Tuesday, July 8, 2025

What We're Thinking: OBBBA

  (Dave Bowers/The New York Times)

One Big Beautiful Bill Act. We'll leave the "Beautiful" part to the politicians. 

This post highlights sixteen items from the Act. We think they could be of interest to folks like us, in the solid, prosperous 9%, just below the top 1%.  

The bill extends many provisions of the 2017 Tax Cuts & Jobs Act (TCJA) and adds new items that reflect the priorities of the current administration. Understand that this is an overview and is not tax or investment advice. Consult with your tax advisor, do your own due diligence, or contact us to discuss your situation. . 

A note about the word "permanent." In tax bill jargon, permanent means there's no end date or "sunset" date for a provision. A permanent provision will last until legislators decide to change it. This is in contrast to items that have end dates. The point here is to know that permanent doesn't mean forever, and it's useful to be aware of possible end dates. 

Let's get into it.

✓ Tax rates: The tax rates enacted in 2017 were made permanent. So, your tax bracket status won't change except for inflation adjustments.

✓ Standard deduction: The increased standard deductions enacted in 2017 were made permanent. The standard deduction is $15,750 for single filers and $31,500 for married individuals filing jointly. The standard deduction will be adjusted for inflation after that. These changes include 2025.

✓ Personal exemptions and senior deduction: The bill permanently sets the deduction for personal exemptions at zero. However, it provides a temporary $6,000 deduction for taxpayers who are age 65 or older. This senior deduction begins to phase out when a taxpayer’s MAGI (modified adjusted gross income) exceeds $75,000 for individual filers or $150,000 in the case of a joint return. It will be in effect only for the years 2025 through 2028. 

This has been politically sold as the "no tax on Social Security" feature. In fact, the bill makes NO changes to how Social Security is taxed. The bill makes no carveouts or direct exemptions. It’s flat out false for anyone to say or insinuate the bill made Social Security not taxable.

✓ SALT cap: The bill temporarily increases the SALT cap (state and local taxes) to $40,000 from the current $10,000. In 2026, the cap will be $40,400, and then will increase by 1% annually, through 2029. Starting in 2030, it will revert to the current $10,000. (Not permanent!)

The $750,000 limit on residential mortgage principal against which interest can be deducted was made permanent.

✓ Itemized deductions limitation: The bill permanently removes the overall limitation on itemized deductions (known as the Pease limitation) and replaces it with a new overall limitation on the tax benefit of itemized deductions. The amount of itemized deductions otherwise allowable would be reduced by 2/37 of the lesser of (1) the amount of the itemized deductions, or (2) the amount of the taxpayer’s taxable income that exceeds the start of the 37% tax rate bracket.

 ✓ Charitable contribution deduction: The bill creates a charitable contribution deduction for taxpayers who do not itemize. Non-itemizers can claim a deduction of up to $1,000 for single filers or $2,000 for married taxpayers filing jointly. For itemizers, the bill imposes a 0.5% floor on the charitable contribution deduction: The amount of an individual’s charitable contributions for a tax year is reduced by 0.5% of the taxpayer’s contribution base for the tax year. 

✓ EV tax credits: The $7,500 electric vehicle tax credit for new EV's will expire on September 20, 2025, regardless of where they were made. Much more detail is available on the Edmund's page here.

✓ Residential solar tax credits: Phaseout of the 30% federal tax credit for installations will lead to its elimination by 2028. 

✓ Residential energy-efficient installations: The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit will expire for items placed in service after after December 31, 2025. 

✓ Child tax credit: The bill increases the amount of the nonrefundable child tax credit to $2,200 per child beginning in 2025 and indexes the amount for inflation. The bill also makes permanent the $1,400 refundable child tax credit, adjusted for inflation. 

✓ Child and dependent care credit: The bill permanently increases the amount of the child and dependent care tax credit from 35% to 50% of qualifying expenses. The credit rate phases down for taxpayers with adjusted gross income (AGI) over $15,000. It will be reduced by 1 percentage point (but not below 35%) for each $2,000 that the taxpayer’s AGI exceeds $15,000. It will then be further reduced by (but not below 20%) 1 percentage point for each $2,000 ($4,000 for joint returns) that their AGI exceeds $75,000 ($150,000 for joint returns).

✓ Estate and gift tax exemption amounts: The bill permanently increases the estate tax exemption and lifetime gift tax exemption to $15 million for single filers and $30 million for married filing jointly in 2026, and indexes the amount for inflation after that. No one reading this is likely to be impacted by an estate tax.

✓ Moving expense deduction: The bill permanently eliminates the deduction for moving expenses, except for members of the armed forces and certain members of the intelligence community.

✓ Gambling losses: The bill amends the terms of deductible wagering losses to 90% of losses net of gains. 

✓ 529 plans: The bill allows tax-exempt distributions from 529 plans to be used for additional educational expenses in connection with enrollment or attendance at an elementary or secondary school. The bill also allows tax-exempt distributions from 529 savings plans to be used for additional qualified higher education expenses, including “qualified postsecondary credentialing expenses.”

✓ Trump accounts: This is a form of individual retirement account (IRA) under Sec. 408(a) for individuals under age 18. They are not Roth IRAs. Contributions can only be made in calendar years before the beneficiary turns 18. Distributions (withdrawals) can only be made starting in the calendar year the beneficiary turns 18. Accounts will have to be designated as such when they are set up. Contributions are not allowed until July, 2026. 

Eligible investments would generally be mutual funds and indexed ETFs. Contributions will be capped at $5,000 a year and adjusted for inflation after 2027. The bill allows for employer contributions, which will  not be included in the employee’s income.

A new section creates a pilot program that provides a $1,000 tax credit for opening a Trump account for a child born between Jan. 1, 2025, and Dec. 31, 2028. 

 

Phew! That's a lot. And it's only the "Personal" part. There's another section for "Businesses" but that's not our intent in this space. Let us know of you have any questions unique to your situation.

 

James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315

Evidence-based. Rules-driven. Policy-focused.



 

 

















































































































Saturday, April 19, 2025

What We're Thinking: Silver Linings

 

Silver Linings 2022

The news, opinions, chaos, and sentiment for a large part of the population is deeply negative. We get it. But this has happened before. Hear us out. 

The University of Michigan Consumer Sentiment Index has been published monthly for over 50 years. It's proven to be a reliable send-ahead on whether to lean into or lean away from investing.

 Michigan Consumer Sentiment

Since 1974, the Index has fallen below 60 in only 4% of all the months, including the most recent reading. That makes this situation quite rare.

In those few extremely negative cases, the stock market- measured by the S&P 500- was higher five and ten years later. Every time. Not only was it higher, but in 71% of the cases, it was higher by more than the well-known 10% average per year. Leaning in paid off. Silver lining.

Next chart. The CNN Fear & Greed Index. 

This Index is a composite of seven stock market indicators. The plots here are monthly through 2024. Since then it has slipped to under 25. Extreme Fear. That's only happened four other times in its history. Each time was an opportunity to lean in. Silver lining.

Next topic. Some factoids about recent markets.

Earlier this month, the S&P 500 was down 12% in four days, one of the largest 4-day declines since 1950. What happened in prior similar cases? Stocks moved substantially higher over the next 1, 3, and 5 years. Every time. Silver lining.

While the S&P 500 was sinking, the Volatility Index (VIX) had its 3rd largest 4-day spike. That put it in the top 1% of its historical readings. Stocks bounced back every time. High volatility = fear = opportunity for long-term investors. Silver lining.

Those were about the downside. What happens when things go up?

Well, on April 9th, the S&P 500 had its largest one-day gain since 1950. What happened in the past following big 1-day gains? Stocks moved substantially higher over the next 1, 3, 5 years. Every time. Silver lining. 

The Dollar
Lots of noise here, too. But when we look at this 40-year record, we're like, meh. Not the end of the world. Not even close. We're about in the middle of the historic range. Lets talk about something else.

The Bond Market
Like the dollar, lots of noise. We use the 10-year Treasury as a basic reference. The rise from near zero rates in 2020 to 5% happened by October, 2023, where this chart begins. Since then, rates have fluctuated between 5% and down to 3.6%. Right now, we're at 4.3%, about right in the middle of the range.

One of three things are most likely from here. Inflation could heat up. Recession could set in. Or there's a combination of the two- stagflation. In the inflation scenario, maybe this goes north of 5. If its recession, we'll be seeing something under 4. Stagflation? Things stay about the same. Stay tuned.

 

Conclusions
So, what do we do? Historically deep funks like this have happened before. And each time, they've been the nurseries of astonishing rebounds. Every time. We're leaning in. Let's not let a good crisis go to waste.

That said, the short term is typically volatile, messy, not profitable, and stomach-churning, Having sufficient assets outside of the stock market to draw upon as needed is essential. We're also comforted by knowing that anyone reading this already has a globally diversified portfolio with an asset allocation appropriate to their situation and temperament. But maybe you'd still like to talk it over. That's what we're here for. We love those conversations.

James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315

Evidence-based. Rules-driven. Policy-focused.