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One Big Beautiful Bill Act (OBBBA) Tax Changes Thumbnail

One Big Beautiful Bill Act (OBBBA) Tax Changes

Tax Planning

The recently passed One Big Beautiful Bill Act has brought about several changes to the federal tax system beginning in 2025. Most notably, there’s been an increase in the State and Local Tax (SALT) deduction and an introduction of several new deductions. 

Increased SALT Deduction

  • Effective for tax years 2025-2029, the limit for State and Local Tax deductions has been increased from $10,000 to $40,000 and will increase by 1% each year following 2025.
  • This deduction is steadily phased back down to $10,000 between income levels of $500,000 to $600,000.
  • The change is currently slated to revert back to $10,000 in 2030.

New deductions have also been added. All four of these are effective for tax years 2025-2028 and are available to both those who itemize their deductions and those who take the standard deduction.

Qualified Tips Deduction

  • Up to a $25,000 deduction on qualified tip income.
  • The $25,000 limit is the same for single and joint taxpayers (per return, not per taxpayer).
  • Tips must be from an eligible occupation that regularly receives tips.
  • Eligible tips must be reported as income to the IRS in order to qualify for this deduction.
  • This deduction is fully phased out between income levels of $150,000 to $400,000 for single taxpayers and $300,000 to $550,000 for joint taxpayers.

Qualified Overtime Pay Deduction

  • Up to $12,500 of qualifying overtime pay ($25,000 for joint taxpayers) is eligible to be deducted.
  • However, this deduction does not apply to base pay received while working overtime.  It applies only to the extra portion of payment received for working overtime (e.g., the “half” when being paid time-and-a-half). If you are paid double time, only “half” is eligible for this deduction.
  • This deduction is fully phased out between income levels of $150,000 to $275,000 for single taxpayers and $300,000 to $550,000 for joint taxpayers.

Car Loan Interest Deduction

  • Up to $10,000 of car loan interest incurred in 2025 is eligible for deduction. However, to qualify:
    • The loan must have originated during or after 2025,
    • The vehicle must be new (loans on “used” and leased vehicles do not qualify), 
    • The vehicle must have a gross vehicle weight (GVWR) of less than 14,000 lbs, 
    • The loan must be secured by the vehicle, and 
    • The vehicle must have been built within the United States.
  • This deduction is fully phased out between income levels of $100,000 to $150,000 for single taxpayers and $200,000 to $250,000 for joint taxpayers.

Senior Tax Deduction

  • Up to a $6,000 deduction for each taxpayer 65 or older.
  • This deduction is fully phased out between income levels of $75,000 and $175,000 for single taxpayers and $150,000 to $250,000 for joint taxpayers.

Termination of Tax Credits Relating to Energy Efficiency and Clean Energy

  • The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit ended on December 31, 2025, and the Clean Vehicle Credit ended on September 30, 2025.

 While there were other tax provisions passed as part of the OBBBA, these are the provisions that we believe will have a significant impact on a wide range of taxpayers beginning with the 2025 tax year.