5 Things Retirees Should Know about “the Big Beautiful Bill”

The One Big Beautiful Bill Act (OBBBA) was signed into law with much fanfare by the president on July 4^th.   In addition to preserving the lower tax rates and higher standard deduc­tions estab­lished by the 2017 Tax Cuts and Jobs Act – which were set to expire this year — , the new law intro­duces several provi­sions that could have a signif­icant impact on your retirement and overall financial planning.  Retirees can benefit from enhanced deduc­tions, increased exemp­tions, and new chari­table giving opportunities—but they may also face phase-outs and expiring incen­tives. Here are five important updates to know and how they may impact your long-term retirement strategy.

1. Bigger Deductions for Seniors Could Lower Retirement Tax Burden

Seniors over the age of 65 will receive an extra $6,000 deduction from taxable income.  This deduction is available on top of the standard deduction (or itemized deduc­tions, if applicable) and begins to phase out at an adjusted gross income (AGI) of $75,000 for single filers and  $150,000 for joint filers.  Nearly all taxpayers over the age of 65 will see immediate tax savings from this change in 2025, though the provision is currently set to expire in 2028.  You can read more about this poten­tially impactful provision in our blog post The Enhanced Senior Deduction: A Big, Beautiful Deduction for Retirees.

2. SALT Deduction Cap Raised from $10,000 to $40,000

One of the key provi­sions from the 2017 tax law was the capping of federal deduc­tions for state and local taxes (SALT).  This cap has  been increased from $10,000 to $40,000, but it phases out for house­holds with an AGI over $500,000..  This could provide signif­icant savings for higher income taxpayers, partic­u­larly those living  high tax states or with substantial property taxes.  This provision goes into effect for 2025 and is scheduled to expire in 2029.

3. Charitable Donations Now Deductible Again (Up to $2,000)

One downside of the 2017 tax law l was that many taxpayers could no longer deduct chari­table donations because they were no longer itemized on schedule A due to the higher standard deduction..  Starting in 2026, taxpayers will be able to deduct up to $1,000 (Single filers) or $2,000 (Married Filing Jointly) in chari­table donations in addition to the standard deduction.  This provision is set to expire at the end of 2028. 

4. Green Energy Tax Credits Ending Early

The 2022 Inflation Reduction Act provided tax credits for the purchase of electric vehicles and for climate-friendly upgrades made to your home.  These were initially set to expire in 2032, but the new tax law ends all of these credits in 2025.  The electric vehicle credit expires on September 30^th of this year, and both the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit end on December 31^st.   If you were planning on purchasing an electric vehicle or making some climate-friendly improve­ments to your home, now is the time to act. 

5. Estate Tax Exemption Increased to $15M

The federal estate tax exemption will increase from $13.99 million to $15 million per person starting in 2025.  This higher exemption amount will also be indexed for inflation going forward.  Single taxpayers can now pass on up to  $15 million estate tax-free during their lifetime or at death, while married couples can shield up to  $30 million. Unlike many of the other provi­sions, this change is permanent, offering long-term certainty for estate and retirement planning. 

Tax law changes are a great oppor­tunity to review your retirement planning strategy with your financial adviser and tax profes­sionals. Many of these updates may affect your plans for estimated tax payments, withholding, retirement income, Roth conver­sions, and chari­table giving. This new law offers greater clarity on future tax rates and intro­duces temporary provi­sions that may help reduce the tax burden for many retirees.