Tax Law Changes From the One Big Beautiful Bill Act (OBBBA)

President Trump’s signature tax bill passed Congress and was  signed by the President on July 4, 2025. This bill extends many of the tax benefits first enacted in the 2017 Tax Cuts & Jobs Act (“TCJA”). These benefits would have expired at the end of 2025. While the bill is significant in that it permanently preserves the lower individual tax rates enjoyed under TCJA, the bill didn’t include new tax breaks that significantly alter financial planning strategies. Still, there are plenty of new provisions that help some taxpayers. Those are the tax law changes from the One Big Beautiful Bill that we’ll summarize in this article. And yes, “One Big Beautiful Bill Act” is the official name of this legislation. We will use the shorthand “OBBBA” when talking about it.

Permanently Lower Individual Tax Brackets

Predicting future tax policy has been a hard task the last 25 years. Budget tricks to get legislation passed through Congress have often led to “sunset” provisions. This means new taxes would expire after 10 years. This was the fate that TCJA faced heading into 2025: would Congress preserve lower tax rates, or would they expire, causing significant tax increases starting in 2026?

Fortunately, these lower tax rates (and wider tax brackets at lower rates) were not only preserved beyond 2025, but were made permanent by OBBBA. Meaning, we haven’t just kicked the “sunset” can 10 more years into the future. These rates are here to stay until some future Congress & President decide to change them.

While making current tax rates permanent won’t result in significant changes for anyone’s tax bills next year, they provide a meaningful boost to client retirement plans. When running long-term retirement projections for clients, we took a conservative approach that the TCJA would sunset at the end of 2025 and that taxes would rise starting in 2026. Now that the Congress & President made these tax cuts permanent, clients will pay less in taxes than we had previously modeled.

Included in retirement plans we run for FDS clients is an estimated “probability of success” for their plan. This is part of the comprehensive and tax efficient planning we do for our clients. They don’t need to worry their chances of being successful, missing something, or staying updated on legislative changes. That’s our job.

The way we measure this probability of success is by asking, what percentage of times is a client’s plan successful when stress tested against 1,000 historical stock and bond market cycles? Our early estimate is that the probability of success for most client plans has increased by 3%. So if a client had an 85% chance of success before, they now have an 88% chance of success, thanks to lower estimated future tax payments. That’s the most significant impact of making TCJA tax cuts permanent.

Increased State & Local Tax Deductions

It will be music to the ears of many homeowners in high property tax States that the OBBBA increases potential Itemized deductions by meaningfully increasing the amount of state and local taxes (“SALT”) included in itemized deductions, starting in 2025. OBBBA has lifted the SALT limit from $10,000 to $40,000. That’s the good news. The bad news is this increased SALT deduction is only in place though the 2029 Tax Year, at which point it will sunset.

Still, this is a meaningful benefit to  homeowners saddled with high property tax bills. Previously, a taxpayer that itemized their deductions could only include a $10,000 deduction for the state income taxes and property taxes they paid. Now, the bill increases that amount to $40,000, which benefits most of the high-income executives we serve at FDS.

For example, an Illinois taxpayer with $250,000 of taxable income and $12,500 property tax bill would see a Federal tax reduction of over $3,500.

Extending the higher SALT cap of $40,000 will be a fight for a future Congress ahead of its 2029 sunset.

Increased Standard Deduction Starting in 2025

The OBBBA increases the Standard Deduction available to all taxpayers and indexes it to inflation for future tax years. For single taxpayers, the Standard Deduction increases to $15,750. This is from the $15,000 that would’ve applied for 2025 had the OBBBA not passed. For married taxpayers, the Standard Deduction increases from $30,000 to $31,500.

As seen in the table above, the increase in the SALT limit will make it much easier for taxpayers to itemize even against this higher Standard Deduction. Itemized deductions include medical deductions, state & local taxes, property taxes, mortgage interest, and charitable contributions. Thus, it won’t be hard for a high-income married couple with a large property tax bill and some combination of mortgage interest or charitable contributions to end up over the $31,500 standard deduction level.

Were There Changes to the Taxation of Social Security Benefits?

There’s confusion about whether the OBBBA eliminates taxes on Social Security benefits. The source of this confusion was a message sent by the Social Security Administration on July 3. They said that the OBBBA was eliminating taxes on Social Security benefits. But they later issued a correction, as the final OBBBA bill did NOT include the elimination of taxes on Social Security benefits. 

Despite this loss, the OBBBA includes a “sweetener” for seniors Age 65 or older. A new $6,000 deduction is available. That $6,000 deduction would be on top of the Standard or Itemized deductions the taxpayer claims. A married couple over the age of 65 and in the 22% tax bracket could claim a $12,000 deduction ($6,000/each). This means they potentially save $2,640 in taxes.

Unfortunately, this new deduction isn’t permanent. It will run for the 2025 to 2028 tax years, but go away starting in 2029. Further, the OBBBA phases this deduction out once single taxpayers have income greater than $75,000 or married taxpayers have income greater than $150,000. This phase-out is a big deal for retirees who are taking Required Minimum Distributions (“RMDs”), as these count as income.

So yes, there is help for seniors at the margin. But this falls well short of campaign promises and is both temporary and subject to income phase-outs.

Estate Tax Exemptions Increased and Made Permanent

The TCJA established an estate tax exemption for taxpayers with an estate value of less than $14,000,000. This exemption would have expired at the end of 2025, with the exemption falling by 50%. The OBBBA not only increased this exemption to $15,000,000 for 2025, but has indexed it to inflation for future tax years and made this increase permanent. 

Few people actually face the prospect of paying estate taxes. But, if TCJA had expired, and the exemption been cut by half, more taxpayers would’ve had to think about it. The OBBBA clarifies future tax policy by making personal tax rates permanent. It accomplishes the same for estate planning by making the estate tax exemption permanent. 

Important to remember, however, is that some states lower estate tax exemptions. Sadly, Illinois is one of these states, with an exemption of $4,000,000. So estate planning will remain an important subject for high net worth individuals in the state. This is even if federal estate taxes are now “off the table.”

Other Income Deductions in the One Big Beautiful Bill

Two other notable items that were popular on the campaign trail made it into the OBBBA: “no taxes on tips” and “no tax on overtime.” We won’t go into the details on these as they don’t affect many of our clients. But the OBBBA put in limited deductions for income made from tips up to $25,000 and up to $12,500 for overtime earners. Both deductions sunset in 2029 – just in time for the next president to be inaugurated. They are subject to income phase-outs.

For business owners, Section 199A Qualified Business Income (QBI) deduction would have expired at the end of 2025. This bill made it permanent for 2026 and beyond. Even better, the level at which this deduction phases-out was increased. 

Electric Vehicle Tax Credits End on September 30, 2025

One last piece of OBBBA that affects consumers is the termination of electric vehicle tax rebates that were enacted as part of the 2022 Inflation Reduction Act. This legislation, signed by President Biden, provided up to $7,500 in tax rebates on the purchase of new electric vehicles. Those rebates officially end for any purchase made after September 30, 2025. So if you’ve been itching to get an electric vehicle, the window is closing on being able to get a tax rebate for that purchase.

Keeping Financial Plans Up to Date With Tax Changes

In recent years, law changes have been frequent and have had a major impact on financial planning strategies. The One Big Beautiful Bill is the second major tax update in the last eight years. COVID stimulus bills similarly significantly changed retirement planning strategies. The value of having an ongoing relationship with a financial advisor such as FDS is that we do the work in real-time to make sure your plan’s strategies are up-to-date and tailored to take advantage of changes as they happen. 

For ongoing clients of FDS, we will address the impact of these changes with you individually as we identify how these changes affect recommendations we’ve previously made to you. One example is Roth Conversions. Since the OBBBA makes the current low tax brackets permanent (i.e. they don’t expire at the end of 2025), this takes the pressure off of front-loading Roth Conversions into the 2025 tax year. Thus, clients can spread out Roth Conversions over more years at these lower tax rates.

Overall, the OBBBA should be beneficial to most clients. But as has been the case in the past, we are monitoring how a future Congress & President will deal with features of OBBBA that will expire at the end of the current presidential term. As of now, the OBBBA gives us good clarity on tax policy through 2028.

Our team of advisors stays up on legislative changes, just like this one, so that we can keep your plan on track all year, every year. If you are looking to have this kind of confidence for your retirement, schedule a consultation with our team! We would love to talk through your needs and share how we can help you.

Bonus: Retirement Planning Guide