The recently passed tax legislation known as the One Big Beautiful Bill Act (OBBBA) brought changes to the standard deduction available on individual tax returns. We’ll look at who is impacted and by how much in this post.
Bigger standard deduction for all
OBBBA makes the standard deduction permanent and larger starting in 2025:
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- Married filing jointly: $31,500 (up from $30,000)
- Single filers: $15,750 (up from $15,000)
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This increase alone will make it harder for many taxpayers to benefit from itemizing deductions, shifting the landscape even more toward taking the standard deduction.
Senior bonus deduction
The most significant change is for taxpayers age 65 and up. OBBBA created a new senior bonus deduction of $6,000 per person.
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- It applies whether you itemize or take the standard deduction.
- It is temporary, however, available from 2025 through 2028 unless extended by Congress.
- It phases out at higher modified adjusted gross incomes (MAGI):
- Single filers: phaseout begins at $75,000 and ends at $175,000
- Married filing jointly: $150,000 to $250,000
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This bonus is in addition to the existing age 65+ extra standard deduction ($2,000 for single filers and $1,600 for each married spouse).
Standard deduction plus bonus deduction example
For a married couple who are both over age 65 and filing jointly in 2025 with income under $150,000:
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- Old law deduction (2024): $33,200
- New law deduction (2025 under OBBBA): $46,700
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That’s a $13,500 increase in deductions just for being over 65 and under the income threshold. Managing income to preserve this bonus deduction will be important.
What about itemized deductions?
While the higher standard deduction will cause fewer taxpayers to itemize, there are still a few important changes under OBBBA:
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- Deduction cap rises from $10,000 to $40,000 starting in 2025.
- This cap phases out for households above $500,000 MAGI and returns to $10,000 by $600,000 MAGI.
- Both thresholds and the cap are indexed for inflation through 2029.
- Unless extended, the SALT cap reverts to $10,000 in 2030.
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Beginning in 2026, charitable deductions will be allowed only to the extent they exceed 0.5% of AGI.
For example:
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- Household AGI = $150,000
- Charitable gifts = $15,000
- Floor = 0.5% × $150,000 = $750
- Deduction allowed = $15,000 – $750 = $14,250
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Under prior law, the full $15,000 would have been deductible.
Of note, even for non-itemizers, beginning in 2026, the IRS will allow you to deduct up to $1,000 (single filer) for charitable donations and up to $2,000 (for joint filers). Under the CARES Act, non-itemizers were allowed to deduct up to $300 for charitable gifts, but this allowance only applied to tax years 2020 and 2021.
Bottom line
After OBBBA, more taxpayers will opt for the standard deduction, especially those who are over age 65. Taxpayers who have large state and local taxes, high mortgage interest, and large charitable gifts will likely still itemize, assuming these total more than the standard deduction, which as we pointed out, increased significantly for taxpayers age 65 and up.
If you’d like to review your financial plan, investment accounts, and tax picture to understand the impact of OBBBA on your situation, please connect with your Lead Advisor or Service Advisor.
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