The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, contains many comprehensive key changes that affect individual taxation. Navigating these changes may be complex, especially since some are applicable in tax year 2025, whereas others do not kick in until 2026. Various provisions of the act may amplify refunds this year, but perhaps not as much as expected. Certain key provisions have adjusted gross income (AGI) triggers, other restrictions, and expiration dates.
With tax season underway, here are a few caveats to be mindful of:
State and Local Income Tax (SALT) Deduction
The SALT deduction avoids double taxation by allowing taxpayers to deduct certain taxes paid to the state and local government (property, income and sales taxes) from their federal taxable income. The new cap on the state and local income tax deduction increases from $10,000 to $40,000 for tax years 2025 to 2029. Taxpayers with modified adjusted gross income (MAGI) of $500,000 or less ($250,000 for married couples filing separately) can deduct up to $40,000 in state/local taxes, significantly reducing federal tax liability.
The $40,000 SALT deduction phases down for those earning over $500,000. Once your income is above the threshold, your SALT deduction will be reduced by 30% on income over the limit (30 cents for every dollar) but will never fall below $10,000. Both the SALT deduction cap and income threshold will increase 1% annually through 2029.
For a married couple filing jointly:
|
Modified AGI $400,000 |
Modified AGI $580,000 |
Modified AGI $650,000 |
|
State/local taxes paid: $60,000 |
State/local taxes paid: $60,000 |
State/local taxes paid: $60,000 |
|
Deductible under OBBBA: $40,000 (full amount) |
Deductible under OBBBA: $16,000
Note: With $80,000 over the MAGI limit, the deduction gets reduced by 30% for amount over threshold ($40,000-$24,000) |
Deductible under OBBBA: $10,000
Note: With $150,000 over the MAGI limit, the deduction gets reduced by 30% for amount over threshold; new deduction will be completely phased out and $10,000 bottom limit applies |
|
Deductible under old law (TCJA cap): limited to $10,000 |
Deductible under old law (TCJA cap): limited to $10,000 |
Deductible under old law (TCJA cap): limited to $10,000 |
|
2025 Extra deduction from OBBBA: $30,000 |
2025 Extra deduction from OBBBA: $6,000 |
2025 Extra deduction from OBBBA: $0 |
Energy-Related Tax Credit Expiration Dates
Many of the green energy tax incentives that were previously established under the Inflation Reduction Act expire after 2025.
The installation of solar panels must have been completed in 2025 to qualify for the federal 30% residential solar panel tax credit. Systems fully installed and operational after December 31, 2025 are not eligible for the tax credit. Separately, the tax credit for qualifying electric vehicle (EV) purchases expired on September 30, 2025. Those who did not have the vehicle in their possession by the deadline are not eligible for the tax credit ($7,500 for new EVs and $4,000 used EVs).
Bonus Senior Deduction
Many believe that under the OBBBA, social security benefit is now tax free, which is not the case. Instead, the tax bill allows taxpayers aged 65 or older to claim an additional deduction of $6,000 through 2028. This is on top of the standard deduction for seniors ($15,750 for 2025). This bonus senior deduction does not eliminate taxes on social security; it is intended to help offset the taxable portion of social security. The deduction will begin to phase out for individual tax filers with modified gross income of $75,000, and it will be completely phased out once income reaches $150,000. For married couples filing jointly, the phase out will begin with income of $150,000 and be completely phased out by $250,000, meaning higher income seniors receive a smaller tax break or no tax break. Once your income is above the threshold, your deduction will be reduced by 6% on income over the limit. The maximum deduction is $6,000 per eligible taxpayer. For married couples filing jointly, the maximum deduction is $12,000 if both people are age 65 or older.
For a married couple filing jointly:
|
Modified AGI $140,000 |
Modified AGI $190,000 |
Modified AGI $260,000 |
|
Bonus senior deduction: $12,000 (full amount)
Note: Below $150,000 when phaseout begins
|
Bonus senior deduction: $7,200 (phaseout begins)
Note: With $40,000 over threshold, the deduction gets reduced by 6% ($2,400) for each spouse eligible for the deduction ($4,800 total)
|
Bonus senior deduction: $0 (completely phased out)
Note: Above $250,000 upper limit
|
Knowledge is power, and it is important to read the fine print and understand how these changes may impact you. Some provisions have income-based phaseout levels which may reduce your anticipated refund. Add to that, other provisions of the OBBBA do not take effect until 2026, including changes to the Itemized Deduction Limit, Charitable Deduction and Alternative Minimum Tax. With the ever-changing tax policies, it is crucial to regularly review your financial plan. Please reach out to your Relationship Manager and/or tax professional to ensure that tax planning strategies remain aligned with your long-term objectives and evolving financial circumstances.
