How the OB3 May Change Your Life (Or at Least Your 1040)
The One Big Beautiful Bill Act (OBBBA, affectionately, and unofficially, known as the OB3), has landed, and while it probably won’t change your life (unless your idea of life-changing involves tax brackets, deduction tweaks and tax credit adjustments), it may change the way your 1040 looks this year.
Signed into law on July 4, 2025, the OB3 is sweeping in scope, and buried among its 900 pages are some key updates you should be aware of before year end in case your estimated tax payments need to be modified and before you start organizing your tax information at year end.
So, what’s in this “beautiful” bill for regular people like you and me? Let’s unpack a few highlights:
Permanent extension of lower tax rates and brackets: The OBBBA generally makes the tax rates enacted in 2017 in the Tax Cuts and Jobs Act (TCJA) permanent. An additional year of inflation adjustment is added for determining the dollar amounts at which the 12% rate bracket ends and the 22% rate bracket begins.
Standard deduction: The nearly doubled standard deduction is made permanent. Effective for 2025, the amounts are as follows:
Single & Married Filing Separately (MFS): $15,750 (indexed)
Head of Household (HoH): $23,625 (indexed)
Married Filing Jointly (MFJ): $31,500 (indexed)
Child Tax Credit: The nonrefundable child tax credit increases to $2,200 per child beginning in 2025 and the credit amount is indexed for inflation.
Estate and gift tax exemption: The increased exemption is made permanent and raised to $15 million per individual ($30 million for married couples) in 2026, indexed for inflation.
SALT deduction cap: The state and local tax (SALT) deduction cap is increased from $10,000 to $40,000 per household and will be phased out for taxpayers with modified adjusted gross income (MAGI) over $500,000. For tax years 2026 – 2029, the deduction cap and the income threshold will be adjusted by 1% annually for inflation. In 2030, the deduction will revert to $10,000.
Charitable deduction for non-itemizers: An above-the-line deduction is added for charitable contributions beginning in 2026 ($1,000 for single filers, $2,000 for joint filers).
No tax on tips and overtime: For 2025 – 2028, above-the-line deductions are created for qualified tips (in certain occupations) and for overtime premium pay, subject to income and occupation limitations.
Enhanced deduction for seniors: For 2025 – 2028, a $6,000 deduction is available for seniors (age 65+) with income below $75,000 ($150,000 for joint filers).
Car loan interest deduction: For 2025 – 2028, up to $10,000 of interest on loans for U.S.-assembled passenger vehicles may be deducted, subject to income phaseouts (beginning at $100,000 for single and $200,000 for married filing jointly).
Home mortgage interest and insurance premiums: The $750,000 limit on the treatment of mortgage insurance premiums as qualified residence interest is made permanent. The exclusion of home-equity indebtedness from the definition of qualified residence interest is also now permanent.
Summary
The OB3 may not change your life, but it could impact your refund…or balance due. Whether it helps you keep a little more in your wallet or just gives you another reason to reach out to me for some tax planning, the changes are worth checking out. If nothing else, you’ll have fun tax facts to casually drop at your next social event. Nothing livens up a dinner party like a good conversation about tax brackets.