OBBBA: What to Know Before Year End

by Joel R. Freedman, CFP®, CPWA®, Managing Director

With the passage of the new federal tax law — officially dubbed the One Big, Beautiful Bill (OBBBA) — there are significant changes coming for taxpayers, seniors, families, and high-net-worth individuals. As 2025 comes to a close, it’s important to understand these updates since they could affect year-end tax planning, retirement contributions, and financial strategies.

Key Takeaways

OBBBA creates both opportunities and complexities. Key considerations include:

• Tax Planning: Permanent lower rates, higher deductions, and expanded credits could reduce your overall tax liability.
• Seniors & Retirement: Temporary deductions and Medicare/Medicaid changes may affect taxable income and access to benefits.
• Estate Planning: The $15 million exemption provides flexibility for transferring wealth and planning gifts.
• Investments: Adjusted capital gains brackets and temporary deductions can lower tax exposure on sales of appreciated assets.
• Families & Children: Expanded CTC and Trump Accounts offer long-term financial benefits.

Income Tax, Deductions, and Credits

OBBBA makes permanent or expands many provisions first introduced under the 2017 Tax Cuts and Jobs Act (TCJA), which were previously set to expire after 2025. For individual taxpayers, this means more stability and predictability in your tax planning.

Lower Income Tax Rates
The TCJA’s individual tax brackets are now permanent. This includes the top marginal rate of 37%, which replaces the previously scheduled increase to 39.6%, and lower rates across most brackets. Bracket thresholds are adjusted annually for inflation, which could reduce your taxable income if your earnings have remained steady.

Higher Standard Deduction
The almost doubling of the standard deduction continues, with 2025 amounts set at $15,750 for single filers and $31,500 for married couples filing jointly. The deduction will continue to adjust for inflation each year, meaning fewer taxpayers will need to itemize.

Expanded Child Tax Credit (CTC)
The CTC increases to a maximum of $2,200 per child in 2025, with a refundable portion of $1,700. Eligibility rules tighten in 2026: low-income families must owe at least $1,700 in federal taxes to receive the full benefit, and the credit phases out for individuals earning over $200,000 and married couples earning over $400,000. A $500 nonrefundable credit remains for other dependents.

New Car Loan Interest Deduction
Starting in 2025, taxpayers can deduct up to $10,000 in interest on new auto loans, provided the vehicle is assembled in the U.S. The deduction phases out for individuals earning over $100,000 and couples over $200,000, decreasing by $200 for every $1,000 over the threshold. For example, a single filer earning $120,000 could deduct $6,000.

Temporary Deduction for Tip Income
From 2025 through 2028, eligible tipped workers can deduct up to $25,000 per year from federal taxable income. This applies to employees earning less than $150,000 individually or $300,000 jointly, and subject to payroll tax withholding. The Treasury will release a list of qualifying tip-based occupations.

State and Local Tax (SALT) Deduction Cap
The cap on SALT deductions rises from $10,000 to $40,000 starting in 2025, providing relief to households in high-tax states. However, it begins phasing out for taxpayers with incomes above $500,000, so the benefit will vary depending on your filing status and income.

Provisions for Seniors and Retirement

Temporary “Senior Bonus” Deduction
Americans age 65 and older may qualify for a $6,000 “bonus” deduction starting in 2025 ($12,000 if both spouses qualify). The full benefit applies to individuals with income up to $75,000 and couples up to $150,000, phasing out for higher earners. This deduction can be claimed whether taking the standard deduction or itemizing, and is in addition to the regular age-65 add-on.

Medicare Impacts
OBBBA does not directly cut Medicare benefits, but increased federal deficits could trigger automatic spending reductions under budget rules starting in 2026. The Congressional Budget Office estimates these reductions could total around $500 billion between 2026 and 2034.

Medicaid Changes
Starting in 2027, Medicaid updates will affect coverage and payments:

• Renewal frequency increases: ACA expansion adults must renew every six months instead of annually.
• Applicants have shorter windows to submit documents, such as bank statements.
• Provider payment caps: in expansion states, payments capped at Medicare rates; in non-expansion states, capped at 110% of Medicare rates.

Nursing-Home Staffing Mandate Paused
A new federal rule requiring minimum staffing levels in nursing homes is on hold until 2034. Facilities must still follow state requirements, which vary widely, so families should ask about staffing coverage when evaluating care options.

Wealth Transfer, Estate Planning, and Investments

Estate and Gift Tax Exemptions
OBBBA permanently raises the estate, gift, and generation-skipping transfer tax exemptions to $15 million per person, adjusted for inflation. Couples can transfer up to $30 million collectively without incurring federal estate taxes. Previously scheduled 2026 rollbacks would have reduced the exemption to $7.2 million per person.

Implications for High-Net-Worth Individuals

• The higher threshold reduces potential estate tax exposure.
• Individuals who have already used part of their exclusion gain additional lifetime exemption. For instance, someone who used a $13.99 million exemption in 2025 would gain an additional $1.01 million in 2026.
• Past gifts must still be accounted for to avoid unexpected taxes.

Capital Gains Brackets Adjusted
Inflation adjustments allow more investors to stay in the 0% or 15% capital gains range. For 2025, individuals can have up to $48,350 in taxable income and married couples up to $96,700 to qualify for 0%.

Alternative Minimum Tax Relief
AMT exemptions established by TCJA are now permanent and adjusted for inflation. Phaseouts for high earners increase, tapering benefits more quickly for top-income households.

Charitable Giving Rules
Cash donations to charity can be deducted up to 60% of AGI (subject to specific thresholds). High-net-worth individuals who itemize deductions should review these rules considering OBBBA.

Other Notable Changes

Trump Accounts for Children
Children who are born in the U.S. between 2025 and 2028 will receive a one-time $1,000 federal deposit into a tax-advantaged savings account automatically opened when parents file taxes. Parents can contribute up to $5,000 per year, employers up to $2,500 without being taxed. Funds are invested in a diversified U.S. stock index and grow tax deferred.

Electric Vehicle and Clean Energy Tax Credits

Tax credits for home energy-efficiency improvements expire December 31, 2025.

$7,500 credit for new EVs and $4,000 for used EVs expired September 30, 2025.

Review Your Financial  Plan Before Year End

With these changes, now is a good time to review how OBBBA might impact your tax situation, retirement contributions, estate planning, or investment strategy before year end. For personalized guidance, contact us today to help align your plan with the new law and your long-term goals.