How the 2025 tax bill affects your taxes

This newsletter comes from the tropical Grand Cayman islands in the Caribbean. I’m sitting next the the beach, with its white sands, and turquoise waters. It’s 90 degrees with 90% humidity, and I’m slathered with SPF 50!

But there have been some major updates in the tax code that can’t wait, so I wanted to provide a simplified version of how the 900 page bill impacts you.

The One Big Beautfiul Bill Act (OBBA), signed on July 4, 2025, is officially named the Omnibus Budget Reconciliation Act of 2025, and it contains sweeping changes that will impact your taxes, investments, healthcare, and estate plans.

The primary goals of this act were to make many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent while also introducing a new set of economic priorities. Understanding these shifts now is crucial for proactive financial planning.

The following are the most critical changes to note:

1. Permanent Changes to Individual Taxes

A major function of this bill was to prevent the widespread tax increases that would have occurred if key parts of the TCJA had expired. The following are now permanent law:

• Individual Tax Rates: The lower individual income tax rates from the TCJA are here to stay, providing long-term certainty for income and retirement planning. The top rate remains at 37% instead of reverting back to 39.6%.
• Higher Standard Deduction: The larger standard deduction is now permanent. For 2025, it is set at $31,500 for married couples filing jointly and $15,750 for single filers, adjusted for inflation annually.
• The 20% QBI Deduction: The crucial 20% deduction on Qualified Business Income (Section 199A) for pass-through businesses (S-corps, partnerships, sole proprietorships) has been made permanent, a significant victory for entrepreneurs. This includes REIT dividends, as well as interest income from certain types of Real Estate Loans (including the fund we own in client portfolios).
• Estate Tax Exemption: The act permanently sets the estate and gift tax exemption at a $15m and $30m for married couples, effectively eliminating federal estate tax concerns for most families. Without this change, it was set to revert back to the lower level of approximately $4m and $8m.

2. New (and Temporary) Tax Breaks for Individuals

The Act introduces several new, targeted tax deductions. It is critical to note that most of these are temporary and are set to expire after 2028.

• No Tax on Tips & Overtime: For tax years 2025 through 2028, deductions are available for qualified tip income (up to $25,000) and for the premium portion of overtime pay (up to $12,500 for single filers, $25,000 for joint filers). Both deductions are subject to income phase-outs.
• Additional Deduction for Seniors: Individuals aged 65 and older receive a new temporary bonus deduction of $6,000, which also phases out at higher income levels.
• Auto Loan Interest Deduction: A temporary deduction is available for interest paid on loans for new passenger vehicles where final assembly occurred in the United States. This is limited to $10,000 per year and is subject to income limitations.

3. Major Changes to Healthcare and the SALT Deduction

• SALT Cap Relief: In a significant but temporary change, the State and Local Tax (SALT) deduction cap is increased from $10,000 to $40,000 for taxpayers with income below $500,000. This higher cap is effective for tax years 2025 through 2029, after which it reverts to $10,000. This creates a critical multi-year window for strategic tax planning for those in high-tax states.
• This deduction phases out for a married-filing-jointly (MFJ) with income between $500k and $600k, beyond which it drops down to $10,000. For each dollar of income over $501k, you lose 30 cents of the deduction. This creates a weird situation,  where $1 of income increases taxable income by $1.30. This pushes the marginal tax rate to 45.5% between $501k and $600k for anyone who itemizes, either due to high property or state taxes, a high interest mortgage, or large charitable contributions. If you have interest income that falls in this income range, you will also owe 3.8% NIIT, pushing your marginal tax bracket to 49.3%. For these high income earners, critical tax planning can have an outsized impact on lowering taxes.
• Healthcare & Medicaid: The law enacts significant long-term spending cuts to Medicaid and reduces Affordable Care Act (ACA) subsidies. It also introduces work requirements for certain Medicaid recipients and makes changes to eligibility for some immigrant populations. These changes could increase out-of-pocket healthcare costs for many, negatively impacting your financial planning goals.

4. Business and Energy Tax Overhaul

• Bonus Depreciation Restored: For business owners, the act permanently restores 100% bonus depreciation for qualified property, a powerful incentive to invest in new equipment and other assets. This will allow for outsized deductions for small business owners as well.
• Repeal of Green Energy Credits: The law repeals several popular Inflation Reduction Act (IRA) tax credits aimed at individuals, including those for new and used electric vehicles (EVs) and residential clean energy projects. The financial calculations for making these purchases have now fundamentally changed. If you were planning on adding solar panels to your roof or buying an EV, your window to make the purchase and get a tax credit is very small!

Your Path Forward: Navigating the New Landscape

This new legislation creates a complex environment of permanent tax certainty, temporary opportunities, and significant policy shifts. The temporary nature of the new deductions and the expanded SALT cap creates a critical window where proactive planning can yield substantial benefits.

I advise all high-income clients to schedule a dedicated strategy session with me to:

• Analyze how these permanent and temporary changes impact your specific financial picture.
• Develop a multi-year strategy to take full advantage of the temporary SALT cap relief.
• Review your business and estate plans in light of the new rules.

Please use this link to schedule a time for us to connect.