On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was officially signed into law. This legislation preserves and expands several favorable tax provisions scheduled to expire at the end of the year. While the OBBBA introduces a mix of permanent and temporary changes, it’s essential to understand that in the realm of tax law, “permanent” means that a provision will remain in effect until it is modified or repealed by future legislation.
Key 2017 Tax Changes Now Made Permanent
The OBBBA solidifies several tax reforms originally introduced in 2017:
- Lower Tax Brackets: The top federal income tax rate remains at 37%, down from the pre-2017 rate of 39.6%. Six of the seven marginal brackets have been permanently reduced.
- Standard Deduction: This is now set at $15,750 for single filers and $31,500 for married couples, adjusted annually for inflation. While many practicing physicians itemize deductions, this change may benefit those in residency or nearing retirement.
- Estate Tax Exemption: The exemption was permanently increased to $15 million for individuals and $30 million for couples, adjusted annually for inflation. This means that unless a couple’s net worth exceeds $30 million, their heirs will owe no federal estate tax, though state estate taxes and income taxes on inherited assets may still apply.
New Provisions Especially Relevant to Physicians
The OBBBA introduces several new rules that may impact physicians across different career stages:
- State and Local Tax (SALT) Deduction Cap: Temporarily raised to $40,000, subject to income-based phaseouts. This cap will revert to $10,000 in 2030.
- Itemized Deduction Limitation: For those in the 37% bracket, itemized deductions now face a 2/37 reduction, effectively capping the benefit at 35%.
- Charitable Giving Updates (2026 Onward):
- Non-itemizers can deduct up to $1,000 (single) or $2,000 (married) in cash donations.
- Itemizers will face an income floor that limits the deductible portion of charitable gifts.
- Car Loan Interest Deduction (2025–2028): Physicians earning less than $100,000 (single) or $200,000 (married) may deduct up to $10,000 per year in interest on qualifying new vehicle loans, particularly relevant for residents and retirees. This deduction only applies to new vehicles purchased in 2025 through 2028, with final assembly in the United States. Please refer to IRS guidance for full details.
Case Studies: How the OBBBA Impacts Physicians
Case 1: Dr. Jack Shephard
- Age: 29
- Status: Single
- Role: Resident
- Income: $71,000
Dr. Shephard benefits from the preserved lower tax bracket and standard deduction. Though his current tax situation does not change much, his sub-$100,000 income allows him to deduct interest paid on car loans, provided his vehicle purchase meets applicable IRS guidelines.
Case 2: Drs. Mark Greene & Susan Lewis
- Ages: 38 & 36
- Status: Married
- Role: Attending
- Income: $795,000
In 2026, they pay $30,000 in SALT, $25,000 in mortgage interest, and donate $30,000 to charity. By contributing $47,000 to their 403(b)s, they reduce taxable income to $748,000, avoiding the 2/37 itemized deduction reduction. However, their charitable deduction is reduced to $26,260 due to the income floor, and they are phased out of the full SALT deduction due to their income exceeding $500,000. Drs. Greene and Lewis receive slightly fewer tax deductions under the OBBBA than in previous years.
Case 3: Dr. Lu Saperstein
- Age: 54
- Status: Married
- Role: Attending
- Income: $518,000
Dr. Saperstein and his spouse pay $25,000 in SALT, $15,000 in mortgage interest, and donate $25,000 to charity. By contributing $30,000 to his 403(b), he lowers his income below the $500,000 phaseout threshold, enabling him to deduct the full $25,000 in SALT. His charitable deduction is reduced to $22,560, but overall, his itemized deductions increase by $12,560 compared to pre-OBBBA legislation.
Although this article is not intended to serve as a complete review, we hope it provides meaningful insights to support your personal tax planning and helps clarify how the OBBBA may affect your family, whether the impact is beneficial, adverse, or neutral.
In addition to the federal changes introduced by the OBBBA, Missouri has enacted a noteworthy state-level update: the elimination of capital gains tax, effective this year. To fully understand how these new tax rules apply to your specific situation, we encourage you to conduct independent research and engage in discussions with your tax advisor(s).
For more information on how state tax changes and the OBBBA may affect physicians, please reach out to a professional at Forvis Mazars.
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