What Do You Need to Know About the One Big Beautiful Bill Act?

You’ve seen it in the headlines: Congress passed legislation known as the One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025. Below are some highlights that may affect your income taxes beginning with the 2025 tax year, as well as your estate planning in the years to come.

Income Tax Considerations:

Income Tax Rates: The OBBBA makes permanent the individual income tax rate schedule established by the 2017 Tax Cuts and Jobs Act (TCJA). The individual income tax rates will continue to range from 10% to 37% of ordinary income (with annual inflation adjustments applied to the 10%, 12% and 22% tax brackets) and range from 10% to 20% (plus 3.8% Affordable Care Surtax) for long-term capital gains.

Alternative Minimum Tax: The alternative minimum tax (AMT) exemption has been permanently increased to $500,000 for single filers and $1,000,000 for married couples filing jointly and will be indexed for inflation. The phaseout rate for the AMT has increased from 25% to 50% for high-income individuals.

For Non-Itemizers:

Standard Deduction: For the 2025 tax year, the standard deduction amount has been increased to $15,750 for single filers and $31,500 to taxpayers who are married and filing jointly. (These deductions will be adjusted each year for inflation). For individuals aged 65 or older, or those who are blind, an additional standard deduction of $2,000 may be claimed ($1,600 for each eligible member of a couple that is married and filing jointly).

Charitable Deduction for Non-Itemizers: The permanent universal charitable deduction provision creates a tax incentive for the vast majority of Americans who don’t itemize their taxes (over 90% of filers in recent years). Taxpayers who do not itemize can now deduct up to $1,000 (individuals) or $2,000 (married couples filing jointly) per year for cash donations made to qualified charities like Drexel University. (This is in addition to the standard deduction.)  An important note: this deduction does not apply to contributions to donor-advised funds (DAFs).

For Itemizers:

Charitable Deduction: Individuals who itemize deductions on their tax returns may take charitable deductions only to the extent that the charitable deductions exceed 0.5% of adjusted gross income. For example: A taxpayer with $100,000 in adjusted gross income must give more than $500 to charity before any charitable deduction is allowed. The OBBBA also permanently extended the 60% of adjusted gross income contribution limitation for cash gifts made to certain qualifying charities, but taxpayers in the top bracket can now only claim a 35% tax deduction for charitable gifts instead of the full 37% that would otherwise apply to their income tax rate.

SALT Deduction: State and local taxes are now deductible up to $40,000 per tax year, which is a significant increase from the $10,000 cap created by the TCJA. This new amount will be increased by 1% each year through 2029 and will revert to $10,000 in 2030. The new cap starts to phase down when a taxpayer’s adjusted gross income exceeds $500,000, but will not fall below the TCJA’s original $10,000 cap.

Mortgage Interest Deduction: Mortgage interest will continue to be deductible for those taxpayers who itemize. This provision permits interest deductions on mortgage debt up to $750,000 (or $375,000 for married couples filing separately).

  “Above the Line” Deductions and Tax Credits (for Itemizers and Non-Itemizers)

Senior Citizens’ Deduction: This provision provides both itemizing and non-itemizing taxpayers who are aged 65 and over with a $6,000 above-the-line deduction and is in addition to the existing extra standard deduction for people age 65-plus. (This deduction phases out for individuals with modified adjusted gross income above $75,000 for single filers and $150,000 for married couples filing jointly.) This deduction is reduced by six cents for every dollar over the applicable threshold and completely phases out once income meets the threshold of $175,000 per individual or $250,000 for couples. It is intended to be an indirect reduction on the federal taxes on Social Security retirement benefits.

Tax Credit for Scholarship Donations: Beginning in 2027, a new tax credit of up to $1,700 will be available for charitable gifts of cash to scholarship-granting K-12 educational institutions that meet specific standards. The credit is limited to $1,700, but excess over $1,700 may be carried over for five years. Important to note: this functions as a tax credit, and any amount claimed as a credit toward taxes owed cannot also be claimed as a charitable contribution.

Child Tax Credit: The child tax credit increases to $2,200 from $2,000 per child starting in the 2025 tax year and increases for inflation in subsequent years. This provision is permanent.

Overtime Pay Deduction: This provision allows exemption of income tax liability on up to $12,500 earned by a single filer in a tax year (up to $25,000 for married couples filing jointly), on overtime pay. This above-the-line deduction phases out beginning at $150,000 of modified adjusted gross income for single filers and $300,000 for married couples filing jointly.

Tip Income Deduction: Individuals working in occupations where tipping is customary may exempt up to $12,500 in tips earned. This above-the-line deduction phases out beginning at $150,000 of modified adjusted gross income for single filers and $300,000 for married couples filing jointly.

Auto Loan Interest Deduction: Auto loan interest (on qualified passenger vehicle loans) of up to $10,000 per year per taxpayer may now be deducted if the loan is for a vehicle that was assembled in the United States and was purchased new. This above-the-line deduction phases out for taxpayers with modified adjusted gross income over $100,000 for single filers and $200,000 for married couples filing jointly.

Estate Planning Considerations:

Estate and Gift Tax Exemption: The federal estate and gift tax exemption will be permanently increased to $15 million per individual starting in 2026, with future adjustments for inflation. The Generation-Skipping Transfer (GST) tax exemption will match these new estate and gift tax thresholds. For 2025, the exemption amount is $13.99 million for single filers and $27.98 million for married couples filing jointly. In 2026, these numbers will increase to $15 million and $30 million, respectively.

In light of these tax changes, now is the time to take a fresh look at your charitable giving strategies to ensure that you are maximizing both impact and tax efficiency.

Questions? Contact David Toll, JD, senior associate vice president in Drexel University’s Office of Gift Planning, at 215.895.1882 or giftplanning@drexel.edu.