Client Memo: OBBB | What are the Key Highlights for Investors

The "One Big Beautiful Bill Act," signed into law on July 4, 2025, is a sweeping, nearly 900-page budget reconciliation and tax package. It extends major tax cuts, restructures elements of federal spending, overhauls regulations, and introduces new incentives—making it one of the most consequential legislative acts for both individual and institutional investors in recent years. 

• Individual income tax rates made permanent: The cornerstone of the OBBBA is the individual tax rate reductions enacted as part of the 2017 Tax Cut and Jobs Act (TCJA) that were extended and made permanent. They were previously set to expire after 2025. The top marginal income tax rate for high earners remains at 37%. 

• Standard deductions increased: Nearly all the TCJA rules related to itemized deduction limitations were retained, as well as the increased standard deduction for those who do not itemize. The standard deduction will be $15,750 (up from $15,000) for individuals and $31,500 for couples in 2025. The charitable deduction will be revived for those who don’t itemize, with a limit of $1,000 ($2,000 for joint filers). 

• Child tax credit increase made permanent: The current $2,000 child tax credit is increased to $2,200 permanently (as of 2025), subject to income thresholds. 

• Estate and gift tax exclusion made permanent: The bill would permanently extend the increased estate and gift tax exclusion amounts to an inflation-adjusted $15 million effective for tax years beginning after December 31, 2025. 

• State and local tax deduction (SALT) cap raised: The bill raises the SALT cap to $40,000 in 2025 (current tax year) and then provides for 1% increases for a five-year period (before returning to $10,000 in 2030), with an income phaseout beginning at $500,000. 

• No tax on tips and overtime: The bill delivers on this key Trump campaign pledge, introducing deductions for up to $25,000 in qualified tips and $12,500 in overtime pay (or $25,000 for joint filers), available through 2028. Tips and overtime deductions phase out at $150,000 ($300,000 for joint filers). 

• Coverage of 529 plans expanded: Tax-exempt distributions from 529 plans can now be applied not only to post-secondary education but also to elementary and secondary school expenses — including tuition, study materials and credentialing exam fees. Additionally, the law makes the 529-to-ABLE conversion permanent, allowing tax-free transfers to ABLE accounts for beneficiaries with disabilities. 

• Trump Accounts: A new savings account for children, designed as a “starter” IRA, will be established and include a requirement that annual fees and expenses may not exceed 10 basis points with investment limited to tracking a broad-based index of U.S. equities. At age 18, an account holder can access the funds subject to the same rules that apply to traditional IRAs and transfer the account to another qualified plan. Employers would also be allowed to contribute to the accounts. A federal pilot program would provide a one-time contribution of $1,000 per child for each U.S. citizen born after 2024 and before 2029. 

• Senior deduction: The legislation introduces a $6,000 deduction for seniors aged 65 and older, with a phaseout beginning at $75,000 modified adjusted gross income for individuals ($150,000 for joint filers). 

One of the most talked about item in the legislation is the “elimination of taxation on Social Security.”  However, more accurately stated, it is the introduction of this new $6,000 Senior deduction that can be used as an offset (for those who are within the income limits) towards the taxes that would be due on Social Security (or any other income).  The full $6,000 deduction is available starting in 2025 for single filers who earn less than $75,000 in combined income, and $150,000 for joint filers through 2028. 

The deduction will start to decrease for those whose incomes are above those thresholds and will be completely eliminated when combined incomes reach $175,000 for individuals and $250,000 for married couples. 

This is on top of the existing deductions already in place, which fluctuate based on marital status and income.  The deduction will be available to taxpayers who take the standard deduction as well as those who itemize their returns. 

Before the passage of the bill, 64% of seniors who receive Social Security benefits did not pay income tax on those benefits thanks to exemptions and deductions. The president’s Council of Economic Advisers estimates that number will be increased to 88% under this new legislation and with the addition of this $6,000 Senior deduction. 

Those are the key factors for most retirees and non-business owners.  Below are some other characteristics of the bill that will be key to business owners. 

• Qualified Business Income Deduction (QBI): The QBI deduction for pass-through entities increases from 20% to 23%, improving effective after-tax returns for business owners and LLC investors. The phase-out for high earners is softened, making the benefit available to a wider range of taxpayers for a longer period.  

• 100% Bonus Depreciation Restored and Extended: Immediate expensing for investments in qualified property is made permanent for assets put in service starting January 20, 2025, through the end of 2029—reverting to zero thereafter. This can significantly boost after-tax investment returns and incentivizes rapid property and equipment upgrades. 

• Section 179 Expensing: The amount for full expensing under Section 179 increases, benefiting small and mid-sized businesses investing in equipment. 

Broadly, the bill builds ‘certainty,’ something that we haven’t seen much of lately, in the tax code.  It also is a big boost to business and is expected to cultivate investment activity, especially in research and development and capital expenditures. 

The bill favors investors, especially those in real estate, private equity, and pass-through businesses, with its mix of tax relief, permanent expensing, and estate tax leniency. While tax breaks are locked in, the bill's long-term fiscal effects may shape monetary policy, interest rates, and investment risk premiums in future years. 

The fiscal effects are what we are seeing a lot of focus on in the markets.  In all honesty, the fiscal effects are roughly $350B per year added to the deficits – nothing to sneeze at.  But that estimate from the CBO assume no real GDP acceleration from the capital expenditures spike we are likely to see. 

As always, if you have any questions, please do not hesitate to contact one of us.   

Sincerely,   

Mark J Asaro, CFA