The One Big Beautiful Bill Act is now law. It’s a 940-page document, and I haven’t read it, but my reliable tax sources are highlighting some of the key provisions for individuals that I thought you might find helpful.
Before I get into the OBBBA (or OBBB or OBB; they’re still working on the acronym), it’s worth noting that Missouri Governor Mike Kehoe signed a bill that will eliminate individual capital gains tax as of Jan 1, 2025. People will be able to deduct 100 percent of their capital gains income from their federal return when calculating their Missouri income.
Regarding the OBBBA, the most important thing to know is that the bill makes significant portions of the Tax Cuts and Jobs Act of 2017 (TCJA) permanent. A large portion of the TCJA would have expired, and the law would have reverted to the pre-TCJA rules, but that’s off the table now.
Another key fact is that the current laws are permanent. Well, nothing is permanent, but there is no sunset or expiration, which means that we, the taxpayers can reasonably assume that these laws will stay the same for some time (there are some exceptions, reviewed below). Having some sense of certainty should be helpful for everyone.
For now, I want to highlight three new things, rather than the things that will remain unchanged from the past eight years, or details that seem too trivial relative to the big ones. I’m sure more issues will surface that I haven’t seen yet.
First, under the TCJA, the deduction for State and Local Taxes (SALT) was capped at $10,000. The OBBBA ups the SALT limit to $40,000 starting in 2025, and will increase by one percent per year in future years.
I don’t want to put anyone to sleep, but there are some technical details here regarding limits to the higher cap for those earning $500-600k in Adjusted Gross Income (AGI). Also, just like most of the TCJA, the higher SALT cap is scheduled to revert to $10,000 in 2030 (so why bother with the rule about increasing one percent per year?).
Interestingly, OBBBA left in place state-enacted laws created to allow owners of pass-through businesses (partnerships, LLCs, and S-Corps) to avoid the SALT limitations (known as Pass-Through Entity Taxes, or PTETs).
Second, senior citizens will get a new $6,000 tax deduction that is meant to act like no tax on Social Security. The new deduction is available to people aged 65 and over, with some income phase-outs starting at $150,000 for those married filing jointly (and $75,000 for individual filers).
The deduction is fully phased out with incomes over $250,000 and $175,000, respectively. The deduction is available starting this year and ends in 2028. Like the SALT expiration, the current Congress hopes that future legislators will extend these rules.
While this deduction has the effect of reducing taxes for seniors, it’s not actually tied to Social Security income. That’s good news in my opinion because you get the deduction at age 65, even if you don’t claim Social Security until age 70.
Perhaps, it’s another good reason not to take Social Security early if you can avoid it, because you’d get the income at 62, but won’t get the deduction for three more years.
Lastly (for today), the estate, gift, and generation-skipping tax exemption will be set at $15 million per individual ($30 million per couple) in 2026, which is much higher than the $7.14 million ($14.28 million) it would have been without OBBBA. Furthermore, those levels will index with inflation starting in 2026 and do not have a sunset provision.
There will be more to come on this topic – hopefully, this helped you get a taste for some of the most relevant provisions.
