OBBBA Tax Legislation Summary

Developed in collaboration with Bob Keebler of Keebler & Associates, it covers every major provision advisors need to know: increased standard deductions, the new $40,000 SALT cap with income-based phase-outs, no-tax-on-tips and overtime deductions, child tax and adoption credit changes, the new senior deduction, Trump Accounts, the 2/37 itemised deduction limitation, business owner changes including 100% bonus depreciation and expanded Section 179 limits, and the complete MAGI phase-out ranges for both married filing jointly and single filers. Download the full PDF for visual phase-out charts and worked calculation examples.

2025 Tax Year Changes

Increased Standard Deduction (Ends After 2029)

New Senior Deduction (2025–2029)

A new above-the-line deduction of up to $6,000 per person (age 65+). Full deduction available below the MAGI threshold; phases out at 6% of excess MAGI above the threshold.

SALT Deduction: New $40,000 Cap with Phase-Outs (2025–2029)

The SALT deduction cap increases from $10,000 to $40,000 per return for itemisers. However, the deduction phases out between $500,000 and $600,000 of MAGI (both MFJ and Single), reducing to the previous $10,000 cap at the top of the range. MFS has a $20,000 maximum with reduced phase-out ranges. The phase-out rate is 30% of excess MAGI above the $500K threshold.

No Tax on Tips & No Tax on Overtime (2025–2028)

Both are above-the-line deductions that can be taken even if the taxpayer uses the standard deduction. Maximum deduction: $25,000 for MFJ, $12,500 for Single. Phase-out: reduces by $100 for every $1,000 of excess MAGI above the threshold.

Child Tax Credit & Adoption Credit (2025+)

Child Tax Credit: Increases from $2,000 to $2,200 per qualifying child. Refundable portion remains at $1,700 per child. Phase-out: $200K single / $400K MFJ, fully phased out at $244K single / $444K MFJ.

Adoption Credit: Maximum credit increases from $16,810 to $17,280. New $5,000 refundable portion. Phase-out: $259,100–$299,190 MAGI (all filing statuses except MFS). Unused credit can be carried forward for 5 years.

Deductions and Credits Terminated After 2025

Important Changes for Business Owners (2025)

• 100% Bonus Depreciation returns for qualified property acquired after Jan 19, 2025 — allowing full immediate deduction of eligible depreciable business assets.
• Section 179 Expensing limits increase dramatically: maximum amount rises from $1M to $2.5M, and the phase-out threshold moves from $2.5M to $4M.
• Full expensing for domestic R&D costs in the year incurred, starting 2025. Small businesses may retroactively apply to tax years after Dec 31, 2021.
• QSBS gain exclusion expansion: higher issuer and gross asset limits, applying to stock issued or tax years starting after enactment.
• Energy-related tax credit terminations: clean vehicle and commercial credits end after Sep 30, 2025. Residential clean energy and home improvement credits terminate after Dec 31, 2025.

2026 Tax Year Changes

Reduced Income Tax Rates (2026 Projected)

The OBBBA extends and adjusts the tax rate structure. The seven brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) continue with updated thresholds. See the full PDF for the complete bracket chart with Single and MFJ ranges.

AMT Exemption Changes (2026)

The key change: the AMT exemption phase-out rate doubles from 25% to 50%. This means higher-income filers (especially $1M+) lose their exemption faster, increasing AMT liability. Base exemption amounts remain generous with inflation adjustments from the 2017 base.

Trump Accounts (2026)

New tax-deferred savings accounts for children born after Dec 31, 2024 and before Jan 1, 2029. Contributions up to $5,000/year (before age 18). Not restricted to education expenses — can be used for any purpose and eventually rolled into a Roth IRA once the child has earned income. Employers can contribute up to $2,500 (counts toward the $5K limit). Federal government pilot programme contributes $1,000 per eligible child (does NOT count toward the $5K limit). Requires SSN for eligible child.

Limitation on Tax Benefit of Itemised Deductions (2026) — The 2/37 Rule

A modernised version of the Pease limitation targeting taxpayers in the 37% bracket. The deduction reduction is calculated as: the lesser of (itemised deductions) or (excess AGI over the 37% bracket threshold), multiplied by 2/37. This caps the maximum loss at approximately 5.4% of itemised deductions. The formula scales with income without creating hard cliffs. See the full PDF for a worked MFJ example showing how $60,000 in deductions is reduced by $3,243 for a taxpayer at $850K.

Charitable Contributions by Non-Itemisers (2026)

Raises the limit from $300/$600 (CARES Act era) to $1,000 (Single) / $2,000 (MFJ). Intended to be permanent. Available to standard deduction filers with no MAGI limit.

0.5% Floor on Charitable Contributions (2026)

Only contributions above 0.5% of AGI are deductible. Example: $500K AGI = $2,500 floor. $20,000 in charitable giving = $17,500 deductible. Amounts below the floor cannot be carried forward unless the taxpayer exceeds percentage limitation caps.

Business Owner Changes (2026)

• QBI deduction phase-out thresholds increase: Single from $182,100–$232,100 to $182,100–$257,100. MFJ from $364,200–$464,200 to $364,200–$514,200. New $400 minimum deduction for those with at least $1,000 in active QBI.
• Employer-provided child care credit rises from 25% to 40% (50% for small businesses). Max credit increases to $500K ($600K for small businesses).
• Further energy credit terminations: refuelling property credit and new energy efficient home credit end after Jun 30, 2026. Commercial buildings deduction ends for construction starting after Jun 30, 2026.
• New Markets Tax Credit becomes permanent for calendar years after Dec 31, 2025.
• Foreign tax credit rules change: FDII deduction percentages reduced. BEAT tax rate increases to 10.5%. Look-thru rule for CFCs made permanent.

How FP Alpha Handles OBBBA Changes

FP Alpha’s Tax Projector includes the new OBBBA phase-out visualisations for all major provisions. When you model a scenario in the Tax Projector, the tool automatically shows whether the client is under phase-out, in phase-out, or over phase-out for SALT, tips, overtime, car loan interest, and the senior deduction. The Roth Conversion Simulator has been updated to account for these new phase-outs when calculating optimal conversion amounts. See the Multi-Year Roth Conversions with Bob Keebler webinar for a detailed walkthrough of how these phase-outs interact with conversion strategy.

Disclaimer: Information provided is for educational purposes. Your advisor does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.