One Big Beautiful Bill Act: Individual Tax Provisions
Article Summary
- Expanded credits and deductions for individuals — The law extends and enhances the Child Tax Credit and non-child dependent credits, increases the standard deduction, and introduces new temporary deductions, such as for tips, overtime pay, and interest on car loans.
- Permanent lower tax rates and SALT adjustments — It makes the lower individual tax rates (from the 2017 Tax Cuts and Jobs Act) permanent and raises the State and Local Tax (SALT) deduction cap, while also adjusting some itemized deductions.
- New senior and above-the-line benefits — Taxpayers aged 65+ get a new enhanced deduction, and above-the-line charitable donation provisions are added, giving both itemizers and non-itemizers more options to reduce taxable income.
- Other individual changes — The bill includes modifications to Health Savings Accounts (HSAs), gift & estate tax exemptions, and changes affecting Roth IRA conversions, reflecting broader individual tax policy adjustments.
Extension and Enhancement of Child Tax Credit and Non-Child Dependent Tax Credit
Many of the tax provisions of the Tax Cuts and Jobs Act (TCJA), passed in 2017, were set to expire on December 31, 2025 – including the changes made to the child tax credit and non-child dependent tax credit. However, under the newly passed One Big Beautiful Bill Act (OBBBA), both credits have been enhanced and extended, effective January 1, 2025.
The table below compares (1) the current law under the TCJA, (2) what the law would have been without the OBBBA and after the TCJA provisions expired, and (3) the new law under the OBBBA.
|
Category |
Current Law (TCJA) |
Post TCJA (No New Law) |
New Law (OBBBA) |
|
Child tax credit – qualifying children under age 17 |
Maximum credit of $2,000 per qualifying child |
Maximum credit of $1,000 per qualifying child (not indexed for inflation) |
Maximum credit of $2,200 per qualifying child in tax year 2025, indexed annually for inflation thereafter |
|
Non-child dependent tax credit – dependents over the age of 18 |
$500 nonrefundable tax credit |
No tax credit available for non-child dependents |
$500 nonrefundable tax credit is made permanent (not indexed for inflation) |
|
Social security number (SSN) requirements |
Dependent: A valid SSN is required to be reported Taxpayer No SSN requirement. |
Child/Dependent: A valid SSN is required and must be reported on the tax return. Taxpayer: A valid SSN is required for the taxpayer (or at least one spouse on a joint return). These requirements are made permanent starting in tax year 2025. |
Child/Dependent: A valid SSN is required and must be reported on the tax return. Taxpayer: A valid SSN is required for the taxpayer (or at least one spouse on a joint return). These requirements are made permanent starting in tax year 2025. |
Gift & Estate Tax Exemption
Under the current law, as enacted by the Tax Cuts and Jobs Act (TCJA) of 2017, the estate tax exclusion amount was doubled to a base amount of $11.18 million and adjusted for inflation for tax years 2018 through 2025. After 2025, however, the base exclusion amount was set to revert to approximately $7 million per decedent, adjusted for inflation. Beginning on January 1, 2026, the One Big Beautiful Bill Act (OBBBA) increases the base exclusion amount permanently to $15 million per individual, indexed for inflation each year.
The table below compares (1) the current law under the TCJA, (2) what the law would have been without the OBBBA and after the TCJA provisions expired, and (3) the new law under the OBBBA.
|
Tax Provision |
Current Law (2025) |
TCJA Expiring Provisions (Post-2025) |
New Law (OBBBA) |
|
Estate & Gift Tax Exemption |
$13.99M per individual $27.98M for married couples |
Reverts to ~$7M per individual ~$14M for married couples |
Increased to $15M per individual $30M for married couples (indexed); made permanent |
Changes to Health Savings Accounts Under the One Big Beautiful Bill Act
With the passage of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, new rules for Health Savings Accounts (HSA) have been introduced, intended to increase HSA availability to more people.
To provide some background, under the current law (pre-OBBBA), individuals may contribute to a Health Savings Account if they have coverage under a qualified High-Deductible Health Plan (HDHP) and are not covered by any other health plan that is not a qualified HDHP but provides similar benefits.
Under prior law, Direct Primary Care (DPC) service arrangements - where individuals pay a fixed periodic fee to a primary care provider for services – were considered a form of health coverage by the IRS, disqualifying individuals from contributing to an HSA. Under the new law, DPC arrangements are now permitted alongside an HSA.
Another change in the law makes permanent the Telehealth coverage exception originally introduced by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Normally, an HDHP requires individuals to pay out their deductible before the insurance covers any services. Under the CARES Act, HDHPs were temporarily allowed to provide telehealth services without requiring patients to first meet their deductible. The OBBBA now makes this exception permanent.
Additional changes are outlined in the table below, which compares (1) the current law under the TCJA, (2) what the law would have been without the OBBBA and after the TCJA provisions expired, and (3) the new law under the OBBBA.
|
HSA Rule |
Current Law (2025) |
Post TCJA (No New Law) |
New Law (OBBBA, Effective 2026) |
|
Eligibility with Affordable Care Act (ACA) Bronze/Catastrophic Plans |
Not eligible |
Not eligible |
Eligible |
|
Telehealth Coverage Before Deductible |
Temporarily allowed (through 2024) |
Disallowed |
Permanently allowed (effective 2025) |
|
Direct Primary Care (DPC) Eligibility |
Disqualifies HSA eligibility |
Disqualifies HSA eligibility |
Allowed (with some restrictions) |
|
Use of HSA for DPC Fees |
Not allowed |
Not allowed |
Allowed if monthly fee ≤ $150 (or $300 for families), adjusted for inflation |
Limitation on Itemized Deductions for State and Local Tax (SALT)
Under the Tax Cuts and Jobs Act (TCJA), enacted in 2017, the deduction for state and local taxes (SALT) was limited to $10,000 for individuals and trusts ($5,000 for a married taxpayer filing a separate tax return). This cap was scheduled to expire after December 31, 2025. However, recently enacted One Big Beautiful Bill Act (OBBBA) modifies and extends the SALT deduction cap beyond that date.
The table below compares (1) the current law under the TCJA, (2) what the law would have been without the OBBBA and after the TCJA provisions expired, and (3) the new law under the OBBBA.
|
Category |
Current Law (TCJA) |
Post TCJA (No New Law) |
New Law (OBBBA) |
|
Itemized Deduction for State and Local T (SALT) |
Maximum deduction of $10,000 for individuals and trusts ($5,000 for married individuals filing separately) |
Beginning in tax year 2026, the SALT deduction cap would expire, and an unlimited SALT deduction would be allowed |
For tax years 2025-2029: **SALT deduction cap increased to $40,000 in 2025 for individuals and trusts ($20,000 for married individuals filing separately) **Phaseout begins for individual taxpayers with income over $500,000 ($250,000 for married individuals filing separately) **No phaseout for trust taxpayers **Both the cap and phaseout thresholds increase by 1% annually through 2029 Tax year 2030 and beyond: **SALT deduction cap reverts to TCJA levels ($10,000 / $5,000 for married individuals filing separately) |
Lower Tax Rates Made Permanent Under the One Big Beautiful Bill Act
The Tax Cuts and Jobs Act (TCJA), enacted in 2017, significantly lowered federal income tax rates across the board for individual and trust taxpayers. These reduced tax rates were scheduled to expire after December 31, 2025, and without further legislative action would have reverted to the less favorable, pre-2017 rates. Under the recently enacted One Big Beautiful Bill Act (OBBBA), the lower TCJA-era tax rates have been made permanent for individual and trust taxpayers.
The table below compares (1) the TCJA tax rates that were made permanent under the OBBBA and (2) the tax rates that would have applied had the OBBBA not been enacted.
|
Category |
TCJA Tax Rates (Made Permanent By OBBBA) |
Post TCJA (No New Law) *Income thresholds are projected based on pre-TCJA amounts, adjusted for inflation |
|
Tax Rates – Married Filing Jointly |
10% $0 - $23,850 12% $23,851 - $96,950 22% $96,951 - $206,700 24% $206,701 to $394,600 32% $394,601 - $501,050 35% $501,051 - $751,600 37% $751,601+ *Indexed annually for inflation under the OBBBA |
10% $0 - $24,400 15% $24,401 - $99,200 25% $99,201 - $200,100 28% $200,101 - $304,950 33% $304,951 - $544,550 35% $544,551 - $615,100 39.6% $615,101+ |
|
Tax Rates - Single |
10% $0 - $11,925 12% $11,926 - $48,475 22% $48,476 to $103,350 24% $103,351 - $197,300 32% $197,301 - $250,525 35% $250,526 - $626,350 37% $626,351+ *Indexed annually for inflation under the OBBBA |
10% $0 - $12,150 15% $12,151 - $49,425 25% $49,426 - $105,375 28% $105,376 - $201,150 33% $201,151 - $275,000 35% $275,001 - $575,000 39.6% $575,001+ |
|
Tax Rates – Head of Household |
10% $0 - $17,000 12% $17,001 - $64,850 22% $64,851 - $103,350 24% $103,351 - $197,300 32% $197,301 - $250,525 35% $250,526 - $626,350 37% $626,351+ *Indexed annually for inflation under the OBBBA |
10% $0 - $13,350 15% $13,351 - $50,800 25% $50,801 - $131,200 28% $131,201 - $212,500 33% $212,501 - $416,700 35% $416,701 - $444,550 39.6% $444,551+ |
|
Tax Rates – Married Filing Separate |
10% $0 - $11,800 12% $11,801 - $47,150 22% $47,151 - $100,525 24% $100,526 - $191,950 32% $191,951 - $243,725 35% $243,726 - $365,600 37% $365,601+ *Indexed annually for inflation under the OBBBA |
10% $0 - $11,800 15% $11,801 - $46,950 25% $46,951 - $95,900 28% $95,901 - $146,050 33% $146,051 - $260,600 35% $260,601 - $311,600 39.6% $311,601+ |
|
Tax Rates – Trusts |
10% $0 - $3,100 24% $3,101 - $11,150 35% $11,151 - $14,450 37% $14,451+ *Indexed annually for inflation under the OBBBA |
15% $0 - $3,100 25% $3,101 - $7,900 28% $7,901 - $12,300 33% $12,301 - $15,400 35% $15,401 - $23.450 39.6% $23,451+ |
New Tax Deduction Available for Seniors Starting in 2025
The One Big Beautiful Bill Act (OBBBA) introduces a generous new tax benefit for older Americans: an enhanced deduction specifically for seniors. Beginning in the 2025 tax year, individuals who are age 65 or older by the end of the year can claim an additional $6,000 deduction – or $12,000 if both spouses qualify. This provision is temporary and is scheduled to expire after the 2028 tax year unless extended by future legislation.
This new senior-specific deduction is an above-the-line deduction that reduces adjusted gross income. It is available in addition to the standard deduction or itemized deductions. In 2025, a qualifying senior who claims the standard deduction could deduct over $23,000, while a qualifying couple could deduct more than $46,000. These amounts can significantly reduce – or in some cases, eliminate – taxable income for many retirees.
Eligibility is based on modified adjusted gross income (MAGI), and the deduction phases out as income increases:
- Single filers: The deduction begins to phase out once MAGI exceeds $75,000 and is fully phased out at $175,000.
- Married couples filing jointly: The deduction begins to phase out once MAGI exceeds $150,000 and is fully phased out at $250,000.
Although the OBBBA does not eliminate the taxation of Social Security benefits, this enhanced deduction effectively shields a larger portion of retirement income from tax. For many seniors, especially those without large pensions or investment income, it will feel like a meaningful tax cut.
Seniors near the phaseout thresholds may want to review their retirement income strategy. In some cases, modest tax planning – such as adjusting IRA withdrawals or using qualified charitable distributions – could help preserve access to the full tax deduction.
Changes to Itemized Deductions
Many of the tax provisions of the Tax Cuts and Jobs Act (TCJA), passed in 2017, were set to expire on December 31, 2025 – including the changes made to limit itemized deductions for mortgage interest paid on a qualified residence and repeal miscellaneous deductions indefinitely. However, under the newly passed One Big Beautiful Bill Act (OBBBA), this limitation has been updated and extended, effective January 1, 2025.
The table below compares (1) the current law under the TCJA, (2) what the law would have been without the OBBBA and after the TCJA provisions expired, and (3) the new law under the OBBBA.
|
Category |
Current Law (TCJA) |
Post TCJA (No New Law) |
New Law (OBBBA) |
|
Limit on interest deduction for debt securing qualified residence |
For tax years after 2017 and before 2026: Acquisition debt limit of $750,000 ($375,000 for married filing separately) on debt acquired after December 15, 2017, and before January 1, 2026 |
Acquisition debt limitation would have reverted to $1 million ($500,000 for married filing separately) |
Limitations imposed by TCJA made permanent for all debt acquired after December 15, 2017
|
|
Home equity debt interest deduction |
No deduction allowed |
After 2025, interest on home equity debt would have been deductible subject to loan limitation of lesser of: $100,000 ($50,000 for married filing separately); or FMV of the home minus the value of the last acquisition debt secured by the home. |
No deduction allowed – made permanent |
|
Mortgage insurance premiums deduction |
Premiums paid or accrued after December 31, 2017, and before January 1, 2022
Home mortgage insurance premiums attributable to qualified residence are deductible as qualified residence interest Adjusted Gross Income (AGI) Limitation Deduction reduced by 10% for each $1,000 by which taxpayers AGI exceed $100,000 ($500 and $50,000 for married filing separately) |
No deduction would be allowed. |
Deduction for mortgage insurance premiums as qualified residence interest made permanent for all tax years after 2017 AGI Limit removed, as added by TCJA |
|
Miscellaneous Itemized Deductions |
For tax years 2018 to 2025
Not Allowed |
Miscellaneous itemized deductions subject to 2% of AGI limitation would’ve been reinstated as deductible again |
For tax years after 2017 Not Allowed – made permanent
|
|
Educator Expenses |
For tax years 2018 to 2025 Eligible educators may deduct above-the-line expenses in the classroom. Deduction is limited to $300 for 2025. Eligible Educator K-12 teacher, instructor, counselor, principal, or aide in school for at least 900 hours during a school year. Eligible Expenses Expenses paid or incurred for materials used in the classroom. (excluding nonathletic supplies for courses in health or physical education) |
Above the line deduction of $300 would have remained in effect for 2025. Eligible educators would be able to reduce excess expenses in the classroom as a miscellaneous deduction subject to the 2% AGI limitation |
For tax years after 2017 Above-the-line educator expense deduction made permanent. Excess expenses are deductible as a miscellaneous deduction without 2% AGI limitation. Eligible Educator Expanded to likewise include interscholastic sports administrator or coach. Eligible Expenses Expenses paid or incurred for materials used as part of an instructional activity. (including nonathletic supplies for courses in health or physical education) |
|
Phase out of itemized deductions (Pease limitation) |
For tax years 2018 to 2025 The Pease limitation on itemized deduction is temporarily repealed. |
The Pease limitation on itemized deduction would’ve been reinstated. |
For tax years after 2017 The Pease limitation is permanently repealed. New limitation after 2025 Itemized deductions are reduced by 2/37 of the lessor of (1) taxpayer’s itemized deductions or (2) taxpayer’s taxable income more than the dollar amount where 37% tax bracket takes effect. Those not in the 37% tax bracket are not affected by this new limitation. |
No Tax on Tips, Overtime, or Car Loan Interest
Under the newly passed One Big Beautiful Bill Act (OBBBA), new provisions were implemented to allow for limited taxation on tips, overtime, and car loan interest, effective January 1, 2025.
The table below details (1) the new laws under the OBBBA.
|
Category |
New Law (OBBBA) |
|
No tax on tips |
For tax years 2025 through 2028 Individuals can claim a deduction for qualified tips of up to $25,000, subject to modified adjusted gross income (MAGI) phase out. Qualified business income (QBI) is likewise modified to not include any amount allowed for as a qualified tip deduction.
Qualified Tips: Cash tips received by a taxpayer in an occupation that customarily and regularly received tips on or before December 31, 2024, and that are reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.
An amount is not a qualified tip unless: 1. The amount received is paid voluntarily without any consequence for nonpayment, is not the subject of negotiation, and is determined by the payer; 2. the trade or business in which the individual receives the amount is not a specified service trade or business as defined in Code Sec. 199A(d)(2); and 3. other requirements established by the Treasury Secretary in regulations or other guidance are satisfied (Code Sec. 224(d)(2), as added by the OBBB Act). A list of qualified occupations to be provided by the Treasury Secretary before October 2, 2025.
MAGI phase out: Deduction is phased out by $100 for each $1,000 of MAGI exceeding $150,000 ($300,000 for taxpayers filing jointly) |
|
No tax on overtime |
For tax years 2025 through 2028 Individuals can claim a deduction for qualified overtime of up to $12,500 per tax year ($25,000 for joint filers), subject to MAGI phase out. Qualified Overtime: Overtime paid to individual required under section 7 of Fair Labor Standards Act of 1938 (FLSA). Generally, includes nonexempt employees paid at least 1 ½ of their regular rate for hours worked in excess of 40 in a week. Employers and other payors are required to file information returns with the IRS (or SSA)and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.
MAGI phase out: Deduction is phased out by $100 for each $1,000 of MAGI exceeding $150,000 ($300,000 for taxpayers filing jointly) |
|
No tax on car loan interest |
For tax years 2025 through 2028 Individual taxpayers may deduct up to $10,000 for interest paid or accrued on a loan used to purchase a qualified passenger vehicle for personal use after 2024. The loan must be secured by a first lien on the applicable vehicle. Deduction is subject to MAGI phase out. Vehicle Identification Number (VIN) Requirement: All vehicles for which the qualified vehicle interest is deducted must include the VIN of the applicable passenger vehicle. Related party loans: Interest paid on indebtedness to a related person is disqualified for the deduction. Final Assembly in USA requirement: Only vehicles less than 14,000 lbs, including motorcycles, which had final assembly in the United States are qualified passenger vehicles. MAGI phase out: Deduction is phased out by $200 for each $1,000 of MAGI exceeding $100,000 ($200,000 for taxpayers filing jointly) |
Above-the-line Charitable Donation
Under the newly passed One Big Beautiful Bill Act (OBBBA), deductibility of charitable contributions has been expanded and enhanced for tax years beginning after December 31, 2025.
The table below compares (1) the current law under the TCJA, (2) what the law would have been without the OBBBA and after the TCJA provisions expired, and (3) the new law under the OBBBA.
|
Category |
Current Law (TCJA) |
Post TCJA (No New Law) |
New Law (OBBBA) |
|
Above-the-line charitable donation |
No above-the-line deduction
Charitable contributions are deductible as an itemized deduction. |
Charitable contributions would’ve still been deductible as an itemized deduction. |
Reinstatement of above-the-line deduction for non-itemizers Doesn’t reduce Adjusted Gross Income (AGI) but does reduce taxable income. After 2025 tax year, nonitemizers can deduct up to $1,000 as an above-the-line deduction for certain charitable contributions ($2,000 for married-filing-joint). Implementation of 0.5% floor Itemizing taxpayers after 2025 will have a 0.5% floor added by reducing their charitable contributions by 0.5 % of taxpayers contribution base for the year. |
Here is an example of how the new 0.5 percent floor on itemized charitable donations will work for tax years beginning in 2026:
- Scenario: An individual taxpayer who itemizes deductions has an adjusted gross income (AGI) of $100,000. The taxpayer makes $700 in cash charitable contributions to a qualified organization.
Calculation:
- Adjusted Gross Income (AGI): $100,000
- 0.5% of AGI: 0.005 x $100,000 = $500
- Charitable Contribution: $700
- Deductible Amount: Since the contributions exceed the 0.5% floor, the deductible amount is $700 - $500 = $200
- In this example, the taxpayer can deduct $200 of the $700 charitable contribution, as the first $500 (0.5% of AGI) is not deductible due to the new floor.
Accelerated Sunset of Energy-Related Tax Credits for Individual Taxpayers
The recently enacted One Big Beautiful Bill Act (OBBBA) significantly shortens the lifespan of several energy-related income tax credits that were expanded or extended under the Inflation Reduction Act (IRA).
The table below compares (1) the credit terms under current law, (2) how the credits would have phased out absent the enactment of the OBBBA, and (3) the changes made by the OBBA.
|
Category |
Current Law (IRA of 2022) |
Post IRA (No New Law) |
New Law (OBBBA) |
|
Energy Efficient Home Improvement Credit (IRC §25C) |
Credit of 30% of qualified energy efficient home improvement costs with a maximum credit of $3,200 for amounts paid or incurred by the taxpayer for qualified energy efficiency improvements, residential energy property expenditures, or amounts paid for home energy audits (e.g., energy efficient doors, windows, heat pump water heaters, etc.) |
Expires with respect to any property placed in service after December 31, 2032 |
Expires with respect to any property placed in service after December 31, 2025 |
|
Residential Clean Energy Credit (IRC §25D) |
Credit of 30% of qualifying expenditures (e.g., solar electric property, solar water heating property, fuel cell property, small wind energy property, geothermal heat pump property, and qualified battery storage technology) |
The applicable percentage reduces from 30% to 26% to 22% before the credit expires with respect to property placed in service after December 31, 2034 |
Expires with respect to any property placed in service after December 31, 2025 |
|
Clean Vehicle Credit (IRC §30D) |
Credit of up to $7,500 with respect to each new clean vehicle placed in service during the taxable year |
Expires with respect to any vehicle placed in service after December 31, 2032 |
Expires with respect to any vehicle acquired after September 30, 2025 |
|
Previously-Owned Clean Vehicle Credit (IRC §25E) |
Credit of up to $4,000 for each previously-owned clean vehicle placed in service during the taxable year |
Expires with respect to any vehicle placed in service after December 31, 2032. |
Expires with respect to any vehicle acquired after September 30, 2025 |
|
Alternative Fuel Vehicle Refueling Property Credit (IRC §30C) |
Credit of 30% (subject to limitation) for the cost of any qualified alternative fuel vehicle refueling property placed in service by the taxpayer during the year |
Expires with respect to any property placed in service after December 31, 2032 |
Expires with respect to any property placed in service after June 30, 2026 |
Taxpayers and advisors should carefully note the new expiration dates established by the OBBBA and plan any energy-related home improvements or clean vehicle purchases accordingly to maximize available credits before these provisions sunset.
Qualified Opportunity Zones
The One Big Beautiful Bill Act (OBBBA) introduces significant changes to the Qualified Opportunity Zone (QOZ) program, enhancing its structure and extending its duration. Key amendments include the permanent extension of the program, stricter eligibility criteria for QOZ designations, and the introduction of Qualified Rural Opportunity Funds with unique tax benefits. The Act also revises gain deferral rules and basis step-up provisions for investments, and imposes comprehensive reporting requirements and penalties for noncompliance. These changes aim to improve the effectiveness and accountability of the QOZ program, fostering economic development in designated areas.
|
|
Old Law (TCJA) |
New Law (OBBBA) |
|
Designation and Duration |
|
|
|
Eligibility Criteria |
|
|
|
Gain Deferral and Basis Step-Up |
|
|
|
Investments Held for 10 Years |
|
|
|
Qualified Rural Opportunity Funds |
|
|
|
Reporting Requirements |
|
|
|
Effective Dates |
|
|
Example showing how QOZ tax benefits play out for investments made in 2018, 2022, 2025, and 2027, assuming:
- Initial capital gain: $1,000,000
- Capital gains tax rate: 20%
- Qualified Opportunity Fund (QOF) investment doubles in value (2x return)
- QOF held for at least 10 years and less than 30 years
|
Investor |
Year of Investment |
Step-Up in Basis |
Deferred Gain Recognized |
Year Gain Recognized |
Tax on Deferred Gain |
QOF Appreciation |
Tax on QOF Appreciation |
Total Tax Savings |
|
A (2018) |
2018 |
15% |
$850,000 |
2028 |
$170,000 |
$1,000,000 |
$0 |
$230,000 |
|
B (2022) |
2022 |
0% |
$1,000,000 |
2026 |
$200,000 |
$1,000,000 |
$0 |
$200,000 |
|
C (2025) |
2025 |
0% |
$1,000,000 |
2026 |
$200,000 |
$1,000,000 |
$0 |
$200,000 |
|
D (2027) |
2027 |
10% |
$900,000 |
2037 |
$180,000 |
$1,000,000 |
$0 |
$220,000 |
Key Takeaways:
- Investor A (2018) received the maximum benefit due to both step-up in basis and full exclusion of QOF gains.
- Investor D (2027) benefits from the new OBBBA rules; 5 year gain deferral, a 10% basis step-up when the deferred gain is recognized after 5 years, and full exclusion of QOF gains.
- Investors B and C still benefit significantly from the 10-year appreciation exclusion, but miss out on basis step-ups.
Roth IRA Conversions After the Big Beautiful Bill: What to Know
The Big Beautiful Bill has brought major tax changes, including affecting Roth IRA conversions. While converting traditional IRA funds to a Roth IRA can be beneficial for tax-free growth, the converted amount is taxed as ordinary income in the year of conversion. Recent tax law changes make it crucial to plan conversions carefully.
Timing and Tax Brackets Matter
Though Trump-era tax cuts extend low tax rates for a few more years, new income limits on deductions mean a large Roth conversion could push your income above thresholds, causing loss of valuable tax breaks. A smart approach is to do partial Roth conversions yearly to “fill up” your current tax bracket without crossing into higher brackets or deduction phaseouts.
New Income-Based Deduction Limits
Several deductions phase out at higher income levels, including:
- A $6,000 senior deduction, phasing out over $75,000 (individual) or $150,000 (married filing jointly)
- Expanded SALT deduction up to $40,000, phasing out above $500,000 income
- Deductions for tips and overtime phasing out over $150,000 (individual) or $300,000 (couples)
- Qualified Business Income (QBI) deduction reduction for business owners above certain thresholds
These phaseouts mean Roth conversions must be coordinated with your overall tax picture.
Limited Window to Act
Many of these deductions expire by 2028 or 2029, creating a short window to optimize Roth conversions while rates are favorable and deductions are available.
Conclusion
Roth conversions can save you money in the long term—but only if done strategically, especially with the changes introduced by the Big Beautiful Bill. Consulting with your CPA is essential to model your income, avoid deduction losses, and develop a tailored plan. With careful timing and planning, you can maximize benefits and minimize risks, so start working with your trusted advisor now to make the most of today’s opportunities.
Frequently Asked Questions about the One Big Beautiful Bill: Individual Tax Provisions
What new tax breaks for individuals are included in the One Big Beautiful Bill Act? The Act introduces several individual tax breaks, including:
- Extension and enhancement of the Child Tax Credit and non-child dependent credits.
- A higher State and Local Tax (SALT) deduction cap.
- Lower individual tax rates made permanent.
- A new enhanced deduction for seniors (age 65+) in addition to other deductions.
- Deductions for tips, overtime pay, and car loan interest.
- Additional above-the-line charitable donation opportunities.
Does the Act affect the standard deduction or tax rates? Yes.
- The lower individual tax rates from the 2017 Tax Cuts and Jobs Act are now permanent under the new law.
- The standard deduction remains enhanced and continues to benefit many taxpayers, and inflation adjustments affect filing years like 2025 and 2026.
How do the new tax deductions for tips and overtime work?
- The Act allows individuals to deduct qualified tipped income up to set limits (e.g., up to $25,000 in tips) and qualified overtime pay (e.g., up to $12,500 for individuals or more for joint filers) on their federal tax return.
- These deductions are effective for tax years 2025 through 2028 and are available to both itemizing and non-itemizing taxpayers.
- To qualify, the income must be reported properly on tax forms like W-2s or 1099s.
Are there special deductions for senior taxpayers? Yes. Taxpayers age 65 or older can claim an additional enhanced deduction (e.g., about $6,000 per person) on top of their existing standard or itemized deductions for tax years 2025–2028. This benefit phases out for higher incomes.
What other notable individual provisions should taxpayers know about? In addition to the points above, the Act also includes:
- Changes to Health Savings Accounts (HSAs) and itemized deductions beyond SALT.
- Adjustments to gift and estate tax exemptions.
- Provisions related to Roth IRA conversions and qualified opportunity zones.
- Added charitable-donation deductions that may benefit non-itemizers.
We highly recommend you contact a member of the Larson & Company tax team to discuss the aspects of these provisions that apply directly to you to ensure you have the most applicable information for your situation.
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