By: Shelby Follis, CPA, and Emily Cokeley, Ph.D., CPA
In the January/February 2025 issue, we reviewed expectations for the tax year ahead based on the campaign promises made by President Donald Trump. The president’s goals came to fruition with the signing of the One Big Beautiful Bill (OBBB) on July 4, 2025. In this issue, we will unpack the tax-related contents of the 870-page OBBB to provide clarity to practitioners advising clients, business owners making decisions, and all taxpayers prudently planning. Due to the size of the aptly named One Big Beautiful Bill, this issue will present the legislative changes impacting individuals, while the next issue will present legislative changes impacting businesses. The OBBB, much like the Tax Cuts and Jobs Act (TCJA) of 2017, maintained and created significant tax cuts by extending a majority of the TCJA provisions set to end in 2026 and implementing new provisions.
Extension and Amendments of TCJA Provisions
One will do well to remember nothing is truly “permanent” in tax legislation. Permanency simply means there is no expiration date on the law until a new one alters it. The OBBB permanently extended the lowered tax rate schedule that began in 2018, keeping the highest rate at 37% rather than the anticipated 39.6%. The Child Tax Credit (CTC) was adjusted up to $2,000 in 2018 from $1,000 in 2017 under the TCJA. In 2025, the OBBB increased the credit to $2,200 per qualifying child. However, the CTC now requires a Social Security number from the taxpayer and the child. The CTC is not a fully refundable credit. The portion that is eligible for a refund is calculated on Form 15510, Additional Child Tax Credit Worksheet. Under the TCJA, the refundable portion was $1,400. The OBBB increased the refundable portion of the CTC to $1,700 in 2025.
The Section 199A Qualified Business Income (QBI) deduction introduced by the TCJA is now permanent, with increased phase-in ranges from taxable income of $50,000 to $75,000 for single ($100,000 to $150,000 for joint) beginning in 2026. If a taxpayer has taxable income below the range, then they are not subject to wage-base limitations of specified service trade or business (SSTB) rules.1 Additionally, a minimum deduction of $400 for businesses with at least $1,000 in active QBI was introduced.
Under the TCJA, individuals were allowed to include costs associated with wagering when calculating wagering losses. Through 2025, wagering losses have been deductible as an itemized deduction to the extent of wagering gains. Wagering gains are generally reported as other income on Schedule 1. The OBBB continues to allow the associated costs as losses but further limits the losses allowed to 90% of gains. For example, a taxpayer loses $1,000 at the casino and spends $200 in Uber costs back and forth to get there, but in a “Hail Mary” attempt, won $500 on New Year’s Eve. The total wagering losses are $1,200 (losses and deductions). Had this occurred in 2025, there would be no taxable income recognized since losses are allowed up to gains, assuming they are itemizing deductions. In 2026, losses are limited to 90% of the $500 gain ($450). The taxpayer would then report the $450 loss on Schedule A, Itemized Deductions. Therefore, the result is a net $50 in taxable income from wagering, assuming the taxpayer is itemizing.2
The enhanced standard deduction, which nearly doubled in 2018 with the passing of the TCJA, will continue past 2025, with a slight increase from $15,000 to $15,750 for singles ($30,000 to $31,500 MFJ). While personal exemptions were repealed permanently, an additional but temporary senior deduction of $6,000 for taxpayers over age 65 has been established starting in 2025 and is set to expire after 2028. This deduction was created to uphold President Trump’s promise of no tax on Social Security. The senior deduction will require a valid Social Security number and is subject to phaseout based on adjusted gross income (AGI) beginning at $75,000 ($150,000 MFJ). The reduction will be 6% of the taxpayer’s modified AGI. For example, a couple each over the age of 65 file a joint return and are eligible to claim $12,000 of the deduction ($6,000 for each individual). However, their AGI without the senior deduction is $200,000. The phaseout limitation applies, reducing the deduction to $9,000. The $3,000 phaseout is calculated as 6% of the $50,000 excess ($200,000 AGI less the $150,000 threshold).
The Alternative Minimum Tax (AMT) is a complex calculation that begins with a taxpayer’s Alternative Minimum Taxable Income (AMTI), which is taxable income adjusted for various preference items and the AMT exemption. The AMT tax rate is then applied to AMTI to determine one’s tentative minimum tax. Any excess tentative minimum tax over the regular tax liability is then AMT paid in addition to regular tax. AMT loosened its grip on taxpayers starting in tax year 2018 with the passing of the TCJA. The AMT exemption increased from $54,300 ($84,500 MFJ) in 2017 to $70,300 ($109,400 MFJ) in 2018. The AMT exemption has since been adjusted for inflation to $88,100 ($137,300 MFJ) in 2025. The AMT exemption decreases when AMTI reaches the phaseout range. Prior to the TCJA, the 2017 threshold began at $120,700 ($160,900 MFJ). The TCJA exponentially increased the phaseout threshold to $500,000 ($1 million MFJ) in 2018, which has been adjusted for inflation to $626,350 ($1.25 million MFJ) for 2025. These increases would have reverted to the lower 2017 amounts after 2025 without the OBBB preserving the increased exemptions and thresholds. However, the inflation adjusted phaseout thresholds were not preserved with OBBB and will reset to the 2018 values of $500,000 ($1 million MFJ) in 2026 while increasing the exemption phaseout from 25% of AMTI exceeding the threshold to 50%.3
In addition to the income tax cuts for individuals, the OBBB provided relief for gift and estate taxes. Recall that the gift and estate tax are both taxed according to a rate schedule that quickly reaches 40% on the taxable portion of the value of the property transferred. If the transfer occurs during a taxpayer’s lifetime, the transfer is subject to gift tax, and Form 709 may need to be filed. If the transfer occurs at the taxpayer’s death, then the transfer is subject to estate tax, and Form 706 may need to be filed. The gift and estate tax system applies exclusions and exemptions per individual. In 2017, the lifetime exemption began at a tax base of $5 million adjusted for inflation ($5.49 million). The TCJA doubled the lifetime exemption to $11.18 million in 2018, adjusted annually for inflation. However, the increased exemption was only enacted as a temporary change set to expire after Dec. 31, 2025. The OBBB not only preserved the increased lifetime exemption but revised the base to $15 million starting in 2026.
Itemized Deductions
What can be said about itemized deductions under the OBBB? First, 2% miscellaneous deductions other than educator expenses (tax prep fees, casualty theft losses, safe deposit box fees, investment fees, etc.) were permanently repealed by the OBBB, so no change from our current policy. Second, the TCJA adjusted the mortgage interest deduction by reducing the phaseout limitation from $500,000 ($1 million MFJ) of acquisition debt incurred prior to 2017 to $375,000 ($750,000 MFJ) in 2018. The OBBB made this reduction permanent past tax year 2025. Home Equity Line of Credit (HELOC) interest remains deductible for 2025 if the loan is used to finance home improvements and secured by the home being improved. However, the OBBB adjusted the qualified mortgage interest deduction by disallowing HELOC interest but once again allowing mortgage insurance premiums to be treated as interest after 2025.4
The third change, and perhaps one of the most controversial topics of the OBBB, relates to the State and Local Tax (SALT) deduction. Prior to 2018, the SALT deduction as an itemized deduction had no limitation. The TCJA introduced a limitation of $10,000 for all filing statuses except for married filing separate ($5,000). For tax years 2025 and 2026, the OBBB increased the limitation to $40,000 ($20,000 MFS). Starting in 2027, the limitation will increase by 1% annually until tax year 2030 when it will return to the TCJA limit of $10,000 ($5,000 MFS). Furthermore, there is an additional limitation on the SALT deduction for tax years 2025 through 2030. When a taxpayer’s modified AGI exceeds $500,000 ($250,000 MFS) in 2025, the SALT deduction will be reduced by 30% but not below $10,000 ($5,000 MFS). The AGI threshold increases by 1% annually through tax year 2029.5
Fourth, a new 0.5% floor on charitable contributions will take effect starting in 2026, meaning only qualified charitable contributions that exceed 0.5% of a taxpayer’s AGI will count towards the itemized deductions. Tax planners will need to carefully consider income recognition and bunching deductions in years when AGI is lower to more fully utilize the charitable deduction. The AGI percentage limitations, such as cash contributions being limited to 60% of AGI, still apply after the 0.5% floor has been exceeded. Any contributions that are limited by the percentage caps may be carried forward into future years. The OBBB resurrected the additional charitable deduction in addition to the standard deduction for those not itemizing on Schedule A. The COVID-19 pandemic prompted the need for additional charitable giving and tax relief. In response, an additional above-the-line deduction of $300 ($600 MFJ) in 2020 and 2021 was established as a part of the CARES Act. Beginning in 2026, the above-the-line deduction allowed for nonitemizers is $1,000 ($2,000 MFJ).
Fifth, a further limitation was placed on itemized deductions for high-income households, replacing the previously named “Pease Limitation.” In 2017, the Pease Limitation reduced taxpayers’ total itemized deductions if their AGI was above $261,500 ($313,800 MFJ). The limitation began at 3% of every dollar over the income threshold until capped at 80% of the itemized deductions, meaning the maximum limitation would leave 20% of the allowable itemized deductions. The TCJA removed the Pease Limitation beginning in 2018. Under the OBBB, itemized deductions will be reduced to 2/37 of the lesser of total itemized deductions or taxable income without regard to itemized deductions above the lower threshold of the 37% tax bracket beginning in tax year 2026. This limitation is taken into consideration after all other limitations in calculating itemized deductions, such as the SALT cap and charitable floor.6
Sixth, the OBBB also permanently preserved the TCJA’s limitation on casualty losses to those resulting from declared disasters. Casualty losses resulting from theft or damage of personal-use property are calculated on Form 4684, Casualties and Theft, and picked up as an itemized deduction on Schedule A. Casualty losses related to business property would be reported on Form 4684 and Form 4797, Sales of Business Property.7 The TCJA limited casualty losses related to those resulting from federally declared disasters, but the OBBB changed the limitation starting in 2026 to also include state-declared disasters.8
New Provisions
As pledged during President Trump’s campaign, there will be no tax on tips and overtime for qualified taxpayers. For tax years 2025 through 2028, an individual may deduct a maximum of $25,000 in qualified tips. Qualified tips are voluntary cash or charged tips from occupations that “customarily and regularly” received tips before Dec. 31, 2024. The IRS plans to publish a list of applicable occupations by Oct. 2, 2025. There is a phaseout of
the deduction starting at modified AGI of $150,000 ($300,000 MFJ) of $100 for every $1,000 over the threshold. If the individual receiving tips is self-employed, the deduction may not exceed the net income from that trade or business.
A deduction for qualified overtime compensation of up to $12,500 ($25,000 MFJ) applies to tax years 2025 through 2028. Qualified overtime compensation is defined as pay that exceeds the regular rate of pay (or the “half” portion of “time and a half”) and does not include qualified tips. Although calculated separately, the same qualified tip deduction phaseout limitations and calculations apply. The taxpayer must have a valid Social Security number and file jointly if married to claim the qualified tip deduction and the qualified overtime compensation deduction. Reporting requirements for these deductions require employers to file informational returns with the IRS, such as a W-3, and provide statements reflecting the amount of qualified overtime and tips paid during the year. The IRS aims to provide transition relief for 2025. However, the IRS announced on Aug. 7, 2025, that there would be no changes to the 2025 informational returns or withholding tables related to the new law.
Furthermore, the OBBB introduced a deduction for qualified passenger vehicle loan interest of up to $10,000 annually for tax years 2025 through 2028. Unlike mortgage interest, this is not an itemized deduction. A phaseout of the deduction begins at modified AGI of $100,000 ($200,000 MFJ) of $200 for every $1,000 over the threshold. A qualified vehicle must have a gross weight rating of less than 14,000 pounds and may be a car, minivan, SUV, pickup truck or motorcycle. Final assembly must have occurred in the United States, which will be determined by the vehicle identification number (VIN). Qualified interest must be paid on a loan originating after Dec. 31, 2024, and used to purchase the qualified vehicle. The VIN will be reported on the tax return each year the deduction is claimed. The IRS will provide transition relief for 2025. Lenders will be required to file informational returns and provide statements showing the interest received for the year in the same way mortgage interest is reported.9
“Trump accounts” were created by the OBBB to encourage saving for a child’s future. A Trump account is an individual retirement account (not a Roth) created for the benefit of an eligible individual under the age of 18. Anyone may contribute up to $5,000 annually (adjusted for inflation) for a child to use after turning 18, but the contributions are not tax exempt. Likewise, employers of the beneficiary or the parent can also contribute $2,500 annually, but the employer contribution does count toward the $5,000 annual limit. The money will grow tax-deferred until withdrawn like a traditional IRA. A pilot program will be automatically enrolling U.S. citizen children with a valid Social Security number born in 2025 through 2028. These children will receive a one-time contribution of $1,000 to their Trump account from the U.S. government as a part of the pilot program.
Many strive to compare Trump accounts to a 529 plan or traditional IRA, but it is really a hybrid of the two. Contributions to Trump accounts prior to age 18 are taxable similar to a 529 plan. However, in the year the beneficiary reaches age 18, the account essentially becomes a traditional IRA with deductible contributions subject to retirement contribution limits. A major difference between a 529 plan and a Trump account is Trump account withdrawals are taxable no matter the reason. Withdrawals may begin once the owner turns 18, but withdrawals made before age 59½ are subject to regular income tax and an additional 10% penalty. There are exceptions to the early withdrawal penalty, such as up to $10,000 for a first-time home purchase or an unlimited amount for college tuition.10
In conclusion, the OBBB provided one of the largest tax cuts for individuals in the history of the U.S. by both preserving previous cuts from the TCJA in 2017 and by creating several new provisions. The OBBB tax cuts were designed to provide tax relief for low- and middle-income taxpayers. According to the nonpartisan Joint Committee on Taxation, the largest benefits apply to taxpayers making less than $50,000.11 Many of these cuts result from new policies originally introduced during President Trump’s campaign in 2024. Taxpayers must be informed of the new legislation to adequately plan for year-end decisions and to properly maintain records. Additionally, the IRS is tasked with implementing these provisions, leaving tax professionals eager for guidance. Stay tuned for “Part 2: Business Provisions” that will be covered in the next issue of the Tennessee CPA Journal.
About the Authors
Shelby Follis, CPA, is a tax manager at LBMC. She can be reached at shelby.follis@lbmc.com.
Emily Cokeley, Ph.D., CPA, is an assistant professor at East Tennessee State University. She can be reached at cokeley@etsu.edu.
References
1United States, Congress. (2025). U.S. Code. Title 26, §199A(b)(3)(B). Office of the Law Revision Counsel.
2United States, Congress. (2025). U.S. Code. Title 26, §26 U.S.C. § 165(d). Office of the Law Revision Counsel.
3Watson, G. (2025, July 23). FAQ: The One Big Beautiful Bill Act Tax Changes. Retrieved from https://bit.ly/taxfoundationobbb
4United States, Congress. (2025). U.S. Code. Title 26, §163(h)(3)(F)). Office of the Law Revision Counsel.
5United States, Congress. (2025). U.S. Code. Title 26, §164(b)). Office of the Law Revision Counsel.
6United States, Congress. (2025). U.S. Code. Title 26, §68. Office of the Law Revision Counsel.
7Bloomberg Tax. (2025). Portfolio 527- 4th: Loss Deductions, V. Casualty and Theft Losses, G. Reporting the Casualty Loss Deduction. Bloomberg Industry Group.
8United States, Congress. (2025, July 4). Public Law 119-21. Library of Congress.
9IRS. (2025, August 7). One Big Beautiful Bill Act of 2025 Provisions. Retrieved from Newsroom: https://bit.ly/irsobbb
10Cluggish, S. & Muresianu, A. (2025, July 18). ‘Trump Accounts’ Could Be Better. Here’s How. Retrieved from https://bit.ly/taxfoundtrumpaccounts
11U.S. Senate Committee on Finance. (2025, July 1). One Big Beautiful Bill: New Tax Relief Overwhelmingly Benefits Working Class.
This article was originally published in the September/October 2025 Tennessee CPA Journal.
