The One Big Beautiful Bill Act (OBBBA) is a significant overhaul of federal tax legislation. It introduces various new deductions that could potentially reduce your tax bills in the coming year. However, there are some complexities that might limit the advantages you gain from these changes.
Many updates are set to take effect in 2026, which gives you some time to strategize and adjust your financial plans to sidestep any issues. Here are three major traps to be mindful of.
One of the most notable new additions in OBBBA is the senior citizen deduction. Individuals who are 65 or older can now claim up to $6,000 in additional Social Security deductions, while married couples filing jointly may claim as much as $12,000. But remember, this deduction is only available until 2028. If you’re over 65 and plan to postpone claiming Social Security until age 70, you may end up missing out.
Income limits are another factor. The deduction begins to phase out for single taxpayers making more than $75,000 annually (or $150,000 for couples), and it is fully eliminated if income exceeds $175,000 or $250,000, respectively. If you’re planning to realize certain capital gains or begin a Roth conversion, those could push you above the income threshold, impacting your deductions significantly. A good strategy might be to spread your tax gain harvesting and Roth conversions over several years to avoid exceeding the income limit.
If all this sounds a bit complicated, you might find it worth your while to consult a professional. A financial advisor could assist in tailoring a strategy that optimizes your deductions.
Next, the changes in the state and local tax (SALT) deduction present both opportunities and challenges, particularly for residents of states with high local taxes. Starting in 2025, the deduction cap for these taxes will rise from $10,000 to $40,000. This cap is projected to increase by 1% annually until 2029, before reverting back to $10,000 in 2030.
Those benefiting the most, according to the Bipartisan Policy Center, will likely be households with annual incomes in the six figures, especially in high-tax states like New York, California, New Jersey, and Connecticut. Nevertheless, if your income exceeds $500,000, the SALT deduction phases out, leaving you potentially missing out on significant savings if you make a large investment profit or sell a rental property. It’s crucial not to overlook this time-sensitive deduction.
Even if you can’t take advantage of the SALT deduction, there are still tax-saving avenues related to commercial real estate. Property owners can deduct up to 20% of qualified rental income due to the Qualified Business Income (QBI) deduction. Additionally, the Section 1031 exchange can be utilized to defer capital gains taxes when reinvesting proceeds into similar properties.
However, diving into commercial real estate might feel a bit overwhelming. Some platforms help accredited investors navigate this market without the hassle of managing properties themselves.
For instance, investing as little as $50,000 could grant access to high-quality grocery-anchored commercial real estate investments. This approach allows you to dodge the burdens of deal-hunting and management.
Tenants in these properties are often big names like Whole Foods and Kroger. A triple net lease structure also means tenants cover base rent along with property taxes, insurance, and maintenance, making it a more straightforward investment route without worrying about tenants affecting your returns.
Furthermore, with a history of positive net cash flow distributions since 2015, these investments have reportedly disbursed around $140 million to date.
When it comes to charitable contributions, OBBBA has put a new floor in place. Starting January 1, 2026, only contributions surpassing 0.5% of your adjusted gross income will be deductible. This means that if your income is $150,000, you’d need to donate over $750 to claim a deduction. Essentially, the more you earn, the higher your minimum donation requirement becomes.
Ignoring this new threshold could be a costly oversight for those who donate frequently.
Given the broad changes in OBBBA, there might be as many pitfalls as opportunities. With months left until tax season, it could be beneficial to start mapping out how to adjust your income and spending strategies accordingly.
