For a short time this past summer, tax news became national news when President Trump signed the One Big Beautiful Bill ACT (OBBBA).

This broad budget bill.

  • Makes the 2017 tax cuts permanent
  • Introduces several new tax breaks and repeals most clean-energy tax credits
  • Repeals mots clean energy tax credits

A Word About AGI

You will see the term AGI frequently in this letter. AGI (Adjusted Gross Income) is your total income minus certain deductions, such as:

  • IRA contributions
  • HSA contributions
  • Self-employed health insurance
  • Certain adjustments

AGI is used throughout the tax code to determine eligibility for deductions and credits, and understanding your AGI is essential for tax planning.

 

New Tax Breaks

Most new deductions created by the OBBBA are available whether or not you itemize deductions. However, many phase out once your AGI exceeds certain levels. Below are the key new provisions: 

1. Increased State and Local Tax (SALT) Deduction Limit

The SALT deduction cap has increased from $10,000 to $40,000. You must itemize to benefit from this.

  • New $40,000 cap begins phasing out at AGI over $500,000
  • Married filing separately: $20,000 cap, phaseout at $250,000 AGI
If you have not itemized in recent years, the new SALT limit may make itemizing beneficial again.

  • Phases out above $75,000 AGI ($150,000 joint)
  • No action required beyond filing your return

2a. Charitable Deduction for Non-Itemizers (2026)

Begins in 2026:

  • Up to $1,000 for individuals
  • Up to $2,000 for married filing jointly
  • Must be cash contributions to public charities
  • No phaseout

Planning tip: If you do not plan to itemize in 2025, you may benefit from delaying year-end charitable gifts until January 2026.

2b. Charitable Deduction for Itemizers (2026)

If itemizing, consider donating appreciated assets (e.g., highly appreciated stock). You may deduct full fair market value and avoid capital gains tax.

3. New Itemized Educator Expense Deduction (2026)

Begins in 2026:

  • Unlimited itemized deduction-for K-12 educator expenses
  • Expands eligibility to coaches and sports administrators
  • Applies to many types of classroom-related expenses

4. Deductions & Exclusions from Income

Standard Deduction vs. Itemizing
The OBBBA makes the larger standard deduction permanent.

2025 Standard Deduction:

  • $15,750 – Single
  • $23,625 – Head of Household
  • $31,500 – Married Filing Jointly

Planning tip: If your itemized deductions are near these amounts, we may consider “bunching” deductions (e.g., doubling up charitable gifts or prepaying state taxes) to maximize benefits over a two-year period.

Because the SALT limit increased to $40,000, many taxpayers who previously used the standard deduction may find itemizing beneficial again.

5. SALT Deduction Refresher

Deductible SALT items include:

  • State & local income taxes
  • Real estate property taxes
  • Personal property taxes (value-based vehicle taxes)
  • Sales taxes (instead of income taxes)
Vehicle taxes must be based on value to qualify. 2025 SALT cap

  • $40,000 (phasing out after $500,000 AGI)
  • $20,000 for married filing separately

6. Medical Expense Deductions

Medical expenses are deductible to the extent they exceed 7.5% of your AGI. Expenses may include:

  • Insurance premiums
  • Long-term care services
  • Transportation for medical care
  • Qualified long-term care insurance (limits apply)

Timing medical expenses may help maximize deductions depending on whether you’re itemizing.

7. Student Loan Interest

Up to $2,500 deductible above the line. Phaseout begins at:

  • $170,000 AGI (Joint)
  • $85,000 AGI (others)

8. Sale of a Home

If you owned and lived in your home for at least two of the five years before selling, you may exclude:

  • $250,000 gain (single)
  • $500,000 gain (married filing jointly)

Improvements increase your basis and reduce taxable gain. If you need help determining what qualifies, we can provide guidance. Special rules apply if you used the home for business or rental.

9. Tax Credits (2025)

Residential Clean Energy Credit

Expires December 31, 2025.
Credit equals 30% of qualifying costs (solar, battery storage, etc.).

Systems must be paid for and installed by year-end.

Energy Efficient Home Improvement Credit

Expires December 31, 2025.

  • 30% credit for various energy-efficient improvements
  • Annual limit: $1,200
  • Additional $2,000 limit for heat pumps, biomass stoves, etc.

Saver’s Credit

Up to:

  • $1,000 (individual)
  • $2,000 Goint)
Education Credits

  • American Opportunity Tax Credit: up to $2,500 per student, first four years of college, phases out above $80,000 AGI ($160,000 joint)
  • Lifetime Learning Credit: up to $2,000 per return, phases out at the same levels

10. Section 529 Plan Enhancements

The OBBBA expanded eligible uses for 529 plans:

  • K-12 expenses now include books, tutoring, testing fees, educational therapies, and more
  • Beginning in 2026, the K-12 withdrawal limit increases from $10,000 to $20,000
  • 529 funds may be used for post-secondary credentialing, licensing programs, continuing education, and exams-no annual limit

11. Retirement Plans, HSAs, FSAs & Trump Accounts

Retirement Plans 2025 contribution limits: 401(k)

  • $23,500 (under 50)
  • $7,500 catch-up (50+)
  • $11,250 “super catch-up” for ages 60-63
SIMPLE 401(k)

  • $16,500 (under 50)
  • $20,000 catch-up (50+)
  • $21,750 “super catch-up” for ages 60-63
IRAs

  • $7,000 (under 50)
  • $8,000 catch-up (50+)

Please notify us if you experienced any of the following:

  • Marriage or divorce
  • Birth or death in the family
  • Job changes
  • Retirement
  • A dependent moving out or no longer qualifying
  • Name change – update the Social Security Administration. Any mismatch can delay tax processing and refunds.