Key Takeaways
- The One Big Beautiful Bill Act makes several major Tax Cuts and Job Act provisions permanent, providing long‑term clarity on tax brackets and deductions.
- High‑income taxpayers now face an itemized‑deduction phaseout, reducing or eliminating deductions as income rises.
- The State and Local Tax (SALT) deduction cap increases to $40,000 but phases down once Modified Adjusted Gross Income (MAGI) exceeds $500,000.
- Charitable gifts now have a 0.5% MAGI floor, reducing the deductible amount of giving. Careful tax planning is more important than ever to manage thresholds and preserve valuable deductions.
Overview
Passed in July 2025, the One Big Beautiful Bill Act (OBBBA) both made permanent several provisions of the Tax Cuts and Jobs Act (TCJA) and introduced new adjustments to the tax code. The following sections explore the most consequential of these updates.
TCJA Provisions Permanently Extended
The OBBBA made several provisions from the TCJA permanent. Key items include:
- Tax Brackets: The top marginal tax rate remains at 37%.
- Standard Deductions: The increased standard deduction amounts are permanently retained.
- Personal and Dependency Exemptions: The repeal of these exemptions has been made permanent.
- Mortgage Interest Deduction: The cap on mortgage interest deductions remains at $750,000 of qualifying mortgage debt.
Notable Changes of the OBBBA
Itemized Deduction Reduction
Under the OBBBA itemized deductions are reduced by 2/37 for every dollar of taxable income above the minimum threshold of the 37% tax bracket. For example, a married couple filing jointly with $800,000 of taxable income and $100,000 of itemized deductions would see their deduction reduced by $1,697. This reduction is calculated by subtracting the bracket floor ($768,600) from their taxable income ($800,000), resulting in $31,400, and multiplying that amount by 2/37. This phaseout becomes more significant at higher income levels. For instance, if the couple’s taxable income were $2,700,000, their $100,000 itemized deduction would be fully eliminated. This change makes intentional tax planning more important, particularly for managing exposure to the 37% bracket or reducing income that falls within that bracket. Figure 1 illustrates how itemized deductions now decline under OBBBA, whereas under the TCJA no such reduction applied.
SALT Phase Down
The OBBBA modifies the State and Local Tax (SALT) deduction by increasing the maximum allowable deduction from $10,000 to $40,000 per return. The expanded deduction, however, is subject to a new income-based limitation. Taxpayers with MAGI exceeding $500,000 are required to reduce their SALT deduction by 30% of the excess MAGI, with the deduction phased down to a floor of $10,000. Consequently, a married couple filing jointly with $600,000 of MAGI would be permitted only the minimum $10,000 deduction rather than the full $40,000. This provision underscores the need for intentional tax planning to remain below the phaseout threshold or mitigate the impact of MAGI on the allowable deduction. Figure 2 depicts this declining deduction schedule as income increases.
Charitable Giving Floor
The OBBBA also introduces a new rule for charitable deductions: a 0.5% floor based on your MAGI. Therefore, when itemizing, the first 0.5% of your income donated to charity cannot be deducted. For example, if someone earns $100,000 and gives $1,000 to charity, the first $5 are not deductible, so only $995 counts towards their itemized deductions. Charitable‑deduction carryforwards from 2025 or earlier are grandfathered in and are not subject to this new floor.
Conclusion
Given all these changes, it is important to plan ahead to make the most of the SALT deduction, charitable contribution deduction, and itemized deductions overall. Smart tax planning can help you stay below certain income thresholds or offset phaseouts that reduce the value of these deductions. Strategies might include shifting income, using tax‑efficient investments, or taking advantage of tools like Qualified Charitable Distributions (QCDs) to make gifts in a tax‑favorable way. Even small planning moves throughout the year can meaningfully increase how much of each deduction you are able to keep.
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