Just a quick update about some recent tax law changes, some will likely impact you.
President Trump signed the One Big Beautiful Bill Act (OBBBA) on July 4. The Act primarily extends and replaces the expiring 2017 Tax Cuts and Jobs Act (TCJA).
Among all the changes, one really stood out: a major increase to the cap on State and Local Tax (SALT) deductions.
Starting in 2025, the SALT deduction cap will increase from $10,000 to $40,000 for households earning under $500,000. For higher incomes, this cap gradually gets smaller.
(Note): The higher cap, which is effective until the end of 2029, will revert to $10,000 starting in 2030.1
SALT Deduction “Savings” Example
The higher SALT deduction means some taxpayers may save more money by itemizing their taxes this year versus taking the standard deduction.
Here’s an example…
Assumptions:
- Married Filing Jointly
- Adjusted Gross Income (AGI): $300,000
- SALT Paid: $35,000 (including property and state income tax)
- Other Itemized Deductions: $7,000 (e.g., charitable giving and modest or no mortgage interest, common for many pre-retirees and retirees with paid-down loans)
This example shows how the increased SALT deduction can shift a married couple’s advantage, enabling them to itemize for an extra $10,500 in deductions, leading to an estimated $2,520 in tax savings compared to the prior 2024 standard deduction rules.
Temporary Deductions
The Act also introduces several new temporary deductions for 2025-2028, including:
- A $6,000 deduction for single filers ($12,000 for joint filers) for those aged 65+.
- Up to $25,000 for tips; and overtime wages ($12,500 for single filers, $25,000 joint filers). Note, payroll taxes still apply.
- Up to $10,000 for qualifying auto loan interest on new, U.S.-assembled vehicles.
Keep in mind, the above deductions are subject to income phase-outs and other restrictions.2
Other Key OBBBA Highlights:
Permanent Tax Cuts: Many TCJA provisions are now permanent, including the existing individual income tax brackets (10%, 12%, 22%, 24%, 32%, 35% and 37%), and the increased standard deduction, now $15,750 for single filers, $23,625 for heads of household and $31,500 for joint filers, for 2025.
Child Tax Credit: The Child Tax Credit is permanently increased to $2,200 beginning in 2025, and will be indexed for inflation beginning in 2026.3
[Deep Dive Resource]: For an OBBBA deep (deep) dive, read Breaking Down The One Big Beautiful Bill Act: Impact Of New Laws On Tax Planning.
These are significant tax changes, and we’ve only scratched the surface. To see how they might impact you using our tax modeling software, please reach out.
It will be an exciting tax season for sure!
–David Bunker, Financial Advisor & Licensed Fiduciary
P.S…Our Key Financial Data spreadsheet is now updated with the OBBBA changes, including 2025 tax brackets, standard deductions, child tax credit and much more.
Before You Go
Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.
Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.
This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.
Source:
1, 2, 3: Kitces.com, Breaking Down The “One Big Beautiful Bill Act”: Impact Of New Laws On Tax Planning. https://www.kitces.com/blog/obbba-one-big-beautiful-bill-act-tax-planning-salt-cap-senior-deduction-qbi-deduction-tax-cut-and-jobs-act-tcja-amt-trump-accounts/
Bay Colony Advisors, DBA Windsor Wealth Management, is not a Certified Public Accountant and does not provide tax, legal, or accounting advice. Any tax-related information provided is for general informational purposes only and should not be construed as legal or tax advice. Each individual’s tax situation is unique, and you should consult with your own tax, financial, or legal advisors before making any decisions. We strongly recommend seeking the advice of a qualified CPA or other professional for personalized tax advice.