Article

Five key takeaways for individual taxpayers from the One Big Beautiful Bill Act

Jul 17, 2025 · Authored by Andrew Whitehair

The One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) made numerous changes to individual tax provisions. Some of these changes affect the 2025 tax year, so taxpayers should consider the following items immediately: 

1. TCJA rates and brackets preserved 

The OBBBA made permanent the tax cuts found in the 2017 Tax Cuts and Jobs Act (TCJA). Even though OBBBA maintains the status quo, taxpayers should still be apprised of this development. Absent Congressional intervention, tax rates and brackets were due to sunset and return to higher pre-TCJA levels. 

Planning consideration: It is likely that many advisers have suggested that their clients consider accelerating income into 2025 ahead of anticipated rate increases. Following the enactment of the OBBBA, income deferral instead of acceleration may be a better strategy for most taxpayers. 

2. SALT cap increased 

The OBBBA temporarily increased the deductible limit for state and local tax (SALT) deductions from $10,000 to $40,000 for tax year 2025 ($20,000 for married filing separately). However, the higher cap starts to phase down for taxpayers above $500,000 of adjusted gross income (AGI) ($250,000 for married filing separately), with a complete phase-down to the TCJA limit of $10,000 occurring at $600,000 of AGI ($300,000 for married filing separately). Both the cap and threshold increase by 1% annually through the 2029 tax year, before reverting to the TCJA $10,000 limit for the 2030 tax year. 

Planning consideration: The SALT cap increase raises many planning considerations: 

• The SALT cap increase takes effect for the 2025 tax year. Some taxpayers will need to revise 2025 tax estimates to account for this additional deduction. Some may want to consider prepaying fourth quarter 2025 estimates and January 2026 property tax bills by December 31, 2025, to accelerate deductions into the current year. 
• Pass-Through Entity Tax (PTET) regimes will continue to be important strategies for taxpayers, especially those with higher AGIs who are phased down to the $10,000 TCJA limit. Earlier versions of the OBBBA sought to limit PTET for some or all taxpayers, but the final bill contained no PTET limitations. Be aware of the status of your state, as some states implemented PTET on a temporary basis and some states still do not offer PTET. 
• The new SALT cap phases down at a 30% rate between AGIs of $500,000 and $600,000 ($250,000 to $300,000 for married filing separately). This results in a marginal federal tax rate of 45.5% on each dollar in this phase down range. For taxpayers within this AGI range, consider bracket management techniques to manage their income below the phase-down threshold. Such techniques include making deductible 401(k) contributions instead of Roth 401(k) contributions, portfolio reallocation to reduce taxable income, and deferring income to lower income years if possible. 

3. New itemized deduction limitation 

The OBBBA permanently repealed the Pease limitation on itemized deductions, but starting with the 2026 tax year, it introduced a new overall limit on itemized deductions for taxpayers in the top 37% tax bracket. The new limit cuts the tax benefit from itemized deductions by 2%, effectively limiting the benefit from itemized deductions to a maximum of 35%. 

Planning consideration: Taxpayers subject to the 37% bracket should consider accelerating itemized deductions like charitable contributions into 2025 when those deductions will be marginally more valuable. 

4. New charitable contribution floor limitation 

Effective with the 2026 tax year, the OBBBA implemented a new charitable contribution floor of 0.5% of AGI for taxpayers who itemize their deductions. For example, a taxpayer with an AGI of $1,000,000 will only be able to deduct charitable contributions in excess of $5,000. 

Planning consideration: Philanthropic taxpayers may want to accelerate charitable contributions into 2025 before the new limit takes effect in 2026. Consider frontloading contributions to a private foundation or donor advised fund in 2025. This limitation does not apply to trusts, so consider whether an on-going charitable giving program could be structured using a trust, such as a charitable lead trust. 

5. AMT phaseout threshold reset 

The OBBBA made the TCJA alternative minimum tax (AMT) exemption amounts and phaseout thresholds permanent. However, it reset the base year for the AMT exemption phaseout threshold. The married filing jointly threshold is currently set at $1,252,700 for 2025 ($626,350 for single), but it is set to fall to $1,000,000 in 2026 ($500,000 for single) and be indexed for inflation thereafter. Additionally, the exemption phaseout percentage increases from 25%. This will result in more high-net-worth taxpayers being subject to AMT in 2026. 

Planning consideration: High-net-worth taxpayers need to carefully consider the timing of incentive stock option exercises and sales to minimize the impact of the AMT.  

Summary  

This overview is intended for general informational purposes only and does not address all scenarios. For example, further analysis may be necessary to evaluate the impact of the new charitable contribution floor for high-income taxpayers, or to assess the implications of the AMT phaseout reset on incentive stock option planning. Taxpayers subject to itemized deduction limitations or SALT cap phase-down thresholds may also require assistance in modeling potential outcomes under the new rules. For additional guidance, consider consulting with an advisor in individual tax planning. 

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.