Summary/TL;DR
The newly passed One, Big, Beautiful Bill will make permanent many of the tax-lowering provisions introduced from the Tax Cuts and Jobs Act. The lower brackets, child tax credit, higher standard deduction, higher gift and estate tax limits, Qualified Business Income Deduction, bonus depreciation, Qualified Opportunity Zones, and much more are all here to stay. The bill also introduces some new things into the tax code such as a new “senior” deduction, a higher SALT limitation, and Trump accounts for minors.
Introduction
Last week, the One, Big, Beautiful, Bill was signed into law by President Trump. The bill addresses many outstanding questions that American taxpayers had about the future of their annual liability to the federal government and introduced some new things as well.
While this bill does a lot, today’s post will only focus on the provisions that are likely to have an impact on those reading it.
Lower Taxes For (Almost) Everyone
By far the most important thing the bill does from a tax-perspective is make permanent the lower income tax rates established from the Tax Cuts and Jobs Act of 2017, which were originally scheduled to sunset in 2026. Allowing the higher rates to return would have resulted in significantly more taxes for Americans of all stripes, particularly the middle and upper-middle class.
The OBBB also permanently increased the standard deduction for all taxpayers, which was also scheduled to revert to a significantly lower level in 2026. Furthermore, the bill introduced a temporary “senior deduction” that allows anyone over the age of 65 to claim an additional $6,000 deduction. This new provision is phased out for seniors with high modified adjusted gross incomes and is currently scheduled to expire in 2029.
Another change made from the TCJA was a doubling of the child tax credit from $1,000 before the bill to $2,000 after its passing. Like the provisions discussed above, this increase was also scheduled to expire in 2026 but was increased (to $2,200 per child) and made permanent in the OBBB.
The average American was put far out of reach of the dreaded “death tax” after the TCJA increased the estate tax exemption to an inflation-indexed $15M per individual. This was also made permanent in the OBBB, making the estate tax a thing of the past for most Americans.
The final provision I’ll discuss in this section will impact business owners. One of the most impactful provisions from the TCJA was the introduction of the Qualified Business Income Deduction (QBID), also known as Section 199A. This allowed owners of pass-through entities to deduct up to 20% of their Qualified Business Income (QBI) subject to certain income phaseouts. The OBBB not only made Section 199A permanent, but it also substantially increased the income phaseouts.
Changes To Itemized Deductions
The OBBB has made permanent many of the changes to itemized deductions introduced through the TCJA, but there have been some major changes introduced as well.
The TCJA established a $10,000 ceiling on the amount of State and Local Tax (SALT) that one may claim as an itemized deduction on their Federal tax return. The OBBB kept this cap in place but increased it to $40,000 and scheduled it to increase by 1% per year until 2029, at which point it will revert back to $10,000 unless extended by a future bill. This provision could bring back the popular pre-TCJA strategy of “bunching” one’s SALT deductions in a single year in order to exceed the standard deduction, allowing one to achieve lower average taxable incomes over a two-year period. This strategy is dependent on the tax code and rules within one’s jurisdiction, but it’s return is welcomed.
Finally, a $1,000 or $2,000 (Single and Joint filers, respectively) charitable deduction will be available for taxpayers who claim the standard deduction, and itemized charitable contributions are only deductible up to the extent that they exceed 0.50% of one’s Adjusted Gross Income.
Bonus Depreciation
One of the most popular provisions of the TCJA was the introduction of bonus depreciation which allowed taxpayers to deduct 100% of depreciation from depreciable property in its first year of operation. This provision started to be phased out in 2023 but has been permanently restored at 100% thanks to the OBBB.
Opportunity Zones
Qualified Opportunity Zones (QOZs) were introduced in the TCJA to provide tax incentives for investment in certain communities. Investors were allowed to defer capital gains into QOZs until 2026 and, if held in excess of 10 years, pay no tax on the appreciation of the investment itself. The OBBB has made QOZs a permanent fixture of the American tax code. Besides some small changes to their overall structure, they remain largely the same.
Trump Accounts
The final provision of the OBBB that will be discussed in today’s post is the establishment of “Trump Accounts” for every American child born between January 2025 and December 2029. These are tax-deferred accounts which will be seeded with an initial contribution of $1,000 from the federal government and allow subsequent annual contributions of $5,000 (including $2,500 from one’s employer) until the child’s age 18. Children born before this timeframe and under 18 can still have an account opened for them, but they’ll be ineligible for the initial $1,000 investment from the government.
Funds within the account must be invested in a stock index and only become available to the child in stages throughout their life. First, at their age 18, up to half of the account becomes available for “qualifying” expenses such as starting a business, first-time home purchases, or attending college. At age 25, the child can withdraw the remainder of the funds for these same reasons, and at age 30 and beyond for any reason. Funds won’t be taxed until they are distributed, at which point they will be taxed as long-term capital gains for “qualifying” purposes. For “non-qualifying” purposes, distributions will be taxed as ordinary income plus an additional 10% penalty.
While the advantages of Trump accounts are modest compared to more flexible alternatives such as ordinary brokerage accounts, the initial $1,000 from the government is certainly welcomed. If the funds grew at 10% annualized, this modest beginning would grow to $5,500 at the child’s age 18, $10,800 at age 25, $17,450 at age 30, and $304,000 at age 60.
