by Casia Chappell, CFP®, CPWA
Vice President
Wealth Planning and Portfolio Management
The tax landscape for individuals has shifted once again with the passage of OBBBA. While the legislation includes enhanced deductions and targeted tax relief, it also introduces several new income-based limitations that subtly yet significantly reshape tax efficiency.
When planning for tax efficiency in the post-OBBBA era, one figure stands above the rest: adjusted gross income (AGI). AGI, and its cousin, modified adjusted gross income (MAGI), have long played a crucial role in determining eligibility for many deductions, including those for medical expenses, charitable contributions and the catch-all miscellaneous itemized deductions.
With the passage of the OBBBA, AGI and MAGI now also govern access to key benefits including the expanded state and local tax (SALT) deduction and the new senior deduction enhancements, and a minimum floor on the deductibility of charitable contributions. For affluent families, understanding and managing AGI and MAGI is no longer optional—it’s central to preserving wealth through tax efficiency.
OBBBA temporarily raises the SALT deduction cap from $10,000 to $40,000 through tax year 2029. While this presents a welcome opportunity for residents in high-tax jurisdictions, including parts of Oregon and California, the benefit is gated by income. The enhanced deduction begins to phase out rapidly once the $500,000 of MAGI has been reached and reverts down to $10,000 at $600,000.
This “SALT torpedo zone,” between $500,000 and $600,000 of MAGI, creates a unique planning challenge. A taxpayer with $550,000 in MAGI may only receive a partial deduction, and furthermore, find their federal effective tax rate exceeds 40% in this zone. Strategic tools such as Roth conversions, deferred income structures and charitable giving vehicles are valuable ways to manage income recognition and preserve eligibility for this valuable deduction.
In addition to permanently increasing the standard deduction, the legislation also introduces a temporary additional deduction for taxpayers aged 65 and older for years 2025 through 2028. While the new deduction was a welcome addition to the complicated process of tax filing, it is also subject to AGI thresholds.
The senior deductions of $6,000 for single filers and $12,000 for joint filers begin to phase out at $75,000 and $150,000 of MAGI, respectively. They are fully phased out when MAGI exceeds $175,000 for single filers and $250,000 for joint filers.
Beginning in 2026, OBBBA introduces a formula that reduces itemized deductions by 2/37 of the lesser of total deductions or the excess over the top marginal tax bracket threshold. In practice, this means many affluent taxpayers will find the effective value of their deductions capped regardless of how much they contribute to charity or incur in deductible expenses.
This further emphasizes the need for careful orchestration of taxable account activity and retirement income streams including retirement account distributions, Social Security and pensions. Strategies like qualified charitable distributions (QCDs) from IRAs, donor-advised funds or tax-loss harvesting can help taxpayers manage their AGI within optimal ranges.
Maintaining AGI below targeted thresholds can meaningfully affect after-tax outcomes. Whether it’s a year-end bonus, a business distribution or the timing of capital gains, seemingly routine decisions can now have material tax consequences. Working proactively with your professional team to understand your entire financial situation is more important than ever as the post-OBBBA tax environment rewards those who plan with precision and foresight.
Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.