Key Provisions of the One Big Beautiful Bill Act, and the Potential Impact on Your Taxes

On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law, marking a significant milestone in tax legislation with far-reaching implications. Most notably, the bill solidifies and extends many provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which were set to expire at the end of 2025. While the OBBBA aligns closely with current 2025 tax laws, its permanence prevents significant tax increases that would have occurred post-sunset.

Below is a summary of the most impactful personal finance changes with further detail to follow:

Category	Current Tax Law (2025 TCJA)		One Big Beautiful Act
Individual Tax Rates	Rates set in seven brackets between 10% and 37%. Set to go up after 2025.		Makes 10% to 37% rates permanent. Removes 2026 sunset language and adjusts inflation brackets above 22% & 24%.
State and Local Tax Exemption (SALT)	$10,000 ($5,000 if married filing separately)		Cap stays at $40,000 for joint filers ($20,000 if married filing separately) from 2025 to 2029; pass-through entity owners can deduct up to the greater of $40,000 or 50% of their share of PTET expenses.
Standard Deduction	Set at $15,000 for single tax filers and $30,000 for joint filers. It expires after 2025.		Makes higher deduction permanent and increases to $16,000 (single), $32,000 (joint) and $24,000 for heads of household beginning in 2026.
Child Tax Credit	$2,000 per child, with $1,700 refundable in 2025.		Raises credit to $2,200 in 2025, adjusted for inflation starting in 2026. Keeps $1,400 refundable limit, which is currently indexed for inflation at $1,700.
Qualified Business Income (QBI) Deduction	Business owners can deduct up to 20% of QBI for sole proprietors, partnerships, or S corporations. Expires in 2025.		Makes 20% deduction permanent, raises phase-in thresholds to $75,000 ($150,000 for joint returns) and adds a $400 minimum deduction for active businesses.
Estate and Gift Tax	Exempts $13.99 million per person and drops to $7 million after 2025.		Maintains exemption at $15 million in 2026 and indexes for inflation. Removes 2026 reversion.

Permanent Extension of 2017 Tax Cuts

• OBBBA makes the tax rate reductions from the TCJA permanent:

Rate	Single	Head of Household	Married Filing Joint
10%	$0 – $11,925	$0 – $17,000	$0 – $23,850
12%	$11,925 – $48,475	$17,000 – $64,850	$23,850 – $96,950
22%	$48,475 – $103,350	$64,850 – $103,350	$96,950 – $206,700
24%	$103,350 – $197,300	$103,350 – $197,300	$206,700 – $394,600
32%	$197,300 – $250,525	$197,300 – $250,500	$394,600 – $501,050
35%	$250,525 – $626,350	$250,500 – $626,350	$501,050 – $751,600
37%	$626,350+	$626,350+	$751,600+

• Capital Gains: The capital gains tax brackets remain unchanged.
• Potential Impact: This clarity around tax rates allows us to plan without the threat of rates changing in the near term. Historically low rates allow taxpayers to take home more of their earnings.

Increased State and Local Tax (SALT) Deduction Cap

• Effective for tax year 2025, the SALT deduction cap is raised from $10,000 to $40,000 for married or single taxpayers with modified adjusted gross income (MAGI) below $500,000, and $20,000 for married filing separately with MAGI less than $250,000. The cap phases out above the income thresholds. This will revert back to $10,000 after 2029.
• Potential Impact: If you reside in a high-tax state, this temporary increase offers significant tax relief. Consider itemizing deductions to capture these savings, particularly if your income is near the thresholds, where strategic income planning could maximize the $40,000 deduction.

Charitable Deduction Floor (0.5% of AGI)

• Starting in 2026, charitable deductions for itemizers will be reduced by 0.5% of adjusted gross income (AGI) before applying existing AGI limits (60%, 50%, 30%, or 20%). For example, if your adjusted gross income is $100,000, you can deduct the amount of your total gifts minus $500 (0.5% of $100,000). So, if you make $2,000 in cash contributions, you only will be allowed to deduct $1,500.
• Potential Impact: For those planning large charitable contributions, making donations in 2025 may be advantageous to avoid the new floor. Consider using a Donor Advised Fund to pull forward donations in to tax year 2025. This provision could also influence future charitable giving, potentially reducing donation amounts to charities.

Itemized Deduction Limit for those in 37% Tax Bracket

• Previously, deductions were given at your marginal tax rate.

• Starting in 2026, if you’re in the highest marginal tax rate of 37%. You will be capped at a 35% benefit for an itemized deduction.
• Potential Impact: If you are currently in the 37% tax bracket, and plan on making a large charitable donation, 2025 will offer a more favorable tax deduction due to both the charitable giving threshold previously mentioned, and the 35% cap on deductions.

Mortgage Interest Deduction Capped at $750,000

• The TCJA’s cap on mortgage interest deductions at $750,000 of indebtedness is made permanent. Home equity loans are deductible only if used to improve the property.
• Potential Impact: With rising housing prices and higher interest rates, this cap limits deductions for larger mortgages, potentially reducing the tax benefits of homeownership for some buyers, which may potentially hurt the housing market.

Increased Estate and Gift Tax Exemption

• The estate and gift tax exemption is permanently increased to $15 million for individuals and $30 million for married couples adjusted for inflation, effective 2026.
• Potential Impact: This significant increase provides clarity and shields larger estates from federal taxes, simplifying wealth transfer strategies for high-net-worth clients. It is still important to consider state estate taxes when thinking about estate planning.

Enhanced Pass-Through Business Deductions

• The Section 199A deduction for qualified business income (QBI) from pass-through entities (e.g., small businesses, partnerships, sole proprietorships) is made permanent. A minimum deduction of $400 is introduced for taxpayers with at least $1,000 in QBI.
• Potential Impact: If you own a pass-through entity, this enhanced deduction increases tax savings on your personal return, offering long-term planning opportunities

Alternative Minimum Tax Phaseout Thresholds Reduced

• The Tax Cuts and Jobs Act reduced the number of households that were subject to AMT by increasing the AMT exemption to $137,000 for joint filers, while also raising the threshold for AMT income for joint filers to $1,252,700.
• The OBBBA permanently extends these exemptions but will reduce the income phaseout to $1,000,000 for joint filers.

• Phaseout rate increases to 50% AMT income over threshold.
• Potential Impact: With slightly lower thresholds, more people may be subject to AMT. For clients with incentive stock options, it may make sense to exercise stock in 2025 v. 2026.

Expanded Child Tax Credit

• The Child Tax Credit (CTC) is permanently increased to $2,200 per qualifying child, indexed for inflation, with phase-outs beginning at $400,000 for married filing jointly (MFJ).
• Potential Impact: This increase provides ongoing tax relief for families, enhancing financial flexibility for those with qualifying children.

Auto Loan Interest Deduction

• Up to $10,000 of vehicle loan interest is deductible as a below the line deduction.
• Phased out for Modified Adjusted Gross income of $150K for single filers and $249K for married filers.
• Car must be assembled in USA

New Tax Relief: Age 65+ Deduction

• Taxpayers age 65 and older are eligible for an additional $6,000 deduction per individual ($12,000 for married couples filing jointly) from 2025 to 2028. This deduction does not
  reduce AGI and thus does not affect Social Security taxation or Medicare premiums. It phases out for AGI above $150,000.
• Potential Impact: This temporary deduction offers tax relief for seniors, particularly those with moderate incomes reducing tax liabilities.

Trump Accounts

A “Trump Account” is a new type of IRA account that can be opened and funded on behalf on any individual with a social security number from birth up until the year before the year they turn 18.

 Before Age 18

• Maximum contributions of $5,000 per year, no income requirements.
• Investments are limited to index tracking funds with annual fees lower than .1%.
• No distributions before age 18.

After Age 18

• Owners must wait until age 59 ½ to make penalty free withdrawals.
  • Investments are no longer required to be index funds.
  • The law is unclear on Required Minimum distributions and the 10-YR Rule.

 Pilot Program

• To kick off the accounts, parents can elect to have a $1000 credit paid by the U.S. government into the Trump account on behalf of an eligible child.
• The actual mechanics are still being determined.
• Potential Impact: This is a great way to start a retirement account for children without the income requirements that IRA and Roth IRA accounts currently have. If you had a child born in 2025, it is worth looking in to applying for the $1000 credit.
  

The One Big Beautiful Bill Act introduces a dynamic tax landscape with both opportunities and complexities. At Compass, we are committed to guiding you through these changes, tailoring investment and planning strategies to help you and your family achieve your financial goals. Please reach out to discuss how these provisions can be integrated into your personalized financial plan.

VISIT OUR WEBSITE AT www.CompassWealthManagement.com COMPASS WEALTH MANAGEMENT LLC • 10 Water St. Guilford, CT 06437 • (203) 453-7000 Compass Wealth Management LLC is a SEC registered investment advisor, clearing transactions primarily through Pershing Advisor Solutions and Pershing LLC subsidiaries of Bank of New York Mellon Corp. This letter is written by Compass for the benefit of its clients and does not necessarily represent the opinions of its affiliated organizations. It is based on information believed to be reliable, but which is not guaranteed to be correct. Nothing herein shall be construed to be a solicitation to buy or sell securities, indicate that past performance is predictive of future returns, or recommend individual investments.

_{Compass Wealth Management LLC is a SEC registered investment advisor, clearing transactions primarily through Pershing Advisor Solutions and Pershing LLC subsidiaries of Bank of New York Mellon Corp. This letter is written by Compass for the benefit of its clients and does not necessarily represent the opinions of its affiliated organizations. It is based on information believed to be reliable, but which is not guaranteed to be correct. Nothing herein shall be construed to be a solicitation to buy or sell securities, indicate that past performance is predictive of future returns, or recommend individual investments.}