By now you’ve likely heard bits and pieces of the One Big Beautiful Bill Act (OBBBA) that was signed into law on July 4, 2025. I specialize in helping retirees live their best retirement. One of the keys to making that happen is to make sure my clients aren’t paying any more in tax in any particular year and through their lifetime than is necessary. With that end in mind, I’ve compiled a summary of the provisions of OBBBA to which retirees will want to be sure to give attention.
One question on our minds regarding tax and retirement planning has been whether the Tax Cuts and Job Act of 2017 (TCJA) provisions would sunset after 2025. We now know OBBBA has made many of the provisions from TCJA permanent (well as permanent as any tax law: subject to change if a new administration passes new laws). Here is what became permanent from TCJA along with some additions to each by way of OBBBA.
TAX BRACKETS
What became permanent from TCJA:
The tax brackets of 10%, 12%, 22%, 24%, 32%, 35% and 37% are now permanent law per OBBBA. So, if you’ve got a nice tax cheat sheet that lays out the tax brackets for 2025 based on TJCA, you are safe from having to find a new one (and if you don’t have such a handy tool you can steal mine here: https://planpathfinancial.com/free-resources/).
What’s New with OBBBA:
Annual Inflationary Adjustment (plus a little extra boost for the 10% and 12% bracket in 2026 only).
For 2025, the income range for each bracket remains the same and will increase each year with inflation, as in the past. In 2026, however, the 10% and 12% brackets will get an extra inflationary increase beyond the standard adjustment. For example, with TCJA the increase for the 10% bracket for single filers would have been from $0 – $11,925 in 2025 to $0 – $12,116 in 2026, OBBBA has bumped that to $0 – $12,341. I won’t list each change for each filing status (Single, Married Filing Jointly, etc) but the link above will be updated for 2026 as year-end approaches.
This change will reduce the effective tax rate for taxpayers (although not by a whole lot). One thing to note when tax planning around Long-Term Capital Gains (LTCG): this inflationary adjustment did make the difference between the cut off for moving from the 12% into the 22% ordinary income tax rate and 0% into 15% LTCG rate farther apart. That larger gap represents the income where 12% ordinary tax rate doesn’t mean a 0% LTCG rate. However, in this gap, the Schedule D income tax worksheet will calculate the lower of the two rates (12% ordinary tax instead of 15% on LTCG).
STANDARD DEDUCTION
What became permanent from TJCA:
The Tax Cuts and Jobs Act of 2017 lowered the majority of Americans’ tax bill primarily because it increased the standard deduction substantially. Most people who were previously itemizing no longer needed to itemize because the Standard Deduction was higher than the itemized deduction for which they would qualify. The increased standard deduction became permanent with OBBBA along with a boost for tax year 2025. The additional standard deduction for those ages 65 or older also remains in place.
What is new with OBBBA:
With TCJA the standard deduction was slated to be $15,000 for single filers and $30,000 for married filing jointly, with those filers age 65 or older getting an additional $1,600 for each eligible spouse filing jointly and $2,000 if single. For 2025, the standard deduction will get a boost up to $15,750 (single) and $31,500 (married filing jointly) with additions for age 65 or older remaining the same.
There is also a new “personal exemption” for taxpayers who are 65 years or older. This is not technically a standard deduction but is framed as a personal exemption in the amount of $6,000 for each taxpayer who is 65 or older. A taxpayer qualifies for this exemption if they turn 65 by the end of the tax year and have gross income below the phaseout thresholds of $75,000 for single filers ($150,000 married filing jointly) with a full phaseout at the gross income of $175,000 for single filers ($250,000 married filing jointly).
These personal exemptions for seniors are effective in 2025 and are set to sunset after 2028.
ITEMIZED DEDUCTIONS
SALT
What is new with OBBBA:
State and Local Tax (SALT) was increased to a cap of $40,000 from $10,000. This starts in 2025 and goes through 2029 with a fixed increase of 1% each year starting in 2026. The $40,000 limit on SALT is the same for all types of filers except married filing single who would have a cap of $20,000 for 2025. Higher income households, with a MAGI of over $500,000 – 600,000 will see a phaseout, but no one will have their SALT cap reduced below $10,000.
For those taxpayers that are owners in a business partnership or S Corporation, please note that OBBBA did not include any restrictions on Pass-Through Entity Taxes (PTETs), so those that deduct SALT through their businesses will not have to contend with the cap of $40,000.
Mortgage Interest Deduction
What became permanent from TJCA:
TCJA made it clear that mortgage interest deductions were only allowable for interest on loans where the proceeds were used to buy, build, or improve the taxpayer’s home. It also lowered the amount of mortgage interest that could be deducted to the interest paid that year on a $1,000,0000 loan down to a $750,000 loan. Gone, at least for the foreseeable future, are the days when home equity loan interest was deductible no matter how you used the proceeds. OBBBA has kept the TCJA rules as it pertains to mortgage interest.
What is new with OBBBA:
In addition to the mortgage interest deduction, OBBBA once again allows for mortgage insurance premiums to be deducted as well. If you haven’t been required to secure Private Mortgage Insurance (PMI) on our mortgage, this won’t pertain to you. If, however, you have a mortgage that originated after December 15, 2017 and you paid less than 20% down on the purchase price of your home, the premiums you pay for PMI are deductible where they weren’t in the past few years.
Charitable Contributions
What became permanent from TJCA:
Charitable contributions took a hit with TJCA when the standard deduction was increased (and less people were incentivized to give to charities to increase their itemized deduction). AGI-based limitations came long before TJCA, however. Those limitations remain as follows.
Deduction limitations for donations to public charities:
Cash 60% of AGI
Non-cash 50% of AGI (using cost basis) or 30% of AGI (using Fair Market Value)
Deduction limitations for donations to non-public charities:
Cash 30% of AGI
Non-cash 20% of AGI
What is new with OBBBA:
OBBBA puts a 0.5% of AGI floor on the deductibility of AGI. That means before applying the deduction limitations, 0.5% of AGI is subtracted from the charitable amounts using these ordering rules:
- Capital gain property (to non-public charities)
- Capital gain property (to public charities using FMV)
- Cash (to non-public charities)
- Qualified conservation contributions
- Capital gain property (public using cost basis)
- Cash (to public charities)
Both the 0.5% floor that reduced the deduction and the amount the deduction was limited based on the applicable % of AGI for the type of contribution are carried over to the next year.
The 0.5% of AGI floor on charitable donations is effective in 2026, so high income filers who are planning to make charitable donations may want to do so in 2025 (all things considered).
Don’t itemize but you are charitable?
OBBBA has permanently restored the ability for those taking the standard deduction to deduct an additional (up to) $1,000 (single filer) and $2,000 (married filing jointly) for charitable donations to a qualifying charitable organization. Don’t start collecting receipts for your thrift donations just yet, these are for cash donations only. These donations are not subject to the 0.5% floor or AGI limitations or AGI limitations.
In the phase of retirement that includes Required Minimum Distributions from your qualified accounts? Don’t forget about Qualified Charitable Donations to make up to $100,000 charitable contributions tax free and satisfy RMDs at the same time. Another important strategy for reducing your overall tax bill.
SECTION 199A DEDUCTION for QUALIFIED BUSINESS INCOME (QBI)
What became permanent from TJCA:
TCJA first introduced the Section 199A deduction for business income for pass-through business entities (sole proprietors, partnerships, and S Corps). This deductions remains in tact with OBBBA allowing these taxpayers to deduct 20% of their business income. This deduction does not require itemizing.
What is new with OBBBA:
OBBBA increased the phaseout for the QBI deduction from $50,000 for single taxpayers to $75,000 and from $100,000 for joint filers to $150,000, while keeping the phaseout rules and thresholds of taxable income intact. It still also completely phases down to $0 for Specified Service Trade or Business owners and to the WDP limit for others. While I won’t go into the particulars of the threshold calculations and differences for SSTB and non-SSTB in this piece, I will address it in other publication. Feel free to reach out to me with questions in the meantime.
With the new law, also comes a new minimum deduction of $400 for businesses with at least $1,000 of income (assuming material participation in the business by the taxpayer). The previous law required $2,000 of income ($2,000 x 20% QBI deduction) to get the $400 deduction. This goes into effect in 2026 and will be indexed for inflation starting in 2027.
ALTERNATIVE MINIMUM TAX (AMT)
What became permanent from TJCA:
Some of you prior to TJCA may have had to contend with the Alternative Minimum Tax calculation. I won’t get into this because it can be confusing and doesn’t apply to many of you. In a nutshell, AMT is a tax system that runs parallel to the regular tax code and ensures that high income taxpayers must pay a minimum amount of tax. TCJA made changes that eliminated this from most taxpayers’ worlds mostly due to the increase in the AMT exemption. These exemptions became permanent with TCJA.
What is new with OBBBA:
However, OBBBA will be reducing the exemption thresholds back to 2018 levels with a steeper phaseout in 2026. This means there is a slight increase in the likelihood of higher earners returns being run through the AMT calculation and required to pay more tax.
ESTATE TAX EXPEMPTION
TCJA doubled the gift and estate tax exemption back in 2018 from $5.6 million to $11.2 million. Each year since, that number has gotten even larger. OBBBA has increased that exemption even more to $15 million per person (that’s $30 million per married couple) annual inflationary increases set permanently.
HSA CONTRIBUTIONS
OBBBA will now include the BRONZE level plans offered under the Affordable Care Act as qualifying as High-Deductible Health Plans. Holders of these policies will now be eligible for HSA contributions. Retired and in the gap between employer health insurance and Medicare? This is an important tax planning point. Remember that HSA contributions are an ABOVE THE LINE deduction which reduces your AGI (and MAGI). MAGI is used to determine many things including how much of your social security is taxed and the premium tax credits you qualify for with your Affordable Care Act Subsidized Medical Insurance. If you qualify for contributions to an HSA and do not take advantage of that, WHY NOT? Read more about HSAs here: https://planpathfinancial.com/retirement-planning/the-hsa-trifecta-why-i-think-the-hsa-account-is-the-post-malone-of-retirement-savings-accounts/
AFFORDABLE CARE ACT (ACA) ENHANCED PREMIUM CREDITS
Since we are on the topic of ACA Premium Credits, word to the wise. The Enhanced version of ACA Premium Credits is going away after 2025. That means if your income goes a dollar over the 400% of poverty level, you will have to pay back all of your premium tax credits come tax return time. It will be super important that you manage your taxable income to be sure you don’t have to pay those credits back. You can also expect the amount of premium credit you are eligible for to go down starting in 2026 as well. Your financial/tax planner should be looking to make sure the premium tax credit opportunity is still your best move over other tax saving opportunities.
A FINAL NOTE
Wait… I didn’t say anything about tax-free Social Security! That is because nothing has changed in the way social security is taxed, although some have suggested otherwise. Yes, seniors age 65 or older now have that extra $6,000 personal exemption, which for some may equate to tax-free social security. Keep in mind, however, that you don’t have to be collecting Social Security to take the personal exemptions. This is one more area that will require careful planning.
There is so much more in the OBBBA that I’m not going to get into here. New provisions include Trump Accounts, Tax-free Tips and Overtime, and that Clean Energy Credits are going away and more. I have probably lost enough readers already. For the sake of brevity, I’ll stop here.
To read the entire bill for yourself, grab a huge cup of coffee and go here:
https://www.congress.gov/119/bills/hr1/BILLS-119hr1eas.pdf
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