On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, enacting sweeping changes to the federal tax code with significant implications for individual taxpayers, especially those in higher income brackets.
Key Federal Tax Changes Affecting Individuals
1. Individual Income Tax Rates
Permanent Lower Rates:
The OBBBA makes the lower individual tax rates introduced by the 2017 Tax Cuts and Jobs Act (TCJA) permanent, removing the scheduled sunset after 2025. This means the pre-2018 higher rates will not return, providing continued relief for most taxpayers, including those in higher brackets.
2. Standard Deduction
Increased and Permanent:
The standard deduction is not only made permanent at the higher TCJA levels but is further increased for 2025 and beyond. For example, the deduction for single filers and heads of household is significantly higher than prior law, reducing taxable income for those who do not itemize.
3. State and Local Tax (SALT) Deduction Cap
Temporary Increase:
The SALT deduction cap is raised from $10,000 to $40,000 ($20,000 for married filing separately) for 2025, with inflation adjustments through 2029. However, for higher income taxpayers, the cap is phased down by 30% of the excess of modified adjusted gross income (MAGI) over $500,000 (single) or $1,000,000 (joint), but cannot be reduced below $10,000. After 2029, the cap reverts to $10,000.
4. Child Tax Credit
Enhanced and Permanent:
The child tax credit is increased to $2,200 per qualifying child, with annual inflation adjustments. Stricter Social Security Number (SSN) requirements apply for both the taxpayer and the child. The refundable portion is also indexed for inflation.
5. Qualified Business Income (QBI) Deduction
Expanded Thresholds and Minimum Deduction:
The phase-in threshold for the QBI deduction is increased to $75,000 (single) and $150,000 (joint), and a $400 minimum deduction is established for active business income, with inflation adjustments. This benefits higher earners with pass-through business income, especially those who materially participate in their businesses.
6. Estate and Gift Tax Exemption
Significantly Increased:
The federal estate and gift tax exemption is permanently increased to $15 million per individual (indexed for inflation) for estates and gifts after 2025. This is a substantial increase from the previous exemption and offers significant planning opportunities for high-net-worth individuals.
7. Alternative Minimum Tax (AMT) Exemption
Permanent and More Generous:
The higher AMT exemption amounts and phaseout thresholds are made permanent, with improved inflation adjustments and a steeper phaseout rate. This reduces the likelihood that higher income taxpayers will be subject to the AMT.
8. Mortgage Interest Deduction
$750,000 Cap Made Permanent:
The $750,000 cap on mortgage interest deduction is now permanent, and mortgage insurance premiums are treated as deductible interest. This is particularly relevant for higher income taxpayers with larger mortgages.
9. Itemized Deduction Limitations
New Pease Limitation Formula:
A new limitation reduces itemized deductions by 2/37 of the lesser of total itemized deductions or taxable income above the 37% bracket threshold. This effectively reduces the benefit of itemized deductions for high earners.
10. Other Notable Provisions
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Miscellaneous itemized deductions suspension is made permanent, except for educator expenses (now expanded).
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Above-the-line charitable deduction is increased and made permanent, but a 0.5% of AGI floor applies to itemized charitable deductions for individuals, and a 1% floor for corporations.
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Personal exemptions remain suspended, except for a temporary $6,000 deduction for seniors (65+) through 2028, phased out at higher incomes.
Oregon State and Local Tax Considerations
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State Income Tax: Oregon continues to impose a progressive state income tax, with a top marginal rate of 9.9% for single filers on income above $125,000 (2024 brackets; 2025 brackets may be adjusted for inflation).
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Local Taxes: Portland and Multnomah County impose additional local income taxes, and there is ongoing discussion about aligning local tax rules with state definitions to reduce compliance complexity.
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Estate Tax: Oregon imposes a state estate tax with a much lower exemption than the new federal level, so state-level planning remains important.
Planning Suggestions for 2025
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Maximize SALT Deductions in 2025:
With the SALT cap temporarily increased to $40,000, consider prepaying state and local taxes (where possible) before year-end to maximize the deduction, especially if your income is below the phase-down threshold. -
Bunch Itemized Deductions:
Given the new limitation on itemized deductions for high earners, consider bunching charitable contributions and other deductible expenses into 2025 to maximize their benefit before the new Pease limitation formula takes full effect. -
Review Mortgage and Real Estate Strategies:
If considering a new home purchase or refinance, the $750,000 mortgage interest cap is now permanent. Plan accordingly, and consider the deductibility of mortgage insurance premiums. -
Estate and Gift Planning:
With the federal exemption increasing to $15 million in 2026, review your estate plan. However, Oregon’s estate tax exemption remains much lower, so state-level planning (such as gifting strategies or trusts) is still critical. -
Business Owners:
If you have pass-through business income, review your QBI deduction eligibility and consider increasing active participation to benefit from the new minimum deduction and higher phase-in thresholds. -
Charitable Giving:
Take advantage of the increased above-the-line charitable deduction and consider timing larger gifts to maximize deductibility, keeping in mind the new AGI floor for itemized deductions.
Strategies for Future Tax Years
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Monitor Income Levels:
Be aware of the phase-down thresholds for the SALT cap and itemized deduction limitations. Managing income (e.g., through retirement plan contributions or deferral strategies) may help preserve deductions. -
Leverage Enhanced Credits:
Families with children should ensure compliance with SSN requirements to claim the enhanced child tax credit. -
Plan for AMT Relief:
With higher AMT exemptions, fewer taxpayers will be subject to AMT, but it is still prudent to review exposure annually. -
Stay Informed on Local Tax Changes:
Given ongoing efforts to align local and state tax rules, keep abreast of developments that may affect your compliance burden or planning opportunities.
Conclusion
The OBBBA brings significant, mostly favorable changes for individual taxpayers, but higher income earners in Oregon should pay close attention to the new limitations on deductions, the temporary SALT cap increase, and the interplay with state and local taxes. Proactive planning in 2025 can help maximize benefits under the new law, while ongoing review of your tax situation will ensure you continue to optimize your tax position in future years.
Please contact our office to discuss personalized strategies or to review your tax plan in light of these changes.
This is for informational purposes only and does not constitute legal or tax advice. Please consult with your tax advisor regarding your specific situation.
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