.

Mortgage Interest Deduction

The OBBBA makes permanent the TCJA rule allowing the deduction of up to $750,000 in interest on home acquisition debt. The act also makes permanent the deductibility of interest on home equity loans—up to $100,000—if used to buy, build, or improve a primary or secondary home.

Child Tax Credit

• The non-refundable portion of the child tax credit increases to $2,200 per child beginning in 2025, indexed for inflation.
• The OBBBA maintains the $1,400 refundable amount and the $500 non-refundable credit for other dependents.
• Phaseout MAGI thresholds of $200,000 (Single) and $400,000 (Married Filing Jointly) remain.

529 Plan Enhancements & Roth Rollover

The OBBBA expands the flexibility and utility of 529 education savings accounts, effective immediately.

Higher K–12 Expense Limit

Starting in 2026, the annual cap for using 529 assets to cover K–12 tuition increases from $10,000 to $20,000.

Expanded Definition of Qualified Expenses

529 funds can now be used for a broader range of K–12 education costs, such as curriculum, tutoring, online materials, standardized testing fees, dual-enrollment programs, and certain therapies for students with disabilities.

Postsecondary Credentialing Included

Qualified expenses now include costs associated with obtaining and maintaining industry-recognized credentials, licenses, or certifications, such as tuition, exam fees, and continuing education through recognized programs.

529-to-Roth IRA Rollover Limit Increased

The lifetime limit for rolling unused 529 funds into a Roth IRA for the beneficiary increases from $35,000 to $50,000.

Note: The 529 must be open for at least 15 years, and the rollover is still subject to annual contribution limits and earned income requirements for the beneficiary.

Planning Tip: The expanded uses of 529 plans make them an even more versatile tool for funding a child’s or grandchild’s educational journey, from private K–12 schooling to postsecondary credentials and even future retirement savings. Consider front-loading 529-account contributions (up to 5 years’ worth of annual exclusion gifts) to maximize tax-free growth and future flexibility for the account beneficiary.

Trump Accounts (Individual Trust Accounts)

The legislation introduces a new type of custodial savings vehicle referred to as Trump Accounts, officially called Individual Trust Accounts. These accounts are designed to encourage long-term savings starting at birth, functioning initially under special rules until the child reaches adulthood. While modeled on traditional IRAs, Trump Accounts come with their own contribution rules, funding sources, tax treatment, and reporting requirements.

Who Can Have a Trump Account? Trump Accounts may be established for any child under the age of 18 who has a Social Security number. Accounts may be created:

• Automatically by the U.S. Treasury as part of the federal pilot program.
• By individuals (e.g., parents or grandparents), typically after a qualified rollover.
• With contributions from employers, governments, or charitable organizations.

Contributions: The annual contribution limit for Trump Accounts is $5,000 per child per year (indexed for inflation starting in 2028). Contributions are not deductible. Other contribution considerations include:

• Contribution Window: Contributions are only permitted until the year before the child turns 18.
• 12-Month Delay: Contributions may not begin until 12 months after the bill’s enactment date.

Funding Sources: Funds for Trump Accounts may come from several different sources:

• As part of the Federal Pilot Program, the Treasury will make a one-time $1,000 government-funded contribution for any U.S. citizen child born between 2025 and 2028. This amount does not count against the $5,000 annual limit.
• Individuals—parents, grandparents, or others—may contribute on behalf of a child.
• Employers may contribute up to $2,500 annually (indexed for inflation) per eligible employee or dependent. These contributions are tax-free to the employee.
• Governments or 501(c)(3) organizations may contribute to a class of eligible minors (e.g., all children born in a given year in a geographic region). These qualified general contributions do not count towards the individual $5,000 cap.

Distributions: Distributions are not permitted until the year the child turns 18, with limited exceptions. Once the child turns 18, the following rules take effect:

• Partial-Use Rules: Upon turning 18, up to half of the account funds may be withdrawn for qualified expenses (education, apprenticeships, first home, or small business).
• Full Withdrawal: Beginning at age 30, the remaining balance in the account becomes fully accessible to the account holder, subject to standard tax treatment.

Tax Treatment: Earnings are taxed as ordinary income when withdrawn. Contributions are taxed according to their source:

• Contributions made by individuals (e.g., parents) are included in the child’s basis and not taxed again at distribution.
• Contributions made by the government, employers, or nonprofits are fully taxable when distributed.

Exceptions and Rollovers: Excess contributions may be withdrawn penalty-free (earnings are taxed at 100% if withdrawn early). Rollovers to another Trump Account or to an ABLE account (in the year the child turns 17) are permitted and may be nontaxable.

Investments: Accounts must be invested in mutual funds or ETFs that track a broad-based U.S. equity index (e.g., S&P 500) and charge no more than 0.10% in annual fees. Sector-specific or leveraged funds are not allowed.

Planning Tip: Trump Accounts offer a new tax-advantaged way to save for a child’s future, but they should be evaluated alongside other established savings vehicles. Depending on your goals, 529 plans and Roth IRAs may offer more favorable tax treatment. Consider the purpose of the funds, contribution limits, and withdrawal rules when determining the most appropriate strategy for your family.

Overtime Pay Deduction, Tips Exclusion, Auto Loan Interest Deduction

Applies 2025–2028

Overtime Pay Deduction

Taxpayers may deduct up to $20,000 of overtime compensation annually. This benefit begins to phase out at $150,000 of MAGI for single filers and $300,000 for married couples filing jointly.

Tip Income Exclusion

Up to $25,000 of tips received each year can now be excluded from taxable income, offering a direct benefit to service industry workers. This exclusion also phases out starting at the same MAGI thresholds noted above.

Auto Loan Interest Deduction

Interest paid on car loans, up to $10,000 per year, may now be deducted from taxable income, but only for loans on passenger vehicles assembled in the United States. To qualify, the vehicle must be secured by a first lien and used for personal purposes. This deduction begins to phase out at $100,000 MAGI (Single) and $200,000 MAGI (Married Filing Jointly).

Estate and Gift Tax Provisions

Effective January 1, 2026, the federal estate, gift, and goods and services tax (GST) tax exemption increases to $15 million per person, indexed for inflation (up from $13.99 million in 2025).

Married couples can combine exemptions to pass $30 million tax-free.

Planning Tip: With the increased federal estate and gift tax exemption now at $15 million per person, estate tax planning will become less of a concern for many clients. As a result, income tax planning, particularly strategies to preserve or maximize basis step-up, will take on a more prominent role in long-term wealth planning. For clients with larger taxable estates, the use of significant lifetime gifts to irrevocable trusts such as Spousal Lifetime Access Trusts (SLATs) or Dynasty Trusts could remain advisable.

Overview of Business Tax Changes

Pass-Through Business Deduction (QBI)

The One Big Beautiful Bill makes permanent the 20% deduction for Qualified Business Income (QBI), originally introduced by the Tax Cuts and Jobs Act (TCJA). This deduction is one of the most significant ongoing tax benefits for small business owners and self-employed individuals.

What is QBI? The QBI deduction allows eligible taxpayers—such as sole proprietors, partners in partnerships, members of LLCs, and shareholders in S corporations—to deduct up to 20% of their qualified business income from their taxable income. This effectively lowers the income tax rate on profits earned through pass-through businesses, where income is taxed at the individual level rather than the corporate level.

Expanded Phase-in Thresholds: The bill increases the phase-in thresholds for service-based businesses (also known as specified service trades or businesses, or SSTBs). These are typically businesses in fields like health, law, accounting, and consulting that were subject to stricter income limits under prior law.

The phase-in range determines how much of the deduction is allowed as income rises:

• For single filers, the phase-in now starts at $75,000 (up from $50,000)
• For married filing jointly, the threshold increases to $150,000 (up from $100,000)

This change allows more high-income professionals to access at least a partial QBI deduction before it fully phases out.

New Minimum Deduction Introduced: A new provision guarantees a minimum deduction of $400 (adjusted for inflation) for taxpayers who earn at least $1,000 of QBI from a business in which they materially participate. This helps ensure that even smaller-scale business owners receive a baseline benefit.

Why This Matters: The QBI deduction was originally enacted as a temporary provision under the Tax Cuts and Jobs Act and was set to expire at the end of 2025. By making it permanent, the One Big Beautiful Bill Act preserves a key tax benefit for millions of small business owners and self-employed individuals. This deduction helps better align the tax treatment of pass-through entities with the lower corporate tax rates that were made permanent for C-corporations, reducing the disparity between business structures and supporting continued entrepreneurship.

Bonus Depreciation

The new legislation permanently restores 100% bonus depreciation for qualified property placed in service on or after January 19, 2025. This applies to machinery, equipment, vehicles, and certain special-use property like specified plants. Businesses can immediately deduct the full cost of these assets in the year they are placed in service, rather than spreading the deduction over several years.

Why This Matters: Bonus depreciation is a powerful tool for businesses to reduce taxable income and improve cash flow, especially in years with major capital expenditures. By accelerating deductions, businesses can reinvest savings back into operations, expansion, or workforce.

Section 179 Expensing

Effective for the tax year starting January 1, 2025, the OBBBA increases the Section 179 expensing limit to $2.5 million (up from $1.16 million), with a phaseout beginning at $4 million of total qualifying purchases. This applies to a wide range of business equipment, technology, and property improvements placed in service during the tax year. Once the phaseout threshold is exceeded, the amount eligible for immediate deduction is reduced dollar-for-dollar.

Why This Matters: Section 179 allows businesses to fully expense qualifying capital investments up front, rather than depreciating them over time. This can provide an immediate tax benefit for businesses making strategic investments in growth, productivity, or modernization.

Qualified Small Business Stock (QSBS)

Effective for stock issued after April 4, 2025.

What is QSBS? QSBS refers to shares in a qualified C-corporation that meet specific IRS requirements under Section 1202 of the tax code. These companies must be domestic, actively engaged in business (not primarily holding investments), and have assets below $50 million when the stock is issued. If certain conditions are met, investors may exclude a portion—up to all—of their capital gains from federal taxes when they sell the stock.

Key Changes Under the OBBBA

Expanded Capital Gains Exclusion Tiers:

• 50% exclusion for stock held at least 3 years
• 75% exclusion for stock held at least 4 years
• 100% exclusion for stock held at least 5 years

Increased Gain Exclusion Cap:

The maximum gain eligible for exclusion has been raised to the greater of $15 million or 10 times the taxpayer’s basis (previously capped at $10 million). This applies per issuer, per taxpayer.

Why This Matters: The expanded QSBS rules significantly enhance the incentive to invest in early-stage businesses. For entrepreneurs, founders, and angel investors, this means a more favorable tax outcome if their investments succeed. Long-term investors who commit to a business for at least five years can now potentially exclude a substantial portion, or even all, of their gain from federal taxation.

Opportunity Zones

The OBBBA makes the Opportunity Zone (OZ) program permanent and enhances its tax benefits. Beginning in 2027, OZ designations will renew on a rolling 10-year basis, with new rules that better target economically distressed areas and expand the incentives for long-term real estate investments. The updated law also includes additional benefits for rural communities and introduces new reporting requirements to improve oversight.

What is a Qualified Opportunity Zone (QOZ)? A Qualified Opportunity Zone is a federally designated, economically distressed area where certain investments may be eligible for tax advantages. Originally created by the 2017 Tax Cuts and Jobs Act, the QOZ program was designed to spur economic development and job creation by encouraging private investment in underserved communities. Investors who reinvest capital gains into Qualified Opportunity Funds (QOFs) that invest in these zones may be eligible for tax deferral, partial exclusion, and potential elimination of gains on new QOZ investments held for at least 10 years.

Planning Tip: While Opportunity Zones can offer compelling tax benefits for clients with large capital gains or real estate interests, any investment, including those in Qualified Opportunity Zones, should be approached with careful consideration of the underlying risks, investment economics, and how the opportunity fits within your overall financial plan.

Other Business Provisions

The One Big Beautiful Bill Act also includes changes to several existing business tax rules that are not summarized in this article, such as modifications to research and development (R&D) expensing, limitations on the deductibility of business interest, and the treatment of excess business losses for noncorporate taxpayers, among others. These provisions may have meaningful implications for business owners and warrant careful review with your business tax professional.

Next Steps: Integrating the New Tax Law into Your Planning

The One Big Beautiful Bill Act brings changes to the tax code, extending many of the provisions originally enacted under the TCJA while layering in new deductions, credits, and planning opportunities. While some updates are permanent, others are temporary or subject to income-based phaseouts, creating new complexities for individuals, families, and business owners alike.

As you review the impact of this legislation, we encourage thoughtful conversations with your advisor to understand how the law may affect your wealth planning strategy.

We at Bragg Financial are here to help you navigate the changing tax landscape. Whether you are focused on growing your business, supporting your family, or leaving a lasting legacy, our team is ready to assist you in understanding the provisions of the OBBBA and integrating them into decisions related to your broader financial and estate plan.

Note: This summary does not include every individual tax business tax change included in the One Big Beautiful Bill Act. Instead, we have focused on the provisions we believe will have the most relevance and potential impact for our clients and their families.

This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.