Passed in June, the “One Big Beautiful Bill Act” (OBBBA) builds on the tax cuts passed in 2017 extending or making permanent many provisions that had been set to expire. It also contains a number of new provisions and repeals many other tax provisions.
New or Extended Provisions:
Rates: The current structure of tax brackets is extended permanently rather than reverting to the pre-2017 levels.
Increased Standard Deduction: The increased standard deduction enacted in 2017 will no longer expire and will instead be slightly expanded to $15,750 for single filers, and $31,500 for joint filers for 2025. Taxpayers 65 and older will be eligible for an additional $6,000 standard deduction for years 2025 through 2028. The increased standard deduction phases out starting at modified adjusted gross incomes of $75,000 for single filers and $150,000 for joint filers.
Overtime: For years 2025-2028, up to $12,500 for single filers and $25,000 for joint filers of overtime pay is deductible. The deduction begins to phase out at a modified gross income (MAGI) of $150,000 for single and $300,000 for joint filers.
Tips: For years 2025-2028, up to $25,000 of tips received by workers in designated industries where tipping is customary are deductible. The deduction begins phasing out at the same income levels as the deduction for overtime pay.
State and Local Tax Deduction: The maximum amount of state and local taxes deductible with itemized deductions is increased to $40,000 for year 2025. That amount will increase 1% each year through 2029, when the maximum deduction reverts to the prior level of $10,000. The expanded amount is only available to filers with less than $500,000 for joint filers or $250,000 for single filers.
Child and Dependent Tax Credits: The Child Tax credit will permanently be $2,200 rather than reverting to $1,000 per child, with $1,400 refundable for filers with no tax liability. The amount of the credit will now receive annual inflation adjustments. The credit will begin phasing out for taxpayers with incomes over $200,000 for single filers and $400,000 for joint filers. The $500 credit for other dependents will remain at that level but will not expire as scheduled and is now permanent.
Car loan interest: For years 2025-2028, up to$10,000 of interest for car loans for new vehicles with “final assembly” having been completed in the United States may be deducted. The deduction begins to phase out at a modified gross income (MAGI) of $100,000 for single and $200,000 for joint filers.
Trump Accounts: Up to $5,000 per year may be contributed to a new IRA-like account per year for children under age 18. Contributions are non-taxable similar to IRA contributions. For the babies born in the years 2025-2028 the government will make an initial contribution of $1,000 to the account. Upon reaching age 18, the child may make qualified withdrawals from the account which will be taxed as ordinary income.
Child and Dependent Care Tax Credit: Beginning in 2026 the credit for qualified child or dependent care, such as daycare, will be earned faster, at a rate of 50% rather than 35% of qualified expenses received as a tax credit. The maximum amount of the credit remains $3,000 for one qualified child or dependent, and $6,000 for two or more.
Charitable Deduction without Itemizing: Starting in 2026 charitable donations of up to $2,000 cash for joint filers and $1,000 for single filers can be deducted while also claiming the standard deduction.
Mortgage Interest Deduction: The limitation of the deductibility of home mortgage interest to loans with a maximum principal amount of $750,000 is now permanent. Mortgage insurance premium paid will also be deductible.
Excise Tax on Foreign Transfers: The transfer of money to persons outside the US will now generally be subject to a 1% excise tax.
Repealed Provisions:
Electric Vehicle Tax Credits: Tax credits for the purchase of electric vehicles, including the credits for new and used personal vehicles and qualified commercial vehicles, are all repealed effective September 30, 2025.
Residential Energy Credits: The Residential Clean Energy Credit, primarily for the installation of solar panels, and the Energy Efficiency Home Improvement Credit, for installation of qualifying energy efficient heating, insulation, windows and other improvements are repealed effective the end of 2025.
Federal Estate and Gift Tax Exemption increased:
The OBBBA increases the exemption for estate and gift taxes to $15,000,000 in 2026. The maximum exemptions had been previously set at a base amount of $10,000,000, that had grown with annual inflation adjustments to $13,990,000 for year 2025. The rate of the federal estate tax remains unchanged at 35%. Reporting requirements for gifts also remain unchanged. Currently gifts over $19,000 per recipient are required to be reported. The reporting threshold for 2026 has not yet been announced.
Illinois’ estate tax continues to have a $4,000,000 exemption, making the Illinois tax the more common planning concern.