On July 4th, President Trump signed into law the “One Big Beautiful Big” (OBBB). Many changes were made, and we’ve had clients ask what they should be paying attention to, so we wanted to point out some of the highlights.
Changes to Taxes on Social Security Benefit
Last week, a letter was sent by the Social Security Administration (SSA) that many thought was a scam (read the full notice here). The letter claimed that changes made by the “One Big Beautiful Bill” (OBBB) would “eliminate federal income taxes on Social Security benefits for most beneficiaries.”
While the OBBB does impact many Social Security recipients, this claim is not entirely accurate. As is often the case, the truth is more nuanced… and less punchy.
The OBBB does not directly change taxation on Social Security benefits. Instead, it allows individuals 65 and older to claim an additional $6,000 deduction on their tax return if their income is $75,000 or less. For married couples filing jointly, that deduction doubles to $12,000 and $150,000, respectively.
While this will help many older Americans reduce their overall tax burden – and, in some cases, avoid taxes on Social Security benefits – it does not “eliminate” taxes on those benefits altogether.
Worth noting:
- This additional bonus will expire after 2028 unless extended.
- You do not have to be claiming Social Security in order to qualify for this additional deduction.
- The deduction phases out starting at $75,000 for individuals and ends at $175,000. For couples, it begins phasing out at $150,000 and ends at $250,000.
- While this letter was indeed sent by the Social Security Administration, it’s as important as ever to remain cautious, as scammers often pose as the SSA and other legitimate institutions. Avoid clicking on any links or sharing personal information until you’ve verified the communication through official channels, such as by calling their customer service line at (800) 722-1213.
State and Local Tax (SALT) Deduction Increase
Especially for those of us in high-tax states like California, the increased State and Local Tax (SALT) deduction cap may have a significant impact. Depending on your situation, you could save thousands of dollars in federal taxes annually.
The SALT deduction, which has been a part of the tax code for over a century, allows taxpayers to deduct certain state and local taxes from their federal taxable income. Under the Tax Cuts and Jobs Act of 2017, the SALT deduction was capped at $10,000. The OBBB raises that cap to $40,000.
Worth noting:
- The cap will increase by 1% annually.
- The cap applies only to households with modified adjusted gross income (MAGI) of $500,000 or less. This income threshold will also increase by 1% annually.
- Unless further legislation is passed, the cap will revert after 2029.
Estate Tax Exemption
In a win for wealthy Americans, the OBBB has increased the estate tax exclusion. This change provides relief for those with large estates, allowing more wealth to transfer to heirs without incurring estate taxes.
While the estate tax exclusion was set to revert to $7 million per individual ($14 million per married couple) in 2026, because of the OBBB, it has been increased to $15 million per individual ($30 million per married couple).
Unlike other changes mentioned, the increase in the estate tax exemption is permanent and will increase with inflation annually, barring changes by future legislators.
Other changes to be aware of:
- The tax rates established under the 2017 Tax Cuts and Jobs Act, which were set to expire (“sunset”) after 2025, have been made permanent, barring changes by future legislators.
- For business owners, the final version of the OBBB retained the pass-through entity tax (PTET) workaround.
- Up to $10,000 in interest on auto loans for cars assembled in the United States may be deducted from federal taxes through 2028.
- The standard deduction was raised to $15,750 for individuals and $31,500 for married couples. These deductions will increase with inflation annually permanently.
- Starting on January 1, 2026, parents may open “Trump accounts” for children under 8 years old. Trump accounts opened for newborns born from January 1, 2026 to December 31, 2028 will be granted a $1,000 deposit by the government.
- Many clean energy tax incentives have been revoked or severely restricted. If you are considering buying an electric vehicle or making clean energy upgrades to your home, act soon.
The Bottom Line:
The OBBB brings tax relief for many, but most changes won’t last beyond the decade and come with various exceptions and eligibility requirements. A lot of what’s been shared about the OBBB has been overly simplified or politicized, but the truth lies in the fine print.
If you have questions about how this bill may affect you personally, please feel free to reach out. While we are not tax professionals or lawmakers, we’re here to help you make informed decisions to get the most out of your financial plan.
References:
SSA.gov
Kiplinger
WA Post
Forbes
MFS
SmartAsset
This commentary reflects the personal opinions, viewpoints and analyses of the Bourke Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by Bourke Wealth Management or performance returns of any Bourke Wealth Management client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Bourke Wealth Management manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
