The One Big Beautiful Bill Act (OBBBA) became law on July 4. Last week, we shared an overview of the provisions most likely to affect our clients.
Today, we’ll review two areas of the law that suggest renewed planning opportunities in the years ahead: (1) deduction phase-outs and (2) charitable giving. For both, the new rules add a layer of complexity that makes proactive, personalized tax planning more valuable.
Your Marginal Tax Rate Matters More Than Your Tax Bracket
In tax planning, we focus on marginal tax rates – the rate you’ll pay on the next dollars of income. We then evaluate the impact of increasing or decreasing taxable income. Because of the tax code structure, there can be ancillary tax effects that aren’t obvious when looking at brackets alone.
Two impactful provisions of OBBBA – an increase in the State and Local Tax (SALT) deduction limit and the new Enhanced Senior Deduction – have phaseout thresholds that can create unexpectedly high marginal tax rates.
State and Local Tax (SALT) Deduction Limit Increased Temporarily: OBBBA raises the SALT deduction limit from $10,000 to $40,000 from 2025 through 2029. However, the expanded limit phases out for taxpayers with modified adjusted gross income (MAGI) between $500,000 and $600,000.
Example: A married couple with $500,000 of MAGI, mortgage interest of $24,000 and $45,000 of state and local taxes to itemize would benefit from the full, higher SALT limit of $40,000. But if their income rises into the $500-600k MAGI phaseout range, their SALT deduction would shrink. On top of the 32% federal tax rate on ordinary income, the SALT phaseout adds an effective 9.6% “tax”, bringing the total marginal rate to 41.6%, not including state taxes.
New Deduction for Seniors: For 2025-2028, taxpayers age 65+ are eligible for an additional $6,000 deduction. However, income limits apply – the deduction phases out for incomes above $75,000 (single) or $150,000 (married filing jointly), and is fully gone with income above $175,000 and $250,000, respectively.
Example: A 75-year-old single taxpayer with $50,000 of IRA distributions and $25,000 of taxable Social Security benefits qualifies for the full deduction. However, any additional income created would reduce this benefit. The result: a marginal tax rate of 23.3%, despite being in the 22% tax bracket.
Takeaway:
There are effective tools to adjust taxable income — such as Roth conversions and capital gain acceleration to increase it, or charitable giving and larger retirement plan contributions to reduce it. Post-OBBBA, the math behind when and how to use these strategies has shifted. Their value now depends on where your projected income falls relative to key phaseout thresholds, like those for the SALT deduction and the new senior deduction.
Just as important is looking ahead: understanding how your taxable income may change in future years can help determine whether it makes sense to increase or decrease income in the current year.
Charitable Planning for Non-Itemizers
The Tax Cut and Jobs Act (TCJA) nearly doubled the standard deduction. As a result, many taxpayers stopped itemizing deductions, and in turn lost the tax benefits from charitable gifts.
Starting in 2026, OBBBA introduces a new charitable deduction for taxpayers who take the standard deduction – up to $1,000 for single filers and $2,000 for joint filers. Contributions must be made in cash; non-cash donations like household goods or securities won’t qualify.
Takeaway:
If you’ve stopped tracking charitable gifts in recent years, 2026 is a reason to start again. You might also consider postponing planned cash donations until 2026, when this new deduction becomes available.
Charitable Planning for Itemizers
Beginning in 2026, itemizers can only deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For those in the highest 37% bracket, the value of itemized deductions will be further limited.
Takeaway:
Bunching gifts into a single year may be beneficial. For example, a married couple with $500,000 in AGI who donates $5,000 annually would only be able to deduct $2,500 each year due to the new AGI floor. However, by contributing $10,000 upfront to a Donor Advised Fund and distributing the gifts over two years, they could claim an additional $2,500 in deductions.
Since the new AGI floor does not take effect until 2026, accelerating charitable gifts into 2025 is another potential strategy.
Thoughtful Strategy Matters
The most important takeaway from OBBBA? There is no one-size-fits-all answer. Its impact depends on your personal circumstances. – including income, age, charitable goals, and more. Planning around income recognition, charitable giving, and deduction timing is more valuable than ever.
If you’d like to discuss how OBBBA may affect your tax situation or financial plan, reach out to your advisor.
