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4 Individual income tax. The OBBBA creates a hybrid of pros and cons. There is permanency to TCJA provisions, yet a pullback of certain credits and deductions. The result is some relative stability in the individual income tax landscape, though complexities remain. 2 2 D. Bunn, A. Muresianu, W. McBride, "The Good, the Bad, and the Ugly in the One Big Beautiful Bill Act," Tax Foundation, July 9, 2025. Tax brackets: The lower individual and trust income tax rates (10% to 37%) are now permanent. Meanwhile, the 10% and 12% tax brackets were widened while the 22% bracket was narrowed. The standard deduction remains in place with an immediate increase for 2025. Alternative minimum tax (AMT): AMT thresholds revert to pre-2018 levels but maintain higher exemptions. Personal exemption and the senior deduction: While the personal exemption is permanently set to $0, a new exception is created for seniors 65 or older. They will benefit from a $6,000 deduction for 2025-2028, phased out for MAGI above $75,000 individual/$150,000 MFJ. Itemized deductions and credits Miscellaneous deductions: An overall limitation on allowable itemized deductions is introduced, but it only applies to earners reaching the 37% tax bracket. For such earners, the value of their deductions is effectively capped at 35 cents on the dollar, beginning in 2026. State and local tax (SALT): This highly debated deduction was raised, temporarily through 2029, to $20,000 individual and married filing separately/$40,000 for MFJ, with modified gross income (MAGI) phasedowns for high-income earners can reduce deductions back to $10,000. Mortgage interest deduction: The mortgage interest cap on debt up of $750,000 is made permanent. Car loan interest deduction: A new, temporary deduction through 2028, (up to) $10,000 deduction on U.S.-built personal autos, was enacted. Green energy credits: Many provisions were rolled back or eliminated. WH AT IT M E A N S We see trends unfolding over the next few years. Taxpayers in lower brackets will see a slight reduction in taxes. Itemizing of deductions will become slightly less common. The basic principles of year-end tax savings continue to be relevant. We encourage you to be proactive in 2025 by looking at the ability to defer income and/or deduction bunching strategies to help "hurdle" the higher standard deduction. This is particularly important for high earners in the 37% tax bracket who will be negatively impacted by the new deduction caps in 2026. We recommend working with your CPA to determine whether you will benefit from the same itemized deductions you qualified for in the past or potentially new deductions. For example, depending on your individual analysis, consider paying off your home equity line of credit (HELOC) or part of your mortgage, since you may lose interest deduction benefits. Positively, for senior married couples under $150,000 MAGI, there is $46,600 in deductions available without itemizing. We believe some taxpayers will qualify for itemized deductions for the first time, particularly in high-tax states. Further, the SALT deduction will continue to be a point of contention beyond 2029. In the short term, high earners will phase out quickly.

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