This article was written by Todd Schanel and Doug Marcello of Core Wealth Management.
The One Big Beautiful Bill Act (OBBBA) introduces several individual tax changes beginning in 2025. These updates provide targeted tax relief and new planning opportunities for individuals and families. Below are some the most impactful provisions and how they may influence your financial strategy.
Key Provisions
- Extension of Tax Brackets and Standard Deduction–The current individual tax brackets, ranging from 10% to 37%, will remain through 2028. This stability helps households plan around marginal tax rates. The standard deduction will continue to adjust annually for inflation, preserving its role as a simplified deduction for most taxpayers.
- Temporary Expansion of the SALT Deduction Cap– From 2025–2029, the cap on state and local tax (SALT) deductions rises from $10,000 to $40,000 for taxpayers (both Single and Married filers) earning under $500,000 in modified adjusted gross income (MAGI). After 2029, it reverts to $10,000.
- Additional Deduction for Seniors– From 2025–2028, taxpayers age 65+ can claim an additional $6,000 deduction ($12,000 for joint filers). The benefit phases out at $75,000 for single filers and $150,000 for joint filers. Retirees drawing income from Social Security, pensions, or retirement accounts should evaluate whether this deduction can reduce taxable income.
- Enhancement of the Child Tax Credit– In 2025, the Child Tax Credit increases to $2,200 per qualifying child. Starting in 2026, the full credit will be indexed for inflation.
- New Deduction for Auto Loan Interest– Taxpayers can deduct up to $10,000 of interest on loans for U.S.-assembled vehicles purchased for personal use between 2025–2028. Income limits apply—$100,000 for single filers and $200,000 for joint filers.
- Charitable Contribution Deduction Changes–
- Beginning in 2025, non-itemizers can claim a charitable deduction of up to $1,000 for single filers or $2,000 for joint filers, but gifts to donor-advised funds (DAFs) and non-operating private foundations do not qualify.
- For itemizers, starting in 2026 only contributions exceeding 0.5% of adjusted gross income (AGI) will be deductible. For example, with $100,000 AGI, the first $500 of donations provides no tax benefit; only the amount above $500 counts. However, disallowed amounts can be carried forward for up to five years.
- Limitation on Itemized Deductions for High-Income Taxpayers– Starting in 2026, itemized deductions for individuals in the top tax bracket (37%) will be limited to 35% of their value. A $50,000 deduction would effectively be worth $1,000 less in tax savings.
Planning Considerations
- Leverage charitable bunching to clear the new floor– With the 0.5% AGI floor, spreading small donations across years may yield no deduction. Grouping multiple years’ gifts into one year - may help exceed the floor and the standard deduction in the same year.
- Consider bunching SALT deductions –The higher SALT deduction cap also creates opportunities to time and bunch deductions. For example, paying two years’ worth of property taxes in the same year or delaying/accelerating a state estimated income tax payment could produce a substantial benefit. Pairing these with charitable contributions could enhance the benefit even more. Just be aware of the phase-out! (see below)
- Watch the SALT deduction phase-out– The SALT cap phases out sharply for both single and joint filers, dropping from a $40,000 maximum at $500,000 in Modified Adjusted Gross Income (MAGI) to $10,000 at $600,000 MAGI. In theory, an increase in MAGI from $500,000 to $600,000 could raise taxable income by $130,000! Coordinate any IRA withdrawals, Roth conversions, or other income-generating moves carefully to avoid triggering this phase-out.
- Coordinate IRA withdrawals and Roth conversions for senior deduction eligibility– Along with Social Security tax thresholds, IRMAA thresholds, and marginal income tax rates, retirees should now factor in the senior deduction when planning IRA withdrawals and Roth conversions. It’s one more moving part in an already complicated puzzle!
Conclusion
The OBBBA’s changes—some temporary, others phased in—offer meaningful opportunities for tax savings, but thoughtful planning and coordination is required.
At Schanel CPA and Core Wealth Management, our team of professionals has the expertise to help clients capitalize on the new tax rules and turn them into real opportunities. We’ll work with you to keep your tax strategy aligned with your broader financial goals. Please contact us to discuss your situation.
This article is for informational purposes only and does not constitute personalized tax advice. Every taxpayer’s situation is unique, and you should consult a qualified tax professional before making any financial decisions.
