Overview
The One, Big, Beautiful Bill (OBBB) brings sweeping changes for individual taxpayers for tax years starting in 2025 & 2026. Two of the most impactful: the State and Local Tax (SALT) deduction cap has skyrocketed, and Child Tax Credit (CTC) rules have been updated.
SALT Deduction Changes
- New cap: Taxpayers who itemize can now claim up to $40,000 in SALT deductions in 2025 (and about $40,400 in 2026) for married couples filing jointly. A separate cap of ~$20,200 applies to married filing separately. (irs.gov)
- Phaseout rule: For those with modified adjusted gross income (MAGI) over $500,000, the SALT deduction begins to phase down. Full limit applies for MAGI ≤ $500,000, tapering off beyond that. (irs.gov)
Child Tax Credit Adjustments
- New maximum: Each qualifying child under 17 now qualifies for a $2,200 credit, with income phase-outs for joint filers starting at $400,000,$200,000 for single filers. (irs.gov)
- Refundable portion: Up to $1,400 may be refundable under the additional child tax credit. To qualify for any refundable portion, taxpayers must have at least $3,000 in earned income. (irs.gov)
Practical Planning Tips
- Itemizers should re-evaluate whether to itemize: With the higher SALT cap, it may now make financial sense to itemize deductions even in states with high property or income taxes.
- Be aware of AGI thresholds: Once your MAGI crosses $500,000, every dollar over reduces the SALT deduction by 30¢ per dollar (or equivalent adjustment). Use tax projection tools in 2025 and 2026 to estimate impacts.
- Strategic timing of child-related expenses: Since the refundable portion and phase-out thresholds depend on income and earned income, timing additional income or additional eligible expenses (childcare, dependents) may help stay under thresholds.
Example
Suppose married couple, filing jointly, with MAGI $480,000 in 2025, paying $50,000 in combined state income and property taxes. Under old $10,000 cap, they could deduct only $10,000. Under OBBB, they can deduct full $40,000 cap—an extra $30,000 deduction. If MAGI climbs to $520,000, SALT deduction would begin being reduced (phaseout).
Actionable Steps Now
- Gather state and local tax receipts for 2025 & estimate 2026.
- Project your MAGI for 2025 & 2026 before itemizing.
- If you expect to exceed thresholds, explore income shifting or deferral (bonuses, self-employment income).
- Chart child credits against expected income to understand non-refundable vs refundable benefits.
With these changes in place, early and informed tax planning can unlock meaningful savings. Don’t wait until tax season—start now.