August 28, 2025 | Tax Planning

What you need to Know About Individual Tax Law Changes in the “One Big Beautiful Bill Act”

Effective Starting: January 1, 2026 (unless otherwise noted)

The much-anticipated One Big Beautiful Bill Act (“the Act”) was signed into law on July 4, 2025—a sweeping tax reform package aimed supporting American families, and encouraging investment. This legislation brings several key changes to individual income taxes, with adjustments that impact everyone from working professionals to retirees and high-net-worth households.

Below is a breakdown of the major income and estate tax changes included in the bill:

Estate & Gift Tax Exemption Increased

The federal lifetime gift, estate, and generation-skipping transfer exemption has been raised to $15 million per person ($30 million per couple).
This increase is set to sunset in 2030 unless extended.
This adjustment offers a valuable opportunity for high-net-worth individuals to transfer more wealth tax-free.

State and Local Tax (SALT) Deduction Cap Raised

The bill increases the SALT deduction cap from $10,000 to $40,000 for joint filers in 2025, addressing one of the most debated limitations from the 2017 tax reform. This is especially favorable to taxpayers in high-tax states such as California, New York, and Illinois.

In 2026, the cap will rise to $40,400, increasing by 1% annually through 2029.
The deduction phases down for taxpayers with MAGI over $500,000 (starting in 2025).
The MAGI threshold will be adjusted for inflation through 2029.

Capital Gains & Dividend Taxes Unchanged

Long-term capital gains tax rates remain at 0%, 15%, or 20%, depending on income level.
The 3.8% Net Investment Income Tax (NIIT) still applies to higher earners ($200,000+ single / $250,000+ joint).
No increases were made to capital gains or dividend tax rates—a win for investors.

Auto Loan Interest Deduction

Taxpayers may deduct vehicle loan interest up to $10,000 for qualified U.S. vehicles.
Deduction phases out for taxpayers with MAGI over $100,000 ($200,000 for joint returns).
Loans must originate after December 31, 2024, to qualify.

Standard Deduction Increased

The standard deduction has been significantly raised, making it more beneficial for most taxpayers to avoid itemizing for tax years beginning in 2024:

Single filers: $15,750 (up from $13,850)
Married filing jointly: $31,500 (up from $27,700)

Senior Tax Deduction

Taxpayers who are 65 years or older will receive a $6,000 deduction per individual. This deduction begins phasing out at a modified adjusted gross income (MAGI) of $75,000 for single filers and $150,000 for married couples filing jointly.

No Tax on Tips

Taxpayers can receive up to a $25,000 temporary tax deduction on qualified tips received in occupations that customarily and regularly receive tips.

Qualified tips must:

Be voluntarily given by the payee.
Not be required as a condition of receiving service.
Not be negotiated by the recipient or imposed as a specific payment.
The deduction begins to phase out when MAGI exceeds $150,000 ($300,000 for joint filers).

No Tax on Overtime

The bill provides a temporary tax deduction of up to $12,500 ($25,000 for joint filers) for qualified overtime compensation.

Expanded Child Tax Credit

The Child Tax Credit has been temporarily enhanced to provide additional relief for families:

$2,200 per qualifying child (up from $2,000).
Phases out at $200,000 for individuals and $400,000 for joint filers.

Increased Child and Dependent Care Credit

The bill permanently increases the child and dependent care tax credit from 35% to 50% of qualified expenses.

The credit phases down for taxpayers with AGI over $15,000.
Reduced by 1 percentage point (but not below 35%) for each $2,000 of AGI over $15,000.
Further reduced by 1 percentage point (but not below 20%) for each $2,000 ($4,000 for joint returns) of AGI over $75,000 ($150,000 joint).

Additional Provision:
A $1,000 tax credit is available for opening a “Trump Account” for a child born between January 1, 2025, and December 31, 2028. The bill appropriates $410 million, available through September 30, 2034, to fund these accounts.

Charitable Contribution Deduction

The bill introduces a charitable contribution deduction for taxpayers who do not itemize:

Up to $1,000 for single filers.
Up to $2,000 for joint filers.

The Act also imposes new limits on the deductibility of certain charitable contributions.

EV Tax Credit Ending

The bill eliminates the federal electric vehicle tax credit as of September 30, 2025.

Removes the $7,500 new EV tax credit.
Removes the $4,000 used EV tax credit.

Final Thoughts

The Act provides continued tax relief for individuals while expanding some deductions and credits. While it does not completely overhaul the system, it reinforces many provisions from the 2017 tax reform, with added benefits for families, retirees, and high earners.

The Act eliminates any uncertainty regarding the estate tax exemption and provides for its continued increase which will help high net worth clients with planning strategies.