Navigating the One Big Beautiful Bill Act (OBBBA): A Guide for 2026
Comprehensive analysis of the OBBBA tax reforms signed into law July 4, 2025, including new deductions for tips, overtime, and seniors, a higher SALT cap, permanent QBI, and a $15M estate tax exemption.
Introduction
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. It permanently extends the Tax Cuts and Jobs Act (TCJA) individual tax rates, introduces several new deductions for workers and seniors, raises the SALT cap, makes the QBI deduction permanent, and raises the estate tax exemption to $15 million per person. This guide covers the main individual and small-business provisions that take effect in 2025 and 2026; it does not cover every change (for example, the early termination of several clean-vehicle and home-energy credits).
1. Key Individual Tax Deductions
OBBBA introduces four new deductions available to all taxpayers, whether you itemize or take the standard deduction. These are designed to provide relief to working Americans and seniors. All four are effective for tax years 2025 through 2028.
| Deduction | Maximum | Phase-Out Begins | Key Details |
|---|---|---|---|
| Senior Deduction | $6,000/person | $75K / $150K joint | Age 65+ required. Reduces at $0.06/dollar over threshold. Fully eliminated at $175K / $250K. |
| "No Tax on Tips" | $25,000/year | $150K / $300K joint | IRS-designated tip occupations only. Reduces at $0.10/dollar over threshold. SSTBs ineligible. |
| "No Tax on Overtime" | $12,500 / $25,000 joint | $150K / $300K joint | FLSA-required overtime premium only. Reduces at $0.10/dollar. |
| Car Loan Interest | $10,000/year | $100K / $200K joint | New vehicles assembled in the U.S. only. Original owner. Reduces at $0.20/dollar. Eliminated at $150K / $250K. |
All four deductions run from 2025 through 2028. Important: these deductions reduce your income tax, not your self-employment or payroll tax.
2. Changes to Itemized Deductions
State and Local Tax (SALT) Deduction
The SALT deduction cap increases from $10,000 to $40,000 for tax year 2025 ($20,000 if married filing separately). Starting in 2026, the statute raises the cap by a fixed 1% each year (101% of the prior year's amount), making it $40,400 for 2026 ($20,200 if married filing separately). The increased cap runs from 2025 through 2029, then reverts to $10,000 in 2030.
The benefit phases down for higher earners: the cap is reduced by 30% of modified adjusted gross income above $500,000 for 2025 ($505,000 for 2026; half those thresholds if married filing separately), but not below $10,000 ($5,000 if married filing separately). This is particularly impactful for taxpayers in high-tax states like California and New York.
Charitable Contribution Deduction for Non-Itemizers
OBBBA permanently allows people who take the standard deduction to deduct cash donations, up to $1,000 (single) or $2,000 (joint) to qualified charities. The deduction is permanent with no sunset date, but it does not start until tax years beginning after December 31, 2025. That means the first return it can be claimed on is the 2026 return you file in 2027, not the 2025 return.
Child Tax Credit
The Child Tax Credit increases to $2,200 per child (up from $2,000 under TCJA) and is now permanent. The refundable portion is $1,700 per child for 2025 and 2026 and continues to be adjusted for inflation; the $2,200 credit amount is also indexed for inflation for tax years after 2025 (it is $2,200 for 2026).
3. Key Business and Investment Provisions
Qualified Business Income (QBI) Deduction: Now Permanent
The 20% QBI deduction under Section 199A is now permanent. This was set to expire after 2025 under the TCJA sunset. If you own an LLC, S Corporation, or sole proprietorship, this deduction can save you up to 20% on qualified business income. Starting in 2026, there is also a new minimum deduction of $400 for taxpayers with at least $1,000 of qualified business income from active businesses in which they materially participate (both amounts are indexed for inflation after 2026).
100% Bonus Depreciation: Reinstated
OBBBA reinstates 100% bonus depreciation, and the test is the acquisition date, not the tax year. Qualified property acquired after January 19, 2025 gets the full 100% deduction, including property acquired and placed in service during 2025. (IRS Pub. 946) Property acquired on or before January 19, 2025 stays on the old TCJA phase-down schedule (80% in 2023, 60% in 2024, 40% in 2025), so an equipment purchase made in early January 2025 and one made in February 2025 are treated differently. Treasury and the IRS set out the rules in Notice 2026-11.
Estate Tax Exemption
The federal estate tax exemption increases to $15 million per person, adjusted for inflation. Unlike the TCJA increase (which was set to sunset), this change is permanent. This benefits high-net-worth individuals and family businesses. A married couple can shelter up to $30 million from estate taxes.
Related Planning Note (not an OBBBA change): Deferred Compensation and 4 U.S.C. §114
For executives with nonqualified deferred compensation, a 1996 federal law (Public Law 104-95, codified at 4 U.S.C. §114, which predates OBBBA) prohibits states from taxing retirement income received by nonresidents, but only if the payments are structured as substantially equal periodic payments over at least 10 years or the recipient's life expectancy. A lump-sum payout remains taxable by the former state. By coordinating a 10-year distribution schedule to fill lower tax brackets during the "gap years" between active employment and Required Minimum Distributions, executives can achieve substantial bracket-smoothing savings alongside state tax elimination.
4. OBBBA Tax Savings Calculator
Estimate how much you could save under the new OBBBA provisions. Enter your income details below.
OBBBA Tax Savings Calculator
Max deduction: $25,000
FLSA-required overtime portion only
New US-assembled vehicle only
Old cap: $10,000. 2026 cap: $40,400, reduced above $505,000 MAGI. Helps only if you itemize.
65+ qualifies for senior deduction
LLC / S-Corp / sole prop income
Estimate only. Federal income tax only, using the 2026 brackets and standard deduction. It assumes the extra SALT is usable because you itemize, and it ignores credits, the additional standard deduction for age 65 or older, and the QBI deduction's taxable-income, wage, and specified-service limits. Actual savings depend on your complete tax situation. Consult a tax professional for precise calculations.
5. Worked Example and Sunset Dates
Example: The Tip Deduction at Four Income Levels
The chart below is a simplified, hypothetical illustration, not a calculation for any specific taxpayer; actual results depend on filing status, income type, and which deductions apply. It shows 2026 federal income tax for a single filer under 65 whose only income is wages, including $10,000 of qualified tips in an eligible occupation, who takes the 2026 standard deduction of $16,100 and no other deductions or credits. Both bars use the 2026 brackets; the only difference is the tip deduction, which is reduced by $100 for each $1,000 of modified adjusted gross income above $150,000, so in this example it is gone at $250,000. Payroll taxes still apply to tips and are not shown. Use the calculator above for an estimate based on your own numbers.
Provision Sunset Dates
| Provision | Effective | Expires |
|---|---|---|
| Tips / Overtime / Senior / Car Loan | 2025 | Dec 31, 2028 |
| SALT Cap ($40K+) | 2025 | Dec 31, 2029 |
| QBI §199A (20%) | Permanent | None |
| Estate Tax Exemption ($15M) | 2026 | None (permanent) |
| 100% Bonus Depreciation | Property acquired after Jan 19, 2025 | None (permanent) |
| Child Tax Credit ($2,200) | 2025 | None (permanent) |
| Non-Itemizer Charitable | 2026 | None (permanent) |
OBBBA Tax Planning Worksheet
Calculate your personal savings from every OBBBA provision: tips, overtime, senior deduction, SALT, QBI, and car loan interest. Includes phase-out calculations.
6. Frequently Asked Questions (FAQ)
Conclusion
OBBBA makes substantial changes that require careful planning. The new deductions for tips, overtime, and seniors provide real savings for working Americans, while the permanent QBI deduction and raised estate exemption give business owners and high-net-worth individuals long-term planning certainty.
The key is understanding which provisions apply to your situation, when they expire, and how the phase-outs interact with your income level.
Primary sources
- Public Law 119-21 (One Big Beautiful Bill Act), July 4, 2025
- IRS, Working Families Tax Cuts (provisions and guidance)
- IRS, Occupations that customarily and regularly received tips
- Rev. Proc. 2025-32 (2026 inflation-adjusted amounts)
- IRS, Qualified business income deduction
- IRS Notice 2026-11 (interim guidance on the additional first year depreciation deduction)
- IRS Publication 946, How To Depreciate Property
- 4 U.S.C. 114 (limitation on state income taxation of certain pension income)
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Disclaimer: This guide is general information, not tax advice for your specific situation. Tax law changes, and how a rule applies depends on your facts. Reading this page does not create a client relationship with Arc & Ledger LLC. Before acting on anything here, confirm how it applies to your circumstances with a qualified tax professional.