The OBBBA’s Impact on Tax Planning
The One Big Beautiful Bill Act (OBBBA) legislation, passed by Congress in mid-2025, introduced many changes that impact how you consider taxes within the context of your overall financial plan. Ultimately, while many of the individual provisions under OBBBA are relatively minor changes from existing law, together they represent a substantial shift in tax policy – one that adds a significant amount of complexity to tax planning with the number of new deductions, phaseout rules, and effective dates governing OBBBA's provisions.
Some of the more impactful provisions related to retirement income planning are outlined below. This list is not exhaustive and is not intended to be tax advice.
Above the Line vs. Below the Line Deductions
Tax deductions can broadly be thought of as either 'above-the-line' or 'below-the-line', with the 'line' referring to Adjusted Gross Income (AGI). Above-the-line deductions are deducted from income before AGI, which means that they reduce a taxpayer's AGI and can therefore be helpful for many phaseouts and other calculations that are based on AGI. Below-the-line deductions, on the other hand, are subtracted from income after AGI is calculated. As a result, they don't reduce AGI itself. While they do reduce taxable income and therefore still provide some tax benefit, they don't help with phaseouts or thresholds that are based on AGI rather than taxable income.
Increased Standard Deduction
The standard deduction represents the amount of income you can exclude from taxes before the income tax rates are applied. The standard deduction was increased as part of the OBBBA:
| Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|
| $15,750 | $31,500 | $23,625 |
Senior Deduction
Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law and is available to both itemizing and non-itemizing taxpayers. The senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify) and phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
To qualify for the additional deduction, a taxpayer must attain age 65 on or before the last day of the taxable year, include the Social Security Number of the qualifying individual(s) on the return, and file jointly if married, to claim the deduction.
The available 2025 deductions for eligible taxpayers age 65+ are summarized below for reference.
| Single | Married Filing Jointly | |
|---|---|---|
| Regular standard deduction | $15,750 | $31,500 |
| Extra age-based deduction | $2,000 | $3,200 |
| Senior Deduction | $6,000 | $12,000* |
| Total Available 2025 Deductions | $23,750 | $46,700 |
*If both spouses are age 65+
Increased State and Local Tax (SALT) Deduction
With the new legislation, the SALT deduction limit will increase to $20,000 for married filing separately taxpayers and $40,000 for all other tax statuses. However, the new deduction amount only applies to those with MAGI up to a certain threshold. The phaseout threshold is between $500,000 - $600,000 (or between $250,000 - $300,000 for married filing separately). Above that threshold, the deduction amount phases out, and eventually, the cap reverts to $5,000 for married filing separately or $10,000 for all other filers.
The new income limit and phaseout thresholds increase by 1% every year through tax year 2029. After that, the SALT deduction is permanently reduced to $10,000 ($5,000 for married couples filing separately).
TCJA Rates Made Permanent
The lower individual tax brackets enacted under the TCJA are made permanent, avoiding a built-in hike in 2026. There were no changes to the capital gains rate structure and mortgage interest rules. The Net Investment Income Tax (3.8%) continues to apply at the same thresholds.
Estate and Gift Tax Exemption
The TCJA doubled the gift and lifetime exemption to $13.99 million for single filers and $27.98 million for joint filers, and was set to expire at the end of 2025. The OBBBA makes permanent the higher exemption and increases it to $15 million per individual or $30 million per couple in 2026. These are set to index for inflation each year.
Additional Charitable Deduction
Historically, deductions for charitable contributions have been primarily available to individuals who itemize their deductions. The OBBBA created a new “below the line” deduction available to non-itemizers starting in 2026, allowing them to deduct up to $1,000 for single filers and $2,000 for married filing jointly. It is not indexed for inflation, and gifts to donor-advised funds and private foundations don’t qualify.
0.5% of AGI Floor on Charitable Contributions
Starting in 2026, itemizers can only deduct the portion of annual charitable donations exceeding 0.5% of their income (e.g., a couple with $300k AGI can only deduct giving beyond $1,500; the first $1,500 of gifts yields no deduction).
Itemized deductions limited to 35% for top tax rates
Starting in 2026, itemized deductions for individuals at the top tax rate of 37% will be limited to 35%. Note that the 37% bracket’s taxable income begins at $626,351 for single filers and $751,601 for joint filers in 2025. The 2026 thresholds have not been released yet and are likely to edge higher as they are typically adjusted for inflation. For taxpayers in a higher bracket, charitable deductions and other itemized claims will be treated differently under the new limitations.
Practical Planning Implications
Many of the deductions or increased limits have income phaseouts that eliminate the tax benefits above a certain threshold. Income thresholds also interact with other provisions, such as Medicare premiums, the net investment income tax, and taxation of Social Security benefits. The expansion of the Internal Revenue Code under OBBBA will serve to make tax planning more complicated in the years to come, particularly from 2025 through 2028, when the temporary new deductions are in effect. Taxpayers should consult a qualified tax professional to understand how these rules may apply to their circumstances.
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