Recently introduced, the “One Big Beautiful Bill Act” brings significant, long-awaited changes to tax law. Alongside, there are some temporary tax cuts, though they come with strict limitations and will typically only last until 2028 or 2029. Let’s explore four ways you could make the most of the Act’s interim provisions when filing your 2025 taxes and planning ahead.
1. Don’t overlook itemized deductions
One of the key changes under OBBBA is the temporary increase in the state and local tax deduction limit (SALT) from $10,000 to $40,000 for both married couples filing jointly and single filers. This new cap is effective from 2025 through 2029.
If your itemized deductions surpass the standard deduction—which will be $31,500 for married couples and $15,750 for singles in 2025—you should itemize. This could include mortgage interest, charitable donations, and the new state and local tax limit. Just be cautious, as the $40,000 SALT cap is not universal—it starts phasing out for those with a modified adjusted gross income (MAGI) over $500,000. Once MAGI hits $600,000, you revert to the original $10,000 limit.
2. Take advantage of newly eligible deductions, if applicable
The OBBBA introduces some new above-the-line deductions for middle-income earners, but keep in mind they come with tight income and benefit restrictions.
For instance, the qualified overtime deduction allows married couples to deduct up to $25,000 and singles up to $12,500, but only on the additional “half-time” pay. This deduction starts to phase out for married couples when their MAGI crosses $300,000, and disappears at $550,000.
Similarly, there’s a qualified tip income deduction, allowing up to $25,000 of reported tip income for both married and single filers. Be mindful that this deduction phases out for higher earners, starting from MAGI of $300,000 for couples and $150,000 for singles, completely vanishing at $550,000 and $400,000, respectively.
There’s also an auto loan interest deduction for up to $10,000 on interest paid for a new vehicle assembled in the United States, although leases are not included. It begins phasing out at $200,000 for married couples and $100,000 for singles and eliminates at $250,000 and $150,000.
3. Seniors, time your Roth conversion wisely for 2026
If you’re over 65, OBBBA presents a one-time deduction reaching up to $12,000 for married couples ($6,000 per spouse) and $6,000 for single filers. While it’s a nice benefit, tread carefully.
The deduction starts to phase out for couples with MAGI exceeding $150,000 and singles over $75,000. If you’re nearing that $150,000 limit, a Roth conversion in 2026 might push your income over and cost you the entire deduction. So, it might be useful to work with an advisor to model this scenario for 2026.
4. Optimize your income for a better financial outcome
Many of OBBBA’s valuable provisions are based on income, including new deductions and the increased SALT limits. Keep these aspects in mind for both your 2025 returns and 2026 plans.
To influence your MAGI in 2025, consider these steps:
- Make your HSA contributions before the April 2026 tax deadline.
- Contribute to a tax-deductible IRA in 2025 if eligible.
Looking ahead to 2026, if your income is expected to be near a phase-out limit, think about strategies to stay eligible. This might include:
- Delaying the sale of high-value stocks to avoid hefty capital gains.
- Postponing the exercise of non-qualified stock options that could push you over the phase-out threshold.
- Maximizing your 401(k) and health savings account contributions to reduce your MAGI.
- Being cautious with large Roth conversions if your income exceeds key limits.
Planning carefully can help you navigate any technical restrictions and save a good amount on taxes.
