The One Big Beautiful Bill Breakdown: Individual Tax Rates and Tax Deductions

The One Big Beautiful Bill (OBBB) has locked in lower tax rates and added new deductions, giving taxpayers more certainty for planning through 2029.

The Previous Tax Law

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced new tax rates for individual taxpayers: 10%, 12%, 22%, 24%, 32%, 35% and 37%. These were set to revert to pre-TCJA rates of 10%, 15%, 25%, 28%, 33%, 35% and 39.6% on January 1, 2026.

TCJA also introduced many changes to individual taxpayer deductions including:

• The mortgage interest deduction was limited to interest on debt with a principal up to $750,000, down from $1,000,000. The adjusted gross income (AGI) limit on cash charitable contributions was increased from 50% to 60% AGI.
• The standard deduction was significantly increased.
• Investment expenses were made non-deductible.

The Child Tax Credit was also doubled from $1,000 to $2,000. All of these provisions were set to expire and revert to pre-TCJA rules.

New and Final Law Under the One Big Beautiful Bill

The OBBB permanently extends the reduced individual tax rates created by the TCJA. The bill also provides for inflation adjustments for the 10%, 12%, and 22% brackets.

The OBBB permanently extends the TCJA’s changes to the mortgage interest deduction, AGI limit for charitable contributions, non-deductibility of investment expenses and the increased standard deduction. The Child Tax Credit is permanently increased to $2,200.

The OBBB also introduces new temporary deductions for individual taxpayers.

• Seniors receive an enhanced $6,000 deduction subject to phaseout when AGI exceeds $150,000 for joint filers and $75,000 for single filers.
• Taxpayers may deduct up to $10,000 of auto loan interest, provided final assembly of the vehicle occurred in the United States (phaseout begins at $200,000 for joint filers and $100,000 for single filers).
• Taxpayers who do not itemize can claim a deduction for charitable contributions of up to $2,000 for joint filers and $1,000 for single filers.
• A new deduction for tip income is available up to $25,000, subject to phaseout starting at $300,000 AGI for joint filers and $150,000 AGI for single filers.
• Taxpayers may also now deduct up to $25,000 of overtime compensation, subject to phaseout starting at $300,000 AGI for joint filers and $150,000 AGI for single filers.

These temporary deductions apply to taxpayers regardless of whether they itemize their deductions or not.

In addition to new deductions, there are also some new limits in place. Charitable contributions for taxpayers who itemize their deductions are limited by a floor of 0.5% of the taxpayer’s AGI. In addition, an overall limit is imposed on itemized deductions for individuals in the 37% tax bracket.

What It Means for You

Taxpayers have had to plan for the 2026 tax year without knowing which rates would be in effect, so the permanence of the tax rates is a welcome feature of the bill. Tax planning for 2026 and beyond should now be much more accurate and efficient with the assurance of lower rates.

Taxpayers will need to carefully review the details of the new deductions to determine their applicability. Factors that should be considered include timing of the deductions (many are set to expire January 1, 2029), whether they can be claimed by both itemizers and non-itemizers, and AGI threshold limitations.

To learn more about how the One Big Beautiful Bill and these specific provisions may impact you, contact your Warren Averett advisor.