The One Big Beautiful Bill Act: Deductions and Your Tax Bill

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings a variety of changes to the U.S. tax code. These changes will impact the tax picture for millions of Americans for years to come. Here’s a summary of the important Standard, Below-the-Line, and Itemized Deductions and how they could lower your tax bill.

A Higher Standard Deduction

• Who benefits:
  • Most taxpayers
• What’s changing:
  • The standard deduction reduces the amount of income on which you are taxed.
  • In the One Big Beautiful Bill Act, the increased standard deduction amounts, which were set to expire after 2025, are now made permanent and further increased.
    • For 2025, the standard deduction is:
      • $15,750 for single and married filing separate filers
      • $23,625 for heads of household
      • $31,500 for married filing jointly
  • These amounts will be adjusted for inflation in future years.
• What it means for you:
  • More people will likely benefit from taking the standard deduction rather than itemizing, since the deduction is larger.
  • You can alternate between itemizing and the standard deduction from year to year. Report whichever amount gives you the greater tax benefit. Planning with your tax advisor can allow you to “bunch” together your itemized deductions in one year, to take greater advantage of the standard deduction in other years.

Additional Temporary Senior Deduction

• Who benefits:
  • Taxpayers age 65+
• What’s changing:
  • A new, temporary deduction of $6,000 is available for each taxpayer age 65 or older for tax years 2025–2028, in addition to the existing extra standard deduction for seniors.
  • This deduction phases out for higher incomes (over $75,000 for singles, $150,000 for joint filers).
    • Note that social security income is still subject to tax–the senior deduction doesn’t directly tie to social security in any way. A 65-year-old who hasn’t filed for Social Security benefits yet will be eligible for the exact same deduction as one who has already begun receiving them.
• What it means for you:
  • If you or your spouse are 65 or older, you can reduce your taxable income by an extra $6,000 each (up to $12,000 for a couple), on top of the standard deduction.
  • Households with over $175,000 (single), $250,000 (joint) will be fully phased out and will not benefit from the additional senior deduction.
    • Example: A married couple, both over 65, with less than $150,000 income could claim the $31,500 standard deduction plus $3,200 in additional standard deduction for being 65+, and $12,000 in senior deductions, a deduction totaling $46,700!

Below the Line Deductions: New Deductions for Tips, Overtime, Car Loan Interest, and Charity

• Who benefits:
  • Tipped workers, overtime workers, new car buyers, donors to charity
• What’s changing:
  • Tax deductions can broadly be thought of as either ‘above-the-line’ or ‘below-the-line’, with the ‘line’ referring to Adjusted Gross Income (AGI). Below-the-line deductions are subtracted from income after AGI is calculated rather than reducing AGI itself. These deductions do still reduce taxable income, providing some additional benefit to taxpayers.
  • Because of the One Big Beautiful Bill Act, these deductions are available whether you itemize or not.
  • Temporarily from 2025–2028, taxpayers can deduct (subject to phase-outs):
    • Up to $25,000 per year in qualified tips (for workers in tipped occupations, like servers or bartenders).
    • Up to $12,500 ($25,000 for joint filers) per year in qualified overtime pay (the “extra half” of time-and-a-half pay required by law).
    • Up to $10,000 per year in interest paid on a loan for a new, U.S.-assembled personal vehicle (not for business or commercial use).
  • A permanent deduction of up to $1,000 for single filers and $2,000 for joint filers is available for contributions made in cash to a qualified charity.
• What it means for you:
  • If you work in a job where you receive tips, work overtime, or buy a new car for personal use, you may be able to reduce your taxable income even if you don’t itemize.
  • For many taxpayers, there hasn’t been much incentive from a tax perspective to make charitable donations in recent years due to an increased standard deduction. Now you can receive a tax benefit regardless of your itemizing status.

The One Big Beautiful Bill Act and Itemized Deductions: Changes and New Limits

• Who benefits:
  • High-tax state residents, High income taxpayers, Homeowners with high mortgage interest
• What’s changing:
  • The previous $10,000 cap on state and local tax (SALT) deductions is increased to $40,000 ($20,000 for married filing separately) for 2025, with a phase-down for high incomes, and reverts to $10,000 after 2029.
  • The “Pease limitation” (which reduced itemized deductions for high earners) is replaced with a new formula: itemized deductions are reduced by 2/37 of the lesser of your deductions or your income above the 37% tax bracket threshold.
  • Miscellaneous itemized deductions (like unreimbursed employee expenses) remain suspended permanently, except for educator expenses (which are expanded).
  • The mortgage interest deduction cap of $750,000 is made permanent, and mortgage insurance premiums are now treated as interest (and thus deductible).
  • Casualty loss deductions are now allowed for state-declared disasters, not just federal ones.
  • Charitable contributions: Only the amount above 0.5% of your adjusted gross income (AGI) is deductible, but the above-the-line charitable deduction for non-itemizers is increased to $1,000 ($2,000 for joint filers) as mentioned above.
• What it means for you:
  • If you have high state/local taxes, you can deduct more than before if you are itemizing, but the benefit will phase out for higher incomes.
  • High-income taxpayers will see a reduction in the value of their itemized deductions due to the new limitation formula.
  • If you pay mortgage insurance, you can deduct those premiums as interest.
  • If you suffer a loss from a state-declared disaster, you may be able to claim a casualty loss deduction.
  • For charitable giving, you need to give more than 0.5% of your AGI to start getting a deduction, but even non-itemizers can deduct up to $1,000 ($2,000 joint) for charitable gifts.

The One Big Beautiful Bill Act and Deductions: The Bottom Line

• Because of the One Big Beautiful Bill Act, many taxpayers will benefit from a higher standard deduction and may not need to itemize on their tax return.
• Seniors get a new, significant deduction.
• Workers who earn tips, overtime, or buy a new U.S.-made car can claim new below-the-line deductions.
• Itemized deductions are more limited for high earners, but some caps (like state and local taxes “SALT”) will be higher for a few years.
• Charitable giving rules are more restrictive, but non-itemizers can deduct more than before.

Review your situation each year to see whether the standard deduction or itemizing is better for you, and check if you qualify for any of the new below-the-line deductions. If you’re a senior, a tipped worker, or someone who works overtime, these changes could mean a lower tax bill. If you have high state taxes or make large charitable gifts, pay attention to the new limits and floors.  

There are unique tax planning opportunities available that could lead to tax savings under the new tax law, but you don’t need to have everything figured out on your own. If you have a specific scenario or want to know how these changes affect you, Truepoint’s tax specialists are happy to assist.