KNOWLEDGE|
(1) |
Sec. 70101. Extension and Enhancement of Reduced Rates.
OBBBA makes permanent the modified federal income tax bracket schedule and lower tax rates created by TCJA. The following is a comparison among different proposals:
|
||||||||||||||||||||||||||||||||||||||||
|
(2) |
Sec. 70102. Extension and Enhancement of Increased Standard Deduction. OBBBA makes permanent the increased standard deduction created by TCJA. The following is a comparison among different proposals:
|
||||||||||||||||||||||||||||||||||||||||
|
(3) |
Sec. 70103. Termination of Deduction for Personal Exemptions Other Than Temporary Senior Deduction. OBBBA permanently reduces the deduction for personal exemptions to zero and temporarily adds a deduction for seniors of $6,000 for each qualified individual. Therefore, if a married couple and they're both 65, then it's $6,000 for each of them, total of $12,000. They can still get the standard deduction $31,500 in 2025. So they can get a total of $43,500 of deductions on a joint return. (a) Applicable to both standard deduction and itemized deductions. (b) Taxpayer must have a Social Security Number (SSN). (c) Available for tax years 2025 through 2028 and will not index for inflation. (d) Phase-out: $75,000 for single/MFS; $150,000 for MFJ (e) The senior deduction is below the line of Adjusted Gross Income (AGI). |
||||||||||||||||||||||||||||||||||||||||
|
(4) |
Sec. 70104. Extension and Enhancement of Increased Child Tax Credit.
OBBBA permanently increases the nonrefundable child tax credit to $2,200 per child beginning in tax year 2025 and makes permanent the refundable child tax credit of $1,400, adjusted for inflation ($1,700 in 2025). The following is a comparison among different proposals:
(a) Taxpayer and qualifying child must have SSN. (b) $500 nonrefundable credit for other dependents is permanent. (c) Phase-out: $200,000 for single/MFS; $400,000 for MFJ |
||||||||||||||||||||||||||||||||||||||||
|
(5) |
Sec. 70105. Extension and Enhancement of Deduction for Qualified Business Income.
OBBBA permanently extends the 20% QBI deduction (Section 199A) and special deduction for specified agricultural and horticultural cooperatives and their patrons.
(a) New minimum deduction of $400 for taxpayers with at least $1,000 of active/materially participating QBI. (b) Phase-in: $75,000 for single/MFS; $150,000 for MFJ (c) Effective after December 31, 2025. (d) The deduction is below the line of AGI. |
||||||||||||||||||||||||||||||||||||||||
|
(6) |
Sec. 70106. Extension and Enhancement of Increased Estate and Gift Tax Exemption.
OBBBA permanently increases the exemption amount to $15 million ($30 million for married couples) for gifts made and decedents dying in 2026 and beyond. The following is a comparison among different proposals:
(a) The exemption is indexed for inflation.
(b) Effective after December 31, 2025. |
||||||||||||||||||||||||||||||||||||||||
|
(7) |
Sec. 70107. Extension of Increased AMT Exemption Amounts and Modification of Phaseout Thresholds.
OBBBA makes permanent the increased individual Alternative Minimum Tax (AMT) exemption amounts and sets the 2026 the exemption phaseout thresholds at 2018 levels. Therefore, fewer people paid the alternative minimum tax.
(a) The exemption is indexed for inflation. (b) Effective after December 31, 2025. |
||||||||||||||||||||||||||||||||||||||||
|
(8) |
Sec. 70108. Extension and Modification of Limitation on Deduction for Qualified Residence Interest.
OBBBA permanently lowers the deduction for qualified residence interest or mortgage interest to apply to interest on the first $750,000 in acquisition indebtedness ($375,000 for MFS) and permanently excludes the interest on home equity indebtedness from the qualified residence interest.
Note that part of our qualified residents’ interest is the mortgage insurance premiums.
(a) Add provision of allowing certain mortgage insurance premiums paid or accrued on acquisition indebtedness as deduction which expired after 2021. (b) Effective after December 31, 2025. |
||||||||||||||||||||||||||||||||||||||||
|
(9) |
Sec. 70109. Extension and Modification of Limitation on Casualty Loss Deduction.
OBBBA permanently limits the itemized deduction for personal casualty losses resulting from federally declared disasters and certain state-declared disasters.
If any personal casualty gains exist, like gains from insurance, taxpayer can net losses up to the amount of the gains. (a) Applies to any natural disaster, fire, flood, or explosion designated by the Governor of a State and the Treasury Department. (b) “State” includes the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands. |
||||||||||||||||||||||||||||||||||||||||
|
(10) |
Sec. 70110. Termination of Miscellaneous Itemized Deductions Other Than Educator Expenses. OBBBA permanently terminates the 2% miscellaneous itemized deductions. (a) Add eligible educators’ unreimbursed employee expenses as an itemized deduction. (b) An eligible educator is interscholastic sports administrator or coach in a school for at least 900 hours during a school year. (c) Unreimbursed employee expenses are books, supplies, computer equipment, and supplementary materials used by eligible educators as part of instructional activity whether or not in the classroom. |
||||||||||||||||||||||||||||||||||||||||
|
(11) |
Sec. 70111. Limitation on Tax Benefit of Itemized Deductions
OBBBA permanently repeals the Pease limitation (the old rule that phased out itemized deductions based on income) and replaces it with a new overall limitation on the tax benefit of itemized deductions, applicable to individuals, estates, and trusts.
Before TCJA, we had pace limitation, which we had to reduce itemized deductions by 3%, the maximum lose was 80%. The TCJA got rid of it, while OBBBA brought it back with a new limitation.
(a) Itemized deductions are reduced by 2/37 of the lesser of the amount of itemized deductions or the amount of adjusted taxable income above the beginning of the 37% bracket. (b) Effective after December 31, 2025. |
||||||||||||||||||||||||||||||||||||||||
|
(12) |
Sec. 70112. Extension and Modification of Qualified Transportation Fringe Benefits.
OBBBA permanently eliminates the qualified bicycle commuting reimbursement exclusion. Therefore, if the employer pays you for bicycle commuting costs, that’s a taxable benefit to you.
|
||||||||||||||||||||||||||||||||||||||||
|
(13) |
Sec. 70113. Extension and Modification of Limitation on Deduction and Exclusion For Moving Expenses. OBBBA permanently repeals both the exclusion for qualified moving expenses reimbursement and the deduction for moving expenses.
Except for active-duty members of the Armed Forces and members of the Intelligence Community who move “pursuant to a military order and incident to a permanent change of statement”.
|
||||||||||||||||||||||||||||||||||||||||
|
(14) |
Sec. 70115. Extension and Enhancement of Increased Limitation on Contributions to ABLE Accounts. OBBBA permanently allows the additional contribution to ABLE accounts.
The core purpose of the ABLE account is to help individuals with disabilities and the families save for long-term expenses related to living, education, housing, transportation, and more—without affecting their eligibility for federal public benefits. It’s a type of retirement account.
If the disabled individual had compensation, they could contribute up to either that amount or the poverty line for a one-person household, the lesser of those two amounts.
|
||||||||||||||||||||||||||||||||||||||||
|
(15) |
Sec. 70116. Extension and Enhancement of Savers Credit Allowed for ABLE Contributions. OBBBA permanently allows designated beneficiaries who make qualified contributions to their ABLE account to qualify for the Saver’s Credit.
If you're a disabled individual who's working, you can make those contributions and be eligible for the Savers credit. The retirement savings credit form will include both IRA contributions and the ABLE account contributions.
(a) Eligible Saver’s Credit contributions are limited to ABLE account contributions made by the account’s beneficiary. (b) Effective after December 31, 2026. (c) Maximum credit increased from $2,000 to $2,100, effective for taxable years beginning after December 31, 2026. |
||||||||||||||||||||||||||||||||||||||||
|
(16) |
Sec. 70117. Extension of Rollovers from Qualified Tuition Programs to ABLE Accounts Permitted. OBBBA permanently allows tax-free rollovers of amounts in Section 529 qualified tuition programs to qualified ABLE programs.
This rule aimed to facilitate the transfer of education savings into funds for disability-related expenses, a direct rollover can be made to support a family member with a disability.
Rollover amount plus any other contributions to the ABLE account cannot exceed the annual contribution limit ($18,000 in 2025). |
||||||||||||||||||||||||||||||||||||||||
|
(17) |
70119. Extension and Modification of Exclusion from Gross Income of Student Loans Discharged on Account of Death or Disability.
OBBBA makes permanent the exclusion from a taxpayer’s income for any income resulting from the discharge of student debt on account of the death or total disability of the student.
(a) Add provisions that SSN is required for the taxpayer. (b) Effective after December 31, 2025. |
||||||||||||||||||||||||||||||||||||||||
|
(18) |
Sec. 70120. Limitation on Individual Deductions for Certain State and Local Taxes, Etc.
OBBBA increases the State and Local Tax (SALT) deduction cap in 2025 from $10,000 to $40,000 for both single and joint filers, and then increase 1% after that.
(a) The cap is phased down to $10,000 for filers with modified adjusted gross income between $500,000 and $600,000. (b) Available for tax years 2025 through 2029 and reverts back to $10,000 in 2030. |
|
(1) |
Sec. 70201. No Tax on Tips.
Deduction is allowed for qualified tips received by the taxpayer during the year reported on an information statement (e.g., Form W-2, Form 1099-NEC, Form-1099K).
(a) The tax deduction amount is up to $25,000 for qualified tips. (b) Qualified tips are cash tips which are regularly received tips on or before December 31, 2024. The cash tips include tips received from customers that are paid in cash or charged, and, in the case of an employee, tips received under any tip-sharing arrangement. (c) Applicable individual taxpayers include both employees receiving W-2, and independent contractors or self-employed individuals receiving a 1099-K, 1099-NEC, or Form 4137. (d) The taxpayer cannot work in a Specified Trade or Business (SSTB) under IRC Section 199A. (e) Deduction allowed for itemizers and non-itemizers. (f) Phase-out starting at modified AGI of $150,000 ($300,000 for MFJ). (g) New reporting requirements are the separate reporting of cash tips and the designation of the occupation for which the cash tips were received. (h) Effective for tax years 2025 through 2028. (i) The deduction is below the line of AGI. |
|
(2) |
Sec. 70202. No Tax on Overtime.
Deduction is allowed for qualified overtime compensation received and included on certain tax statements furnished to the individual (i.e. reported separately on W2).
(a) The tax deduction amount is up to $12,500 ($25,000 for MFJ) for qualified overtime. (b) Deduction is allowed for itemizers and non-itemizers. (c) Phase-out starting at modified AGI of $150,000 ($300,000 for MFJ). (d) Effective for tax years 2025 through 2028. (e) The deduction is below the line of AGI. |
|
(3) |
Sec. 70203. No Tax on Car Loan Interest.
Deduction is allowed for qualified passenger vehicle loan interest during a given taxable year. The car loan interest means any interest that is paid or accrued indebtedness incurred by the taxpayer, for the purchase of an applicable passenger vehicle for personal use, leasing a car does not qualify.
An applicable passenger vehicle means any vehicle (i) the original use must begin with the taxpayer; (ii) the final assembly of which occurs in the United States; (iii) which is manufactured primarily for use on public streets, roads and highways; (iv) which has at least two wheels; (v) which is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle; (vi) which is treated as a motor vehicle for purposes of title II of the Clean Air Act; (vii) which has a gross vehicle weight rating of less than 14,000 pounds.
(a) The tax deduction amount is up to $10,000. (b) The VIN for the purchased car is required. (c) Deduction is allowed for itemizers and non-itemizers. (d) Phase-out starting at modified AGI of $100,000 ($200,000 for MFJ). (e) Effective for tax years 2025 through 2028. (f) The deduction is below the line of AGI. |
|
(4) |
Sec. 70204. Trump Accounts and Contribution Pilot Program.
The Trump account is a new long-term saving account, like the individual retirement account (IRA) designed to encourage saving for young individuals, particularly those under 18. The goal appears to be fostering early savings habits by making retirement or long-term savings accessible to minors. It could be part of a broader effort to help children or young adults accumulate wealth and prepare for financial independence, especially as they age into adulthood. The Committee believes that helping children to begin saving and investing earlier in life will help promote financial literacy.
(a) Eligible individual means the account beneficiary has not reached age 18 before the close of tax year, and the beneficiary must have a SSN before the close of tax year. (b) Treated as a Traditional IRA under IRC Section 408(a). (c) Individuals, families, friends, and employers may contribute up to an aggregate amount of $5,000 annually to a Trump account in 2026, which is adjusted for inflation starting in 2028. The contribution limit applies until the beneficiary reach age 18. (d) The contribution is nondeductible until the beneficiary reaches age 18, then the contribution rules for traditional IRAs will apply. (e) Account beneficiaries may not take distributions until age 18, except for the purpose of rolling over one Trump account to another Trump account, addressing excess contributions made to the account, or rolling over into an ABLE account (if eligible). When the beneficiary attains age 18, the current law rules for IRA distribution will apply. (f) The funds of the account may be invested in mutual fund or exchange-traded fund which shall not have annual fees and expenses of more than 0.1% of the balance of the fund before the account beneficiary turns age 18.
To make it clear, we can make contributions to other retirement accounts at the same time. Though we couldn't contribute the maximum to a Roth and a traditional IRA in the same year, but we can contribute the maximum to a Trump account and to a Roth if we're eligible. If the child, say 16 and they're working, we can put money in the Roth, we can put money in the Trump account.
There are some other rules related to excess contributions. If we put too much money in, it's treated as an excess contribution, it’s going to be subject to that normal 6% tax rate. One thing that's unique about the Trump account is if we take that money out, we're automatically going to lose the earnings. Therefore, the earnings are going to be taxed at 100%. So basically whatever we earned on those excess contributions is just going to go to the government when we take it out.
There are three exempt contributions related to Trump accounts: (a) Qualified rollover contribution from one financial institution to another. (b) New qualified general contribution: all the states government and Indian tribal government, along with nonprofits are going to be eligible to make contributions to account beneficiaries. (c) The employer can contribute to the employee if they’re the beneficiary of the Trump account, or if the child of an employee who also has the Trump account, then employer can contribute to that dependent. The employer contribution limit is $2,500. The amount is not taxable to the employee but it does count towards $5,000 annual limit.
Contribution Pilot Program is the one-time contribution of $1,000 by Treasury deposited into Trump Account for children born between 2025 and 2028.
(b) Taxpayer makes an election with respect to an eligible child. (b) Eligible child must be a U.S. citizen at birth with a SSN. (c) The pilot program contribution does not count against $5,000 contribution limit. |
|
Disclaimer All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage. |
Language
close
