The One Big Beautiful Bill Act (OBBBA) has brought significant changes to the federal tax code, offering new credits and deductions that could potentially lower your tax bill. However, it also introduces some traps that could limit or eliminate the tax savings you might expect. It is crucial to be aware of these traps to avoid any financial setbacks in the future.
One of the most significant changes introduced by the OBBBA is the additional seniors deduction. Individuals over the age of 65 can now claim up to $6,000 in extra deductions on Social Security, while married couples filing jointly can claim up to $12,000 together. However, this deduction is only available until 2028. If you are over 65 but delaying Social Security benefits until age 70, you might be missing out on potential savings.
It is essential to consider income thresholds when claiming these deductions. The deductions are phased out for annual incomes over $75,000 for singles (or $150,000 for married seniors filing jointly) and are fully phased out at $175,000 or $250,000, respectively. To avoid losing out on these deductions, it is advisable to spread out tax gain harvesting and Roth conversions over multiple years.
If navigating these changes seems overwhelming, seeking the guidance of a financial advisor can help you map out a strategy that maximizes your potential deductions. Advisor.com can assist you in finding SEC/FINRA-registered advisors tailored to your specific needs, ensuring you make informed financial decisions.
The OBBBA’s changes to the State and Local Tax (SALT) deduction can present both opportunities and challenges for taxpayers, particularly those living in high-tax states. The deduction cap for these taxes has been raised from $10,000 to $40,000 since 2025, with incremental increases expected until 2029 before reverting to $10,000 in 2030. Families earning six-figures or more in high-tax states like New York, California, New Jersey, and Connecticut stand to benefit the most from this change.
However, the deduction is phased out for incomes exceeding $500,000, meaning significant financial gains could push you over the income threshold and make you ineligible for the deduction. Commercial real estate investments offer alternative tax-planning tools, such as the Qualified Business Income (QBI) deduction and Section 1031 exchanges, which can help defer capital gains taxes.
In summary, the OBBBA introduces a plethora of changes that could impact your tax planning strategies. By staying informed and seeking professional advice where necessary, you can navigate these changes effectively and maximize your potential deductions. Planning ahead and adjusting your financial plans accordingly can help you avoid any pitfalls and take advantage of the benefits offered by the new legislation.
