Understanding the “One Big Beautiful Bill Act” – What It Means for You
You’ve probably heard the headlines about sweeping changes to the tax code and retirement rules thanks to the newly proposed One Big Beautiful Bill Act (OBBBA). Below is a plain English guide that not only summarizes each key provision, but, more importantly, explains what it could mean for real people and the practical steps you may want to consider.
Extension of the 2017 Tax Cuts and Jobs Act (TCJA)
What changed? The individual income tax brackets and the larger standard deduction that were set to expire after 2025 are now permanent.
What it means to you
- Long term planning clarity • Knowing that brackets will not automatically jump higher in 2026 makes it easier to forecast lifetime tax liability, decide when to realize capital gains, or convert to a Roth IRA.
- Roth‑conversion window stays open. • If your current marginal rate is lower than what you expect in retirement, you still have an opportunity to convert traditional IRA/401(k) money at the lower rate.
- Standard‑deduction vs. itemizing. With a permanently higher standard deduction, many households will continue not to itemize. That matters for charitable giving strategy—you may benefit more from bunching gifts into alternating years.
Action step: Re run your multi year tax projections to see whether bunching income (or deductions) , Roth Conversions, etc. make sense for you.
2. SALT Deduction Cap
What changed? The cap on deducting state & local taxes (income on sales + property) rises from $10,000 to $40,000 for tax year 2025, then phases out at higher incomes and reverts in 2030.
What it means to you
- High‑tax‑state relief (temporarily). If you own a home in, say, Colorado, Arkansas, New York, California or other high tax states, you may once again get a meaningful federal deduction for the property tax portion of your escrow (but only for five years).
- Alternative minimum tax (AMT) interaction. If you’re subject to AMT, the higher cap could still be limited, so review your AMT exposure.
Action step: If you anticipate selling property or realizing large taxable income in 2025 2029, coordinate that timing with the temporary SALT window.
3. New Temporary Deductions & Credits (2025‑2028)
• “Trump Accounts” for Kids
What changed? Every child born 2025 2028 receives a $1,000 government funded starter account. Parents (and others) may contribute up to $5,000 per year, per child, with tax free growth and tax free withdrawals for approved purposes (education, first time home purchase, or starting a small business.
What it means to you
- Early compounding. A government seeded $1,000 growing at 9% for 18 years could be worth ~$4,717—even before family contributions.
- Flexible alternative to 529 plans. Qualified uses extend beyond tuition, making it appealing if college isn’t the only goal.
Action step: Parents should update their annual savings plan: decide how much to direct to 529s vs. Trump Accounts based on expected education vs. home ownership goals.
• Deduction for Income on Tips
Up to $25,000 of qualified tip income (married filing jointly) is now deductible, phasing out at $150k/$300k of AGI.
Meaning: Servers, barbers, ride share drivers, or anyone whose livelihood relies on tips could reduce taxable income. Keep meticulous daily tip logs; the IRS will likely scrutinize this deduction.
• Overtime Pay Deduction
Deduct up to $25,000 of overtime pay (married filing jointly), with the same income phase outs.
Meaning: Nurses, police officers, and seasonal workers who rely on overtime can offset the income spike that often pushes them into a higher marginal bracket.
• Senior Deduction – $6,000 per person age 65+
What it means relative to Social Security taxation
- Reducing provisional income. Social Security benefits become taxable once “provisional income” (½ of benefits + other income) exceeds $25,000 single / $32,000 joint. The new $6k ($12k joint) deduction lowers provisional income, potentially moving some seniors below those thresholds, so a larger chunk of their Social Security becomes tax‑free.
- Medicare IRMAA planning. Lower AGI could also help seniors avoid Medicare premium surcharges.
Action step: Retirees should ask their advisor to estimate whether the extra deduction drops them below the 50% or 85% Social Security taxation brackets and adjust IRA distributions accordingly.
• Car‑Loan Interest Deduction
Deduct up to $10,000 of interest on loans for vehicles assembled in the U.S.
Meaning: This effectively lowers the after tax cost of financing a new EV or truck, but only if final assembly occurs domestically—check the VIN’s plant code before purchasing.
4. Permanent Increase in the Federal Estate Tax Exemption
From 2026 forward, the exemption rises to $15 million per person / $30 million per married couple, indexed for inflation.
What it means for multi generation family farms & businesses
- Reduced liquidity crunch. Previously, land rich but cash poor families often had to sell acreage to cover estate tax. The higher threshold means fewer farm or ranch estates will owe federal tax.
- Use the breathing room wisely. Families can now take time to set up succession plans without the pressure of immediate tax liability.
Action step: Coordinate with your advisor and estate planning attorney to ensure your assets are protected and will transfer in the most tax efficient way possible.
5. Senior Deduction- $6,000 per person ages 65+ (2025-2028)
This new deduction phases out beginning at $75k (single) and $150k (married filing joint). The new deduction is in addition to the current senior deduction of $2,000 single or $1600 per person if married (whether filing jointly or separately), which remains the same.
What it means relative to Social Security taxation:
- Despite information you may have heard, this act does not directly impact the taxation of Social Security.
- While the new senior deduction will further reduce your taxable income- potentially resulting in less taxes- it will not impact the amount of your Social Security that is subject to taxation or the amount you are required to pay for the Medicare IRMAA surcharge.
Action Step: Retirees should ask their advisor to revisit their retirement income sources based on this additional deduction.
Next Steps
- 1. Map your own timeline. Several provisions are temporary; put key dates (2025 2028 deductions, 2030 SALT reversion) on your financial calendar.
- 2. Coordinate strategies. Work with your financial advisor, CPA, and estate planning attorney to ensure your tax, investment, and estate plans all reflect the OBBBA rules.
- 3. Stay flexible. As with any large bill, technical corrections or state level changes may follow. Plan, but be ready to pivot.
Questions? We’re here to help you translate legislation into strategies for your situation. Call our office to schedule an appointment to discuss how the One Big Beautiful Bill Act may impact your financial plan.