The One Big Beautiful Bill (OBBB) extends many of the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and makes several targeted changes that will impact individual taxpayers. This update provides an overview of those changes as part of Parsons Behle & Latimer’s (Parsons) weekly updates to address the major tax changes from the OBBB. All changes are effective Jan. 1, 2026, unless noted otherwise.
Tax Rates and Exclusions
Reduced Income Tax Rates
The reduced income tax rates introduced in the TCJA are made permanent through the OBBB. The individual tax rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%. The tax rates for trusts and estates were also made permanent at 10%, 24%, 35% and 37%. The tax bracket thresholds are adjusted for inflation, with a different formula used for calculation of the 10%, 12% and 22% brackets than the higher brackets.
Alternative Minimum Tax
The OBBB makes permanent the increased alternative minimum tax (AMT) exemption amounts ($500,000 for single filers and $1,000,000 for joint filers) and modifies the related phaseout amount (increased to 50% from 25%).
Estate and Gift Tax Exclusion
The OBBB makes permanent the enhanced basic exclusion amount for estates. For 2026, the exclusion amount will be $15,000,000 per decedent. The exclusion will be indexed for inflation for subsequent years.
Education Focused Income Exclusions
The OBBB makes permanent the exclusion of employer payments of student loans up to $5,250 per taxable year (adjusted for inflation) from a taxpayer’s gross income. It also makes permanent the exclusion of income resulting from the discharge of student loan debt upon the student’s death or total disability from gross income.
Standard Deduction v. Itemized Deductions:
Increased Standard Deduction
Effective as of Jan. 1, 2025, the TCJA standard deduction is increased to $15,750 for single filers, $23,625 for head of household filers, and $31,500 for joint filers. These amounts will be adjusted for inflation.
Itemized Deductions
The OBBB follows the TCJA in effectively eliminating personal exemptions and makes several material changes to itemized deductions which will generally increase the number of filers who choose to itemize in 2026.
1. State and Local Tax Limitation
Effective Jan. 1, 2025, the state and local tax (SALT) limitation for itemized deductions increased to $40,000 from the $10,000 level set by the TCJA. For 2026, the SALT limitation will be $40,400 and will be further indexed at 101% for tax years 2027-2029. However, there is a phasedown for taxpayers whose modified adjusted gross incomes (MAGI) is greater than $500,000. The SALT limitation will revert back to $10,000 starting in 2030, absent subsequent legislation.
2. Qualified Residence Interest
The qualified residence interest deduction now again includes premiums paid for qualified mortgage insurance. The deduction phases out for taxpayers whose adjusted gross income (AGI) is greater than $100,000.
3. Two Percent Miscellaneous Deduction
The miscellaneous 2% itemized deduction is permanently disallowed. This OBBB permanent disallowance is an extension for the temporary disallowance under the TCJA.
4. Educator Expense
Taxpayers who qualify for educator expense deduction under section 62 plus sports administrators and coaches can deduct educator expenses (including athletic supplies) without regard to any dollar limitations or phaseouts but will be reduced by the amount of educator expenses claimed as an adjustment to income under section 62.
5. Casualty Loss Deduction
The casualty loss deduction now covers State- and Federal-declared disasters. State governors, with the Treasury Secretary, can declare severe statewide disasters from fires, floods, earthquakes, hurricanes and tornadoes as qualifying casualty losses.
6. Moving Expenses
The moving expense deduction is permanently disallowed. This OBBB permanent disallowance is an extension of the temporary disallowance under the TCJA. However, OBBB creates an exception for members of the “intelligence community” who are required to relocate due to a change in assignment. For purposes of this deduction, the “intelligence community” includes, but is not limited to, the Office of Director of National Intelligence, the Central Intelligence Agency, the National Security Agency, the Defense Intelligence Agency and expressly excludes members of the Armed Forces.
7. Wagering Losses
Under TCJA, wagering losses were deductible but only to the extent of any wagering gains. Under the OBBB, only 90% of wagering losses are deductible and only to the extent of any wagering gains. This provision will have an extraordinary impact on both professional and novice gamblers.
8. Itemized Deduction Limitation
The OBBB creates a new limitation on the amount of itemized deductions. The amount of itemized deductions will now be reduced by 2/37ths of the lesser of: (a) total amount of itemized deductions or (b) the taxable income greater than the dollar threshold of the 37% tax bracket (note: 2026 tax brackets have not been released yet). This limitation does not apply to the calculation of section 199A qualified business income deduction.
Deductions and Credits
Deductions Generally
The OBBB creates new provisions in the Code that affect deductions available to both itemizers and non-itemizers.
1. Senior Exemption
The OBBB provides a deduction of $6,000 for taxpayers who have attained the age of 65 prior to the close of the taxable year and have a Social Security number. This deduction is reduced for MAGIs over $75,000 for single filers and $150,000 for joint filers and is available for tax years 2025 through 2028. This deduction will have the effect of reducing taxes paid on Social Security, but no changes to Social Security taxation have been made by the OBBB.
2. Tips/Overtime/Fringe Benefits
Effective Jan. 1, 2025, through Dec. 31, 2028, the OBBB creates a deduction for tip and overtime income. No tax on tips is a deduction up to $25,000 for qualified tips for individuals in a customarily and regularly tipped industry. No tax on tips phases out for individuals with MAGI over $150,000 ($300,000 for joint filers). Likewise, no tax on overtime is a deduction up to $12,500 for individuals. Again, the no tax on overtime phases out for individuals with MAGI over $150,000 ($300,000 for joint filers). Social security numbers are required for both deductions.
Parsons anticipates releasing a subsequent update to expand upon no tax on tips, overtime, and qualified fringe benefits. Stay tuned!
3. Car Loan Interest
The OBBB creates a deduction for interest paid or accrued during the tax year on debt incurred by the taxpayer after Dec. 31, 2024, for the purchase of a new personal use passenger vehicle that is secured by a first lien on such vehicle. This deduction only applies to personal-use passenger vehicles with (a) at least two wheels, (b) where final assembly occurred in the U.S., and (c) where the taxpayer/borrower is not related to the lender. This deduction is limited to $10,000 per taxable year and begins phasing out when MAGI exceeds $100,000 for single filers and $200,000 for joint filers. This deduction is available for tax years 2025 through 2028.
4. Casualty Loss Deduction
The OBBB extends the special rules for qualified disaster-related personal casualty losses introduced under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which allow a non-itemizing taxpayer to deduct $500 worth of qualified disaster-related personal casualty losses. A “qualified disaster-related personal casualty loss” is a property loss not connected with a trade or business or a transaction entered into for profit, that arises from fire, storm, shipwreck, other casualty or theft in a qualified disaster area.
5. Charitable Deduction
Non-itemizers can deduct up to $1,000 ($2,000 for joint returns) of charitable contributions made during the tax year. This is an increase from the $300 deduction ($600 for joint returns) allowed pre-OBBB. Itemizers can deduct contributions exceeding 0.5% of their contribution base. Contribution base is the taxpayer’s AGI without regards to any net operating loss carryback.
Enhanced Tax Credits.
Several enhancements were made to tax credits throughout the Code geared towards lessening the impact of raising children.
1. Child Tax Credit
Starting in tax year 2025, the OBBB increases the child tax credit to $2,200 per qualifying child with a Social Security number. This amount will be adjusted for inflation. The OBBB also makes permanent the higher phaseout amounts introduced in the TCJA and the refundable portion of the credit.
2. Adoption Credit
Beginning in 2025, taxpayers can now claim up to $5,000 of qualified adoption expenses as a refundable credit. In the case of an adoption of a child with special needs, the enhanced $10,000 credit is still available. However, under the OBBB, “special needs” determinations can now be made by an “Indian tribal government” in addition to a “State.”
3. Dependent Care Assistance
Working parents can elect to contribute more pre-tax dollars towards eligible dependent care expenses pursuant to an employer dependent care assistance program. The OBBB increases the pre-tax contribution amount to $7,500 ($3,750 in the case of a married taxpayer filing separately). This is an increase from the pre-OBBB amounts of $5,000 and $2,500.
4. Child & Dependent Care Credit
The OBBB expands the child and dependent care credit for working parents. The OBBB allows 50% of qualifying dependent care costs to be credited (compared to 35% pre-OBBB). The OBBB expands the phaseout limitations to allow more taxpayers to claim the credit. Specifically, the new phaseout limitations reduce the applicable credit percentage (but not below 35%) for taxpayers with AGI exceeding $15,000 and further reduces the credit percentage (but not below 20%) for taxpayers with AGI above $75,000 ($150,000 for joint returns).
5. Scholarship Contributions
Beginning Jan. 1, 2027, the OBBB creates two new Code sections for contributions to elementary and secondary education scholarships. The new $1,700 (non-refundable) credit for cash contributions to a qualified elementary and secondary scholarship (which is a 501(c)(3) organization but not a private foundation) is permitted for a five-year carryforward for unused portions of the credit. Scholarship amounts received by the recipient are not included in the recipient’s taxable income. Additionally, states must provide a list of qualifying elementary and secondary scholarship organizations to the Treasury Secretary each year.
6. Lifetime Learning and American Opportunity Tax Credit.
The Lifetime Learning credit and American Opportunity tax credit now require Social Security numbers for an individual’s qualified tuition and expenses.
Savings Accounts (Trump, 529, ABLE):
Trump Accounts
The OBBB creates an investment fund for children under the age of 18 (Trump Account). Contributions to Trump Accounts are limited to $5,000 per year (adjusted for inflation after 2027). Additionally, all children born between Jan. 1, 2025, and Dec. 31, 2028, will be eligible for an initial $1,000 investment from the government. Contributions to Trump Accounts will be accepted after July 4, 2026. Additional regulations and guidance from Treasury are expected in the meantime.
529 Accounts
1. Elementary and Secondary School Expenses
For 529 account distributions made after July 4, 2025, qualified expenses for attending public, private or religious elementary or secondary schools now include curriculum and instructional materials, online educational materials, tutoring, standardized testing fees, fees for dual enrollment in an institution of higher education and educational therapies for students with disabilities. Previously, only tuition for elementary or secondary schools were qualified higher education expenses. Additionally, the annual limitation for elementary and secondary school expenses is now $20,000 per child (an increase from $10,000). The increased annual limitation is effective for tax years beginning after Dec. 31, 2025.
2. Postsecondary Credentialing Expenses
For 529 account distributions made after July 4, 2025, qualified expenses now include qualified postsecondary credentialing expenses for tuition, fees, books, supplies and equipment required for enrollment plus fees for testing for a recognized postsecondary credential plus fees for continuing education required to maintain such postsecondary credential. Recognized postsecondary credentials include a wide magnitude of trade apprenticeship, military and professional credentials.
ABLE Accounts
The OBBB makes several changes to ABLE accounts, including changes to the contribution limits, savers credit and rollovers from 529 accounts.
Firearms
The OBBB also repeals the $200 per firearm tax except for machine guns and destructive devices (e.g. explosives, bombs, grenades, etc.).
Parsons’ upcoming seminar on the morning of Aug. 21, 2025, will offer a deeper dive into these developments and their practical implications. Look for an invitation coming soon. In the meantime, we encourage individuals and businesses to monitor our regular updates and engage with our team to navigate this new era of tax law effectively.
