Understanding What the ‘Big Beautiful Bill” Means for You

On July 4th, the sweeping legislation known as the “Big Beautiful Bill” (BBB) was signed into law by President Trump, marking a philosophical continuation of many Tax Cuts & Jobs Act policies, with some notable changes.  

If you’ve tuned into the news in the last several weeks, you know that iterations of this bill have been debated in the House and Senate.

We strive to be your filter for the noise you’ll find on the news, informing you when things have settled and may impact your plan to avoid unnecessary speculation. Furthermore, our primary tax planning software has confirmed these changes are already incorporated, benefitting our projections and future planning immediately. 

We've broken down the tax, healthcare, and estate provisions most likely to impact our client base below, but you can reach out to your Wealth Manager with any questions. 

Key Individual Tax Provisions 

The headline of this legislative package is extending the 2017 Tax Cuts & Jobs Act (TCJA) individual tax rates and standard deductions permanently.

While there has been much speculation about whether these tax cuts would be extended past their scheduled expiration at the end of this year, as of now they are extended indefinitely as outlined in the chart below (and will continue to be adjusted annually for inflation).

This legislation also extends and further enhances the standard deduction increasing the deduction to $15,750 for single filers and $31,500 for married couples filing a joint return in 2025.

The “bonus” deduction for taxpayers age 65 and older is also increased by $6,000 through 2028, though this deduction will begin to phase out at income of $75,000 (or $150,000 for joint filers) and be eliminated entirely for single filers with income of more than $175,000 (or $250,000 jointly).   

After much negotiation, the State & Local Tax (SALT) deduction cap has been temporarily raised to $40,000 beginning in 2025 and will be increased by 1% annually through 2029, at which time it will revert to a flat $10,000 beginning with the 2030 year.

While this may be welcome news to taxpayers, this enhanced deduction does begin to phase out for taxpayers with incomes above $500,000.  

The new law includes numerous provisions impacting the ability to itemize deductions, including provisions maintaining the changes from the Tax Cuts and Jobs Act and others providing for new or enhanced deductions. 

• The limitation on deducting home mortgage interest to the first $750,000 of qualified mortgage acquisition debt is permanent as is the inability to deduct interest on home-equity loans. 

• A new deduction is included allowing for a deduction of up to $10,000 for interest paid on a “qualified passenger vehicle loans” for the years 2025 through 2028. This deduction will be phased out for single taxpayers with income over $100,000 ($200,000 for married couples filing a joint return) and is limited to passenger vehicles that had their final assembly in the United States. 

• The elimination of most miscellaneous itemized deductions is made permanent. 

• Taxpayers who do not itemize deductions are now allowed to deduct charitable contributions of $1,000 for those filing single ($2,000 for married couples filing a joint return) as an “above-the-line" deduction; however, although the enhanced ability to deduct up to 60% of adjusted gross income for cash gifts to public charities appears to have been retained, taxpayers who itemize deductions may now only deduct contributions that exceed .5% of their adjusted gross income. 

• The so-called “Pease” limitation, which has been included in the tax law on-and-off since 1991, has been brought back, this time limiting the value of itemized deductions to 35 cents on the dollar for taxpayers in the 37% bracket.  

Other notable provisions included in the tax legislation are as follows: 

• The child tax credit is made permanent and is increased slightly from $2,000 to $2,200 per child, with annual increases for inflation. The enhanced income phaseout thresholds of $200,000 for single filers and $400,000 for married couples filing a joint return is also made permanent. 

• The bill permanently increases the amount of child and dependent care tax credit from 35% to 50% for qualifying expenses, but this increase phases down to the 35% for taxpayers with income over $15,000.  

• From 2025 through 2028, taxpayers may deduct up to $25,000 per year from tip income and up to $12,500 per year from overtime pay.  

• As highly publicized, new "Trump Accounts" will be funded with a one-time tax credit of $1,000 for children born between 2025 and 2028. These accounts will operate much like a special IRA plan for children, with additional non-deductible contributions of up to $5,000 permitted annually before the child reaches age 18. Distributions can be taken after the child reaches age 18 and must be fully distributed by age 31. Unlike traditional IRAs, distributions from a Trump account above the contribution amount will be taxed at the child's long-term capital gain rate.
  

• Under the legislation, up to $20,000 of 529 plan funds can now be used for K-12 “qualified expenses” which now in addition to tuition costs also includes non-tuition expenses such as books, tutoring, and more. Additionally, 529 plan funds can now be used for postsecondary credentialing expenses. 
• The Tax Cuts and Jobs Act modified the Alternative Minimum Tax (AMT) by increasing the exemption and the level at which the exemption phased out. These changes were largely retained under the new law, although the amount at which the exemption begins phasing out is reduced from $1,252,700 to $1 million. 

Key Business Tax Provisions 

In addition to the individual income tax provisions above, the BBB includes a number of provisions impacting businesses. While these changes are extensive, we’ve summarized some that may impact clients most directly. 

• The 20% deduction on qualified business income under Section 199A has been made permanent with $50,000 increases to the income thresholds at which the limitations for Specified Services Trades or Businesses (SSTBs) apply. 

• The enhanced bonus depreciation benefits of the Tax Cuts and Jobs Act have gradually been decreasing, but the new legislation makes permanent the deduction of 100% of the cost of property acquired and placed in service on or after January 19, 2025. 

• The BBB also permanently brings back the expensing for qualified research and development (R&D) expenditures, even allowing businesses to retroactively expense or accelerate the deduction of R&D expenditures going back to the end of 2021. This benefit is limited to domestic expenses; expenses incurred for R&D outside of the United States will continue to be amortized over 15 years. 

• The exclusion for gain on certain Qualified Small Business Stock (QSBS) held for at least four years is increased from 50% to 75% and is increased to 100% for stock held five years or longer. The exclusion amount is also increased from $10 million to $15 million. 

Estate & Gift Tax Exclusion 

The Tax Cuts and Jobs Act significantly increased the estate and gift tax exemption, at the time nearly doubling it from $5.49 million per individual in 2017 to $11.18 million in 2018. Although this increase was scheduled to “sunset,” or revert, at the end of 2025 the BBB permanently increases the 2025 exemption amount from $13.99 million to $15 million per person which will be indexed annually for inflation. For married couples, this equates to the ability to pass $30 million of assets estate-tax free to future generations.  

Healthcare & Benefits 

No direct changes were made to Medicare benefits or eligibility in the final law, although large changes were made to Medicaid and SNAP benefits as part of the overall legislation. Although taxes on Social Security benefits were not repealed, it does offer the temporary bonus standard deduction through 2028.  

Next Steps 

Because the legislation is so sweeping (exceeding 1,000 pages of legislative text), we can’t provide a breakdown of every provision, but if you have a specific question, please reach out to your Wealth Manager and our team is happy to help. 

As these new provisions are reviewed and implemented, there will undoubtedly be clarifications and additional guidance needed. We will continue to monitor and we’ll keep you updated as any major changes or insights become available and will cover any potential changes to your plan or tax projections in your next meeting.