The views expressed are those of Anchor Capital Advisors, LLC (“Anchor”) and are subject to change at any time. They are based on our proprietary research and general knowledge of said topic. The below content and applicable data are in support of our views on said topic. Please see additional disclosures at the end of this publication.
INTRODUCTION
The House and Senate passed comprehensive tax and spending legislation, dubbed the “One Big Beautiful Bill” (OBBB), after much debate and negotiation, and President Trump signed it into law on July 4, 2025. The law does many things, but the focus of this piece is on the provisions relating to the personal income tax and the estate and gift tax.
In many instances, the law provides much needed certainty, such as permanent tax rates and tax brackets (albeit adjusted for inflation each year). However, there are still several deductions in the bill that are set to last only a few years.
INDIVIDUAL TAX RATES AND BRACKETS MADE PERMANET [1]
One of the major changes under the TCJA was to lower tax rates and widen tax brackets to largely cut taxes on all individuals. The new law makes current tax rates permanent and provides an extra year of inflation increases for the 10 percent and 12 percent brackets for tax years beginning in 2026. Here is a summary of the permanent tax rates under the law compared to rates is the TCJA provisions expired as scheduled:
STANDARD DEDUCTION [2] AND PERSONAL EXEMPTIONS [3]
The OBBB also made permanent the increased standard deduction with annual inflation adjustments, starting this year. The updated standard deduction for is $31,500 for joint filers, $23,625, for heads of household, and $15,750 for all other filers. The law continues to provide an increased standard deduction for taxpayers who are over age 65 or blind ($1,600 per person if married, or $2,000 per person if single or head of household).
The personal exemption is permanently abolished for most taxpayers. The one exception, however, is a new $6,000 personal exemption for taxpayers age 65 and over, which starts this year and goes through 2028. The exemption begins to phase out when your income reaches $75,000 ($150,000 for joint filers).
ITEMIZED DEDUCTIONS
Increased SALT Deduction [4]
The law temporarily raises the deduction allowable for state and local taxes (“SALT”) paid from $10,000 ($5,000 for married taxpayers filing separately (“MFS”)) to $40,000 ($20,000 if MFS) from 2025 through 2029. After 2029, the cap reverts to the $10,000/$5,000 level.
During the temporary increase, the $40,000/$20,000 cap is gradually reduced for taxpayers once their gross income exceeds $500,000 ($250,000 for MFS). The cap is reduced by 30% of the amount their AGI exceeds the threshold until reduced to $10,000 ($5,000 if MFS). Both the cap and income thresholds increase by 1% per year for 10 years.
Mortgage interest deduction limitation made permanent [5]
Taxpayers may only deduct interest on mortgage or home equity debt of up to $750,000. The cap was lowered from $1M under the TCJA and is now made permanent.
Phaseouts for Taxpayers in the 37% Tax Bracket
The bill introduces a limitation on itemized deductions for taxpayers in the highest (37%) marginal tax bracket.
The deductions are reduced by 2% of the lesser of:
• Total itemized deductions; and
• the amount of their taxable income that is taxed at the 37% bracket.
Essentially, the value of a deduction is capped at 35%.
INCREASED CHILD TAX CREDIT [6]
The child tax credit increased from $2,000 to $2,200 for each qualified child starting in 2025, with annual inflation adjustments for 2026 and beyond. The refundable portion is increased to $1,700 and will be indexed for inflation each year.
INCREASED 199A QUALIFIED BUSINESS INCOME DEDUCTION [7]
The law extends and expands the qualified business income deduction (QBID), keeping the deduction at 20% and maintaining the limits and phase outs based on income, wages paid by the business, and whether a business is a “specified service trade or business.” The “phase out” range was also expanded, which allows more taxpayers to claim the deduction.
CHARITABLE CONTRIBUTIONS
There are two significant changes to how taxpayers deduct charitable contributions beginning in 2026:
- For taxpayers claiming the standard deduction, you will be able to deduct up to $1,000 ($2,000 for joint filers) of contributions in addition to the standard deduction.[8]
- For taxpayers that itemize, contributions are deductible only if the total amount exceeds 0.5% of your gross income.[9]
TIPS [10]
Taxpayers in “qualified industries” will be able to deduct up to $25,000 of their tip in tax years 2025 through 2028. The deduction is available to both itemizers and those claiming the standard deduction and will phase out when your income exceeds $150,000 ($300,000 for joint filers). The deduction is only available for “tips received by an individual in an occupation which customarily and regularly received tips” before 2025, as determined by The Treasury Secretary.
OVERTIME [11]
For tax years 2025 through 2028, taxpayers can deduct up to $12,500 of “qualified overtime pay” ($25,000 for joint filers), as defined by the statute. The deduction is available to both itemizers and those claiming the standard deduction and will phase out when your income exceeds $150,000 ($300,000 for joint filers).
CAR LOAN INTEREST [12]
For 2025 through 2028, Taxpayers who borrow money to purchase a qualifying car may be able to deduct up to $10,000 in car loan interest per year. The deduction is available to both itemizers and those claiming the standard deduction. Mainly, the car must be a passenger vehicle with final assembly in the United States, but other requirements must also be met.
ESTATE AND GIFT TAX PROVISIONS [13]
The estate and gift tax exemption is set at $15,000,000 per person (with portability, the exemption for married couples is $30,000,000) beginning in 2026. And adjusted for inflation thereafter. This change is permanent unless repealed or amended by an act of Congress.
[1] H.R. 1, 119th Cong. §70101 (2025)
[2] H.R. 1, 119th Cong §70102 (2025)
[3] H.R. 1, 119th Cong §70103 (2025)
[4] H.R. 1, 119th Cong §70120 (2025)
[5] H.R. 1, 119th Cong §70108 (2025)
[6] H.R. 1, 119th Cong §70104 (2025)
[7] H.R. 1, 119th Cong §70105 (2025)
[8] H.R. 1, 119th Cong §70424 (2025)
[9] H.R. 1, 119th Cong §70425 (2025)
[10] H.R. 1, 119th Cong §70201 (2025)
[11] H.R. 1, 119th Cong §70202 (2025)
[12] H.R. 1, 119th Cong §70203 (2025)
[13] H.R. 1, 119th Cong §70106 (2025)
The views expressed are those of Anchor Capital Advisors, LLC (”Anchor”) as of May 2025 and are subject to change at any time. Anchor does not undertake any obligation to update the information contained herein as of any future date, nor does it have liability for decisions based on this information. Certain information (including any forward looking statements and economic and market information) has been obtained from sources we deem reliable, but is not guaranteed by Anchor, nor is it a complete summary of available data. This publication has been prepared by Anchor Capital Advisors, LLC (Anchor). The information is for educational purposes only and should not be considered investment advice or a recommendation of any particular strategy or investment product. These opinions are not intended to be a forecast of future events or a guarantee of future results. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Anchor. Past performance is not guarantee of future results. Inherent in any investment is the possibility of loss.