OBBBA Tax Impact on Physicians
The enactment of the One Big Beautiful Bill Act, commonly referred to as the OBBBA or OB3, on July 4, 2025, marks a significant turning point for physician practices across the country. By making permanent several provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and introducing new tax rules, the OBBBA brings both opportunities and challenges for medical professionals.
Physician practices will benefit from enhanced depreciation allowances, increased limits for Section 179 deductions and expanded opportunities for charitable giving. At the same time, changes to the State and Local Tax (SALT) deduction cap, new limitations on itemized deductions for high earners and the introduction of an AGI floor for charitable contributions will require careful tax planning. Understanding these provisions is essential for physician practices to maximize tax benefits, manage liabilities and strategically plan for the years ahead.
100% Bonus Depreciation/179 Depreciation
- The OBBBA makes 100% bonus depreciation permanent for all qualifying property, both acquired and placed in service after January 19, 2025.
- The section 179 depreciation deduction and placed in service limits increased to $2.5 million and $4 million, respectively, for tax years starting after January 31, 2024, and adjusted for inflation going forward.
State and Local Tax Cap
- The OBBBA increases the SALT cap deduction from $10,000 to $40,000 for single and married filing joint taxpayers. For married taxpayers filing separately, the SALT cap deduction increases to $20,000.
- The SALT cap deduction and the phase-out level will increase by 1% each year through 2029.
- The increased SALT deduction phases out for taxpayers with a modified AGI of $500,000 ($250,000 for married filing separately) or higher and reverts to the cap of $10,000 at a modified AGI of $600,000 and above.
- Deduction is reduced by 30% of the excess income above the threshold. As an example, for a joint filer with $550,000 AGI, their SALT limit would be $25,000 ($40,000-(30%x(550,000-500,000)).
- The pass-through entity taxes (PTET) remain outside the SALT cap, and business owners can continue using PTET regimes to turn otherwise non-deductible state taxes into a federal deduction for the business.
Charitable Contribution
- The OBBBA introduced a 0.5% AGI floor for charitable deductions for tax years beginning after January 31, 2025, so all deductible charitable contributions must be reduced by 0.5%.
- As an example, for a taxpayer with a $1 million AGI, the first $5,000 of charitable contributions would be non-deductible.
- The AGI floor and itemized deduction cap do not apply for the 2025 tax year, which creates a unique planning opportunity to accelerate any planned donations in future years into 2025 to maximize the tax benefits.
- A bunching strategy where multiple years of charitable contributions are combined into one year to get over the 0.5% AGI floor.
- Donor-advised funds (DAFs) are particularly advantageous for 2025.
- The OBBBA allows non-itemizers to claim a $2,000 deduction for joint returns and up to $1,000 for other taxpayers as an above-the-line deduction for tax years beginning after January 31, 2025.
- Only cash contributions made directly to a qualified public charity are eligible.
- Charitable contributions to donor-advised funds and private non-operating foundations do not qualify for the above-the-line deduction.
- The AGI floor is not applicable to the above-the-line charitable deductions.
- As an example, if a joint taxpayer has an AGI of $400,000, made $2,000 of cash contributions to eligible public charities and was taking the standard deduction, they would be able to claim an above-the-line charitable deduction for $2,000. If the taxpayer was itemizing, their AGI floor would be $2,000, and they would receive no tax benefit.
- The OBBBA also created a tax credit for donations to scholarship granting organizations (SGOs) starting January 1, 2027.
- This SGOs credit is permanent. Each individual can claim up to $1,700, and the credit is applied as a 100% dollar-for-dollar reduction on their federal income taxes.
Want To Learn More About Navigating the Impact of the OBBBA on Physicians?
Watch this on-demand webinar featuring Chris Marrs, Withum’s healthcare physician expert, for an insightful discussion on how health systems are responding to the OBBBA’s sweeping changes to Medicaid, Medicare, and ACA revenue streams.
Itemized Deductions
- For taxpayers in the highest 37% tax bracket, the tax benefit will be capped at 35% for all itemized deductions. All other taxpayers will receive a tax benefit at their marginal rate.
- For example, $10,000 in taxes for a taxpayer in the 37% tax bracket would currently provide $3,700 tax savings and starting in 2026, this would be limited to $3,500 with the cap. A taxpayer in the 24% marginal tax bracket would receive a $2,400 tax savings.
TCJA Provisions made permanent that were set to expire:
- Individual tax rates with the top tax rate remaining 37%.
- Larger standard deduction.
- 20% qualified business income deduction.
Practice owners should review their capital investment plans, charitable giving strategies and overall tax posture in light of these changes. The expanded depreciation and deduction limits offer opportunities to upgrade facilities and equipment, while the evolving rules around SALT and charitable contributions require proactive planning to maximize benefits and minimize liabilities.
By understanding and leveraging the new provisions in the OBBBA, physician practice owners can position their practices for financial strength and operational flexibility in the years ahead. Withum’s Healthcare Services Team is available to answer questions and help guide you through these changes.
Authors: Akshita Supawala | [email protected] and Dylan Engels | [email protected]