Which OBBBA Provisions Are Tied to AGI?

As your income grows, the impact extends beyond higher tax rates. It also triggers the gradual loss of tax deductions.

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, includes several new and enhanced provisions tied to adjusted gross income (AGI) thresholds. Keep reading to learn more about those provisions and how they can affect your overall tax planning.

Please note: Comprehensive IRS guidance on many OBBBA provisions is still forthcoming. For the most current information, consult your tax advisor.

What is adjusted gross income (AGI) and why it matters

Adjusted gross income (AGI) is your total income from all income sources (e.g., wages, tips, interest, dividends, capital gain or loss, business income, retirement income, etc.) minus certain adjustments or deductions, such as retirement plan contributions, alimony payments, health savings account (HSA) contributions, self-employed health insurance, etc. When filing your taxes, your AGI is calculated before you take your standard or itemized deduction. (You can find allowable adjustments to your income on Form 1040 Schedule 1.)

The IRS uses AGI to determine eligibility for many tax benefits. To ensure you can maximize opportunities and avoid tax time surprises, it’s important to keep an eye on your AGI throughout the year.

There’s also MAGI, or modified adjusted gross income. MAGI is your AGI plus deductions you have to add back in, including IRA contributions, student loan interest, qualified tuition expenses, and more.

Your AGI and MAGI will have similar values — and MAGI will always be equal to or more than your AGI — but small differences could still make an important difference on your tax return.

How phaseouts impact deductions under OBBBA

Phaseouts are used to implement gradual reductions to benefits. The OBBBA introduces or modifies several deduction phaseouts based on AGI, and each provision’s phaseout has its own income thresholds and calculations.

Put simply, once your income hits a certain level, the total deduction you can claim for a specific provision starts to shrink or phase out. This leads to a higher taxable income, which means you’ll owe more in taxes.

Key areas affected by AGI thresholds

SALT deductions

The biggest change to state and local taxes (SALT) under OBBBA is the increase in the SALT deduction cap. This could translate into big tax savings, especially for people living in high-tax states like New York, California, and New Jersey. The cap jumps from $10,000 to $40,000 ($20,000 for married separate filers) for 2025, and it will increase by 1% annually before reverting to $10,000 in 2030.

For high-income earners, OBBBA introduced an income-based SALT deduction phaseout. Taxpayers with a MAGI of $500,000 or more will see their $40,000 SALT deduction cap reduced by 30% of the MAGI amount above that threshold, but the cap never drops below $10,000. For example, if a taxpayer earns $520,000 of MAGI, their $40,000 SALT cap would be reduced by $6,000 (30% × $20,000), making their new cap $34,000.

In other words, the SALT deduction phases down to the prior $10,000 cap once MAGI exceeds $600,000. This sliding scale phaseout means high-income earners see their deduction benefits shrink quickly, making careful income monitoring and planning even more important for effective tax management. For owners of pass-through entities, the newly raised SALT cap and its income-based phaseouts could alter the cost-benefit of state-level PTET elections, another reason why a fresh assessment is essential.

Charitable deductions

For those who itemize, charitable donations are deductible only if they exceed a new minimum “floor” of 0.5% of the taxpayer’s AGI. For instance, joint filer with an AGI of $500,000 could deduct charitable contributions only above $2,500.

Beyond these charitable deduction rules, the new law eliminates Section 68’s overall limit on itemized deductions for high earners. Instead, starting in 2026, itemized deductions can be reduced by 2/37ths of the lesser of your total itemized deductions or the amount of taxable income above the 37% bracket threshold. This new rule will likely change how high-income taxpayers plan their charitable giving.

Donor-advised funds, direct gifting of appreciated securities, and charitable remainder trusts are other tools for maximizing tax benefits. Qualified charitable deductions (QCDs) remain an option for clients over age 70½, allowing for above-the-line deductions.

If you’re someone who regularly maximizes charitable deductions based on AGI limits, the revised itemized deduction rule may affect how much you can deduct. It’s also important to look at how this minimum floor interacts with gifts of appreciated assets, which often have lower AGI deduction limits. Tax professionals are still working out whether the 0.5% floor applies before or after other limits, making timing and calculation important factors to watch.

New deductions in OBBBA with AGI phaseouts

A few of the most talked-about tax provisions of the OBBBA also come with AGI phaseouts, and their cumulative impact could be significant on individuals’ tax liability.

Tip income deduction

Starting with tax year 2025 through 2028, taxpayers can deduct up to $25,000 in tip income.
Phaseouts begin when AGI exceeds $300,000 for those married filing jointly or $150,000 for single filers.
The deduction is reduced by $100 for every $1,000 above the AGI phaseout threshold.

Overtime pay deduction

Taxpayers can deduct overtime pay up to $12,500 for single filers and $25,000 for married filing jointly. This deduction expires Dec. 31, 2028.
The deduction phaseout starts with AGI exceeding $300,000 for those married filing jointly and $150,000 for single filers.
The deduction is reduced by $100 for every $1,000 above the AGI phaseout threshold.

Auto loan interest deduction

This deduction of up to $10,000 applies for new personal passenger vehicles that have been assembled in the U.S. and purchased after Dec. 31, 2024.
The deduction begins to phase out at $100,000 AGI for single filers and $200,000 for those married filing jointly.
Deductions are reduced by $200 for every $1,000 the AGI is above the phaseout’s threshold.

Standard deduction for seniors

People 65 and older can take an additional deduction of $6,000 for single filers or $12,000 total for a married couple where both spouses are 65+. This deduction expires Dec. 31, 2028.
Phaseouts start at $150,000 AGI for joint filers and $75,000 for all other filers.
The phaseout reduces the deduction by 6% (or 6 cents) for every dollar above the AGI threshold.

Why tax planning around AGI is critical

These are just the deductions with AGI phaseouts highlighted in the OBBBA, and there are many other tax benefits that are tied to your AGI or MAGI. Your year-end tax strategies are incredibly important to ensure you time income, deferrals, and charitable giving to maximize your tax savings. And proactive monitoring of your AGI throughout the year helps you stay ahead of the game to minimize any surprises come tax time.

Reach out to your Mowery & Schoenfeld Wealth Management advisor to discuss your specific situation and ensure your goals align with the new laws and regulations. Contact us

November 11, 2025

Why Monitoring AGI Matters More Than Ever Under OBBBA