When election season rolled around, one of the biggest questions in my world was: what happens to the federal tax brackets and deductions if leadership changes?
Under Trump’s first presidency, the Tax Cuts and Jobs Act of 2017 reshaped the tax brackets, deductions, and exemptions. For many taxpayers, the TCJA lowered taxes compared to pre-2017 rules. The fear of a Harris presidency was that the TCJA would expire at the end of 2025, reverting to older, less favorable rules, or be replaced entirely. With a Trump win and the passage of the One Big Beautiful Bill Act (OBBBA), we now have more certainty (and more time to plan) instead of waiting for a last-minute announcement on December 31, 2025.
Below I’ve summarized the most relevant provisions of the OBBBA for Powwow clients.
Tax Brackets and Estate Exemptions: Staying the course
The current tax bracket structure introduced in 2017 remains intact beyond 2025. This means no surprises in federal income tax rates, and families can continue planning with confidence. The estate and gift tax exemption — which will be $15 million per person come 2026— will continue adjusting for inflation rather than dropping back to approximately $5 million. This helps not only ultra-high-net-worth families but also many clients concerned about inheritance and gift taxes. That doesn’t mean you’re fully safe from inheritance tax – many states also impose estate tax.
Deductions and Credits: Similar – but different!
The standard deduction will continue to inflate. In 2026, expect $16,550 for single filers, $33,100 for married couples filing jointly, and $23,625 for heads of household. Taxpayers who are age 65 or older and/or blind have also received an extra $1,600 – $2,000 per filer. This will continue ON TOP OF an additional $6,000 deduction for single filers and $12,000 for married couples through 2028. Notably, this bonus deduction applies whether you itemize or take the standard deduction. That said, it’s subject so a fairly low phaseout. $75,000 AGI single / $150,000 married.
For those who itemize deductions, the tax benefit will now be limited to the 35% tax rate. This means that if you’re in the top 37% bracket, each dollar of itemized deductions will only reduce your tax by 35 cents rather than 37 cents. This limitation is designed to curb the disproportionate advantage that higher-income taxpayers receive from itemized deductions under the marginal tax system. Those in this bracket will also be most impacted by various deduction phaseouts we’ll discuss shortly, which may create “tax torpedos.”
Child Tax Credit: Slightly Higher
The Child Tax Credit rises modestly to $2,200 per child starting 2025, up from $2,000 in 2024, with inflation adjustments starting in 2026. The credit phases out for married households earning above $400,000 and $200,000 for single filers. While many people worry about being phased out, there is also the potential of not earning enough to receive the full value of the credit. More on that here.
Business Owners: QBI Deduction Becomes Permanent
For business owners, the One Big Beautiful Bill Act makes the 20% Qualified Business Income deduction permanent. This popular provision, which applies to pass-through businesses, now has expanded phase-in ranges and a new minimum deduction amount starting in 2026, helping more small business owners benefit.
SALT Deduction Cap: More Generous, for Now
One notable change is the increase of the State and Local Tax (SALT) deduction cap. It rises from $10,000 to $40,000 for tax years 2025 through 2029, with annual inflation adjustments. However, this benefit does phase out at $500,000 MAGI if married filing jointly and $250,000 if single or filing separately.
A New Auto Loan Deduction
The bill introduces a new deduction for auto loan interest, up to $10,000 per year, but only for assembled in the USA vehicles. The benefit begins to phase out for married filing jointly households earning more than $200,000 and $100,000 for single filers, and is set to expire after 2028. Taking this deduction does not require itemizing, this can be paired with a standard deduction. That said, this new feature replaces the popular EV tax credits for new and used vehicles.
Mortgage Interest Deduction: Holding Steady
While there was speculation that the mortgage interest deduction rules might change, the OBBBA keeps the TCJA limits intact. Homeowners who itemize can continue to deduct interest on mortgages up to $750,000, but there’s no restoration of the pre-2017 $1 million cap.
Energy Tax Credits: Ending Earlier Than Expected
The energy tax credits for solar panels and other improvements — previously set at 30% and expected to continue to some degree through 2035 — will now end after 2025. While this may feel like a setback, it’s worth noting that even with the credit, the financial payoff of solar panels is debatable in my opinion. I’ve calculated an eight-year break-even on my own system, not factoring in the earnings potential had I invested the money in the market or potential maintenance and removal costs. Many realtors also note that solar panels add little to home resale value, as buyers view them as a liability or no more than a perk.
Charitable Contributions, a new twist
Starting in 2026, under the One Big Beautiful Bill Act (OBBBA), itemized charitable contributions will only be deductible to the extent they exceed a floor of 0.5% of your adjusted gross income (AGI). This is similar to how itemized medical deductions need to exceed a 7.5% floor. For example, if your AGI is $300,000, the first $1,500 of charitable gifts wouldn’t be deductible — only amounts above that threshold qualify.
That said, at any income level, $1,000 (per person) of charitable cash contributions can be deducted alongside the standard deduction and won’t require itemizing. So in my example, you potentially aim to cap your gift at $1,000 to get the full tax benefit. Important to note – adding to your donor advised fund does not qualify in this instance, it needs to be to a qualified public charity.
The “Trump Account” for Newborns
The OBBBA also introduces a tax-advantaged savings account for newborns, often called a “Trump Account.” Newborns will receive $1,000 from the government. Parents can contribute up to $5,000 per year per child, and the funds grow tax-free. An employer can also add $2,500 toward the $5,000 cap and it won’t count toward the parent’s income. When the child turns eighteen, they can use the money for education, buying a first home, or starting a business. At distribution, they’d pay a capital gains rate on the earnings. Any money not used for those purposes would have the earnings taxed as ordinary income + a 10% penalty. And the tax-free employer contributions will always be taxed as ordinary income, even if used for qualified purposes. The account self-destructs at age 31, with any remainder balance distributed and taxed.
This account does have some benefits compared to it’s IRA, UTMA and 529 counterparts – but it may be too confusing to be worth adding it to the mix apart from receiving the initial $1,000 deposit.
Overtime and Tip Income: Some Relief
Finally, the bill provides some tax relief for workers who earn overtime or tips. Overtime income can be deducted up to $12,500 single or $25,000 married per year through 2028. Similar for tips, but capped at a higher $25,000 per person. However, while it dodges federal tax, this income still counts toward FICA and likely state taxes. It also adds to your modified adjusted gross income (MAGI), which can impact eligibility for other credits and deductions. While many earning tips and overtime can benefit from this deduction, higher earners need to be aware of the phaseout, which is $150,000 if single and $300,000 if married.
Final Thoughts on The One Big Beautiful Bill
As always, the devil is in the details. For high earners especially, the OBBBA reinforces the need for proactive and nuanced tax planning to avoid unintended “tax torpedoes.” With higher income, you’re more likely to run into phaseouts that chip away at benefits. You might finally qualify to itemize mortgage interest and SALT deductions, only to find that a little more income pushes you back into the standard deduction because of the SALT cap. Similarly, you could lose eligibility for the child tax credit just as you start to rely on it. Even strategies like Roth conversions, which remain powerful, could inadvertently cancel out new deductions, such as the $6,000 senior deduction, making the move less saavy if not considered properly. The new tax law creates more opportunities to save, but also more tripwires to navigate. Careful, informed planning is key to making the most of what’s on the table.
I also expect the IRS to come out with changes and/or clarifications as we navigate the 2025 and 2026 tax years. For now, us financial, legal and tax professionals are simply attempting to interpret the bill. Soon we’ll see how it actually plays out!
If you’d like to review how these changes might affect your specific situation, or whether you should make moves before 2026, reach out and schedule a chat.
