The Tax Cuts and Jobs Act (TCJA) of 2017 brought sweeping tax changes, including lower individual income tax rates and an increased estate and gift tax lifetime exemption. However, most of these provisions were temporary, set to expire at the end of 2025 without congressional action.
Congress responded with new legislation, H.R.1, commonly known as the One Big Beautiful Bill Act or OBBBA, signed into law on July 4, 2025. This act makes many TCJA provisions permanent while introducing additional changes.
The following sections outline selected significant provisions and their potential planning implications.
WHAT’S NOW PERMANENT
Income Tax Rate Changes
The OBBBA (H.R.1) permanently extends the lower TCJA tax rates, maintaining seven brackets at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These tax brackets will continue to be indexed for inflation, providing taxpayers with long-term certainty.
Elevated Estate and Gift Tax Lifetime Exemption
The lifetime gift and estate tax exclusion increases to $15 million per person for 2026 and becomes permanent.
The exclusion will be indexed for inflation going forward.
Permanent Standard Deduction Increases
Beginning with the 2025 tax year, the standard deduction increases permanently to:
- Single and Married Filing Separately: $15,750 (indexed for inflation)
- Head of Household: $23,625 (indexed for inflation)
- Married Filing Jointly: $31,500 (indexed for inflation)
Enhanced Child Tax Credit
The child tax credit increases permanently to $2,200 per child beginning in 2025, with future inflation adjustments. The credit phases out for households with MAGI over $200,000 (single, head of household) and $400,000 (joint filers).
Qualified Business Income (QBI) Deduction Extension
The 20% QBI deduction becomes permanent with enhancements:
- Expanded phase-out ranges (increasing thresholds to $150,000 for joint filers and $75,000 for single filers)
- New minimum $400 deduction for taxpayers with at least $1,000 of QBI
MAJOR NEW BENEFITS
Enhanced State and Local Tax (SALT) Deduction
One of the most significant changes increases the SALT deduction limit substantially:
- 2025: $40,000
- 2026: $40,400
- 2027-2029: Annual 1% increases
The limit applies to all filing statuses except married filing separately, which receives 50% of the standard limit.
Important limitation: The deduction phases out for taxpayers with Modified Adjusted Gross Income (MAGI) exceeding $500,000 in 2025, with 1% annual increases through 2029. However, the deduction cannot be reduced below $10,000. Phase-out thresholds for married filing separately are 50% of other filing statuses.
Temporary Senior Deduction
A new temporary provision provides additional deductions for seniors from 2025 through 2028:
- $6,000 for taxpayers age 65 and older
- $12,000 for joint filers where both spouses are 65 or older
This deduction applies regardless of whether taxpayers use the standard deduction or itemize. It functions as a “below-the-line” deduction taken after calculating adjusted gross income (AGI) and is in addition to the existing 65+ additional standard deductions ($2,000 for single filers, $1,600 for each qualifying spouse when filing jointly).
Important limitation: The deduction phases out for taxpayers with modified adjusted gross income (MAGI) exceeding $75,000 (single filers) or $150,000 (joint filers). Complete phase-out occurs at $175,000 for single filers and $250,000 for joint filers.
Expanded 529 Plan Benefits
New eligible K-12 expenses: 529 plans can now cover books, materials, standardized test fees, dual enrollment fees, and educational therapy costs.
Postsecondary credential coverage: 529 funds can be used for tuition, fees, books, exam costs, and continuing education fees required to maintain professional credentials.
These provisions apply to distributions made after the date of enactment, July 4, 2025
Increased K-12 limits: The annual limit for K-12 and post-secondary credential expenses increases from $10,000 to $20,000 starting in 2026.
OTHER NOTABLE CHANGES AND LIMITATIONS
New AGI Floor for Itemizers
Starting in 2026, taxpayers who itemize can only deduct charitable contributions exceeding 0.5% of their AGI.
Non-Itemizer Charitable Deduction
Beginning in 2026, taxpayers who don’t itemize can claim a permanent charitable deduction for cash contributions:
- Single filers: $1,000
- Married filing jointly: $2,000
Overall Itemized Deduction Limitation
Starting in 2026, taxpayers in the top 37% tax bracket face new limitations. Their total itemized deductions will be reduced by 2/37 of the lesser of:
- Total itemized deductions, or
- The amount by which taxable income plus itemized deductions exceeds the 37% bracket threshold
Alternative Minimum Tax (AMT) Phaseout Thresholds
The TJCA significantly reduced the number of filers subject to AMT by increasing the exemption amount and raising the income threshold at which the exemption begins to phase out. The OBBBA (H.R.1) maintains these higher exemption amounts. However, beginning in 2026, the OBBBA (H.R.1) increases the AMT exemption phase-out rate from 25% to 50% of the dollar amount above the threshold. This means that the AMT exemption is now reduced twice as fast once income exceeds the threshold, resulting in more high-income taxpayers potentially being subject to AMT.
Enhanced Qualified Small Business Stock (QSBS) Benefits
The QSBS exclusion increases from $10 million to $15 million for stock acquired after July 4, 2025. The exclusion now varies based on holding period:
- Three years: 50% exclusion
- Four years: 75% exclusion
- Five or more years: 100% exclusion
The bill expands eligibility by raising the threshold for a corporation’s aggregate gross assets from $50 million to $75 million at the time of stock issuance.
Trump Savings Accounts
A new retirement savings vehicle launches in 2026 for individuals under 18.
Rules Before Account Beneficiary Reaches Age 18
- After-tax (nondeductible) direct annual contributions up to $5,000 (indexed for inflation) to a custodial account with the child as beneficiary
- No earned income requirement
- Investments limited to low-cost, diversified US equity index funds
- No distributions allowed
- $1,000 contribution from U.S. Treasury for accounts opened for children born between January 1, 2025, and December 31, 2028
- Contributions can be made to Trump accounts beginning July 2026
Rules When Account Beneficiary Reaches Age 18
- On January 1st of the year the beneficiary turns 18, Trump accounts function like traditional IRAs.
- Withdrawals net of after-tax contributions will be taxed at ordinary income rates.
- Withdrawals made before age 59½ will be subject to ordinary income tax and a 10% early distribution penalty, unless an exception applies, such as first-time home purchases (up to $10,000) or distributions for higher education.
Note: At the time of writing, the law is unclear as to whether required minimum distributions (RMDs) and the 10-year inherited IRA distribution rules will apply. However, since it will be quite some time before beneficiaries reach RMD age, additional clarification is likely to be provided.
Clean Energy Credit Terminations
Several clean energy credits will expire:
- Clean Vehicle Credit: Terminates for vehicles acquired after September 30, 2025
- Alternative Fuel Vehicle Refueling Property Credit: Ends for property placed in service after June 30, 2026
- Energy Efficient Home Improvement Credit: Terminates for property placed in service after December 31, 2025
- Residential Clean Energy Credit: Ends for expenditures after December 31, 2025
STRATEGIC PLANNING CONSIDERATIONS
The timing of these provisions creates several 2025 planning opportunities:
Charitable giving: Consider accelerating charitable contributions into 2025 before the 0.5% AGI floor and overall itemized deduction limitations take effect in 2026. Donor-advised funds can be particularly effective for this strategy.
Clean energy incentives: Act quickly to capture expiring clean energy credits by accelerating purchases or installations before their respective termination dates.
Income planning: Carefully consider income phase-outs for the expanded SALT deduction, the additional deduction for seniors, and the AMT exemption when implementing strategies like Roth conversions and determining the optimal timing for exercising Incentive Stock Options (ISOs), which could inadvertently trigger these phase-outs.
THE PATH AHEAD
These comprehensive tax changes present both opportunities and complexities that require careful analysis and strategic planning. At HTG Investment Advisors, we collaborate closely with your tax professionals to ensure these new provisions align with your broader financial goals. Contact your financial advisor today to explore how these changes may benefit your unique circumstances.