OBBBA Highlights

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Recent tax law changes under the One Big Beautiful Bill Act (OBBBA) create several planning opportunities for individuals and business owners, along with some important compliance watchpoints. Below is a high-level overview of four items that may be worth a closer look depending on your situation:

  • Higher SALT Cap for Itemized Deductions:
    • The long-standing $10,000 cap on the state and local tax (SALT) deduction has been temporarily expanded. For 2025, the SALT cap increases to $40,000 per return ($20,000 if married filing separately) and reverts to $10,000 starting in 2030.
    • A phase-out applies at higher income levels, so as modified AGI rises above specified thresholds ($250,000 for single filers/$500,000 for married filing jointly), the benefit of the higher cap is reduced—but never falls below the original $10,000.
    • Importantly, OBBBA does not change the popular state pass-through entity (PTE) tax election that many business owners utilize at the entity level.
  • Roth Catch-Up Contributions for 401(k) plans:
    • Traditionally, employees over the age of 50 have been able to make a catch-up contribution in addition to the annual contribution threshold.
    • For 2026, the catch-up contribution limits are $8,000 for those aged 50-59 and 64 +. For those aged 60 – 63 years old there is a special higher limit of $11,250.
    • Beginning in 2026, employees over age 50 with prior year Social Security wages exceeding $150,000 (indexed) are no longer allowed to make pre-tax catch-up contributions. The catch-up contributions must be treated as Roth contributions.
    • Please note that this rule only applies to catch-up contributions; normal 401(k) contributions within the annual threshold may still be treated as pre-tax.
    • It is the responsibility of the employer and plan sponsor to enforce this change but we felt it important to bring to your attention.
  • Deduction for Interest on American-Built Vehicle Loans:
    • OBBBA created a new above-the-line deduction for interest paid on certain auto loans. Qualifying taxpayers may be able to deduct part of the interest on a loan used to buy a new, American-built vehicle for primarily personal use, even if they do not itemize their deductions.
    • This provision applies to loans originated between 2025 and 2028 for new vehicles with final assembly in the United States.
    • However, the deduction is capped and phases out at higher income levels (MAGI of $100,000 for single and $200,000 for married filing jointly taxpayers), so higher-income households may see a reduced or no benefit.
    • Vehicle lenders will be issuing a Form 1098-VLI to help identify your eligible interest paid for the year.
    • If you are planning to finance a new vehicle in the next few years, the timing, where the vehicle is built, and your income level will all matter.
  • Trump Accounts:
    • Officially called Trump accounts, these new tax-favored savings accounts are geared toward benefiting children for years to come.
    • Eligible children are U.S. citizens born between 2025-2028 with a Social Security number.
    • Upon creation of the account, the account will receive a one-time $1,000 Federal “seed” contribution. This seed money is non-taxable for Federal and California.
    • Families and others can contribute annually up to a set dollar limit, with a separate smaller limit for employer contributions.
    • Contributions are not tax-deductible, but earnings and growth are tax-deferred.
    • Investments must be in low-fee U.S. equity index funds, and withdrawals are generally locked up until the child reaches 18 years old, at which point the account transitions into a traditional IRA.

Each taxpayer’s situation is unique, and additional facts may change the analysis. Please consult your DKC professional to discuss how these provisions apply to your specific tax circumstances.

 

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