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On Friday, July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (the “Bill”) into law, a landmark piece of legislation passed through budget reconciliation. This sweeping bill encompasses major tax reforms, spending cuts, and policy shifts. Passed by a narrow 218-214 vote in the House on July 3, 2025, the Bill aims to (1) cut taxes on individuals and businesses, (2) offset tax cuts with significant reductions to federal spending, and (3) deliver on campaign promises to strengthen the border and scale back climate initiatives.
Key Tax Provisions
Individuals & Families
Individual Income Tax Rates: The Bill solidifies the Tax Cuts and Jobs Act (TCJA) rate reductions that were scheduled to expire after 2025 (e.g., the top rate dropped from 39.6% to 37%).
Standard Deduction & Personal Exemption: The Bill permanently increases the standard deduction that was scheduled to revert to lower levels after 2025. Additionally, it permanently terminates the personal exemption that was scheduled to return in 2026. The following deductions are effective as of January 1, 2025 (all indexed for inflation):
- Single and Married Filing Separately: $15,750;
- Head of Household: $23,625;
- Married Filing Jointly: $31,500
Personal Exemption for Seniors: The Bill adds a temporary $6,000 deduction for seniors age 65 or older. The deduction will be in effect from 2025 through 2028 and will be subject to phase out limitations for higher earners.
Alternative Minimum Tax (AMT) Exemption: The Bill permanently extends the TCJA’s higher exemption thresholds that were scheduled to expire. However, it increases the phase-out rate of the exemption from 25% to 50% for higher earners.
Student Loan Benefits: The Bill permanently extends (1) the exclusion for discharge of student debt on account of death or disability and (2) the $5,250 exclusion for employer payment of qualified student loan payments. This exclusion was set to expire after 2025.
Contribution Credit: The Bill creates a new credit for cash contributions made to a § 501(c)(3) scholarship-granting organization that may be used for scholarships for eligible students. The maximum amount of the credit is $1,700 and it will be available for contributions made in 2027 and after.
Itemized Deduction Changes
State and Local Tax (SALT) Cap: The Bill retroactively increases the individual limit from $10,000 to $40,000 for 2025 with incremental increases for 2026 through 2029. In 2030, the limit will revert to $10,000 and be subject to phase-out limitations.
Mortgage Interest: The Bill permanently extends the TCJA’s limitation on mortgage interest to the first $750,000 of acquisition indebtedness, permanently excludes home equity interest from the definition of qualified residence interest, and treats certain mortgage insurance premiums as qualified residence interest.
Casualty Losses: The Bill permanently extends the limitation on casualty losses to declared disasters, but expands the limitation to allow for state-declared disasters in addition to federally-declared disasters.
Miscellaneous Itemized Deductions: The Bill permanently disallows “miscellaneous itemized deductions,” but removes unreimbursed employee expenses for eligible educators from the definition.
Itemized Deduction Limitations: The Bill permanently terminates the Pease limitation that was scheduled to return in 2026 and replaces it with a simpler overall limitation on the tax benefit of itemized deductions.
Moving Expenses: The Bill permanently terminates the deduction for moving expenses, except for those in the Armed Forces.
Wagering Losses: The Bill permanently extends the limitation on wagering losses by the amount of winnings, and further limits deductible amount to 90% of the loss sustained.
Charitable Deductions (itemizers): The Bill limits the charitable deduction to the amount by which contributions exceed 0.5% of the taxpayer’s contribution base.
Charitable Deductions (non-itemizers): The Bill creates a permanent above-the-line charitable contribution deduction of $1,000 ($2,000 for married filing jointly) for certain cash charitable contributions.
Auto Loan Interest: The Bill creates a maximum $10,000 deduction for interest on loans for domestically assembled passenger vehicles for tax years 2025 through 2028. The deduction does not apply to lease financing and is subject to phase out limitations for higher earners.
Family Tax Benefits
Child and Other Dependent Tax Credits: The Bill permanently increases the child tax credit from $2,000 (TCJA) to $2,200 (with $1,700 being refundable) and indexes it for inflation. It also permanently extends the $500 credit for other dependents without inflation adjustments. Without this legislation, the child tax credit would have reverted to $1,000 and the other dependent credit would have expired.
Child and Dependent Care Credit: The Bill permanently increases the maximum credit rate from 35% to 50% of qualifying expenses. The updated credit phases down 1% for every $2,000 by which the taxpayer’s AGI exceeds $15,000. The dollar limits remain the same ($3,000 for one child or $6,000 for two or more).
Dependent Care Assistance Program: The Bill increases the maximum annual amount excludable under a dependent care assistance program from $5,000 to $7,500.
Adoption Credits: The Bill makes $5,000 of the adoption credit refundable. The refundable amount is indexed for inflation.
529 Plans: The Bill expands qualified expenses to include more K-12 and homeschool expenses, as well as postsecondary credentialing expenses.
Trump Accounts: The Bill creates a new type of tax-preferred account that will be set up for the exclusive benefit of an individual (designated at the time of establishment). The Bill includes a pilot program where the government will pay a one-time $1,000 credit to an account for each qualifying child born from 2025 through 2028.
Campaign Promise Provisions:
No Tax on Tips: The Bill creates a maximum $25,000 deduction per taxpayer for qualified tips (excluding highly compensated employees) received in certain occupations and reported on Forms W-2, 1099, or 4317. For tips to be deductible, they must be voluntarily paid in an occupation that “traditionally and customarily” received tips before 2025 (as determined by the Treasury). The deduction will be in effect from 2025 through 2028 and will be subject to phase out limitations for higher earners.
No Tax on Overtime: The Bill creates a maximum $12,500 deduction ($25,000 MFJ) per taxpayer for qualified overtime compensation (excluding highly compensated employees). The deduction will be in effect from 2025 through 2028 and will be subject to phase out limitations for higher earners.
Estate and Gift Tax Exemption: The Bill increases the gift and estate tax exemption to $15 million, indexed for inflation. Without this legislation, the exemption would have reverted to approximately $5 million in 2026.
Business Provisions
Section 199A (Qualified Business Income Deduction): The Bill permanently extends the 20% deduction on qualified business income and favorably increases phase-out amounts from $50,000 ($100,000 for married filing jointly) to $75,000 ($150,000 for married filing jointly). Additionally, the Bill creates a minimum $400 deduction for taxpayers with at least $1,000 of qualified business income (QBI).
Qualified Small Business Stock: The Bill modifies the QSBS exclusion to provide a tiered exclusion determined based on the taxpayer’s holding period. In addition to the existing 100% exclusion for QSBS held for 5-years, the Bill adds a 50% exclusion for QSBS held for 3 years and a 75% exclusion for QSBS held for 4 years. The Bill also increases the current exclusion limit from $10 million (or 10x basis) to $15 million indexed for inflation. The limit on gross assets at the time stock is issued is increased from $50 million to $75 million.
Opportunity Zones: The Bill establishes a permanent opportunity zone policy and creates a rolling 10-year designation of opportunity zones beginning in 2027. For investments made after 2026, taxpayers will be required to recognize the deferred gain five years after the date of investment but will get a 10% basis increase. The full basis step up (to fair market value) will still be available for property held for 10 years, but the Bill freezes the step up after 30 years.
Business Interest Limitation: The Bill reinstates ability to add back certain non-cash expenses (depreciation, depletion, and amortization) to Adjusted Taxable Income when figuring the § 163(j) limitation on business interest expense. The result is that less interest expense will be subject to limitation and after-tax cash flow will be materially improved for many debt-financed businesses.
Excess Business Losses: The Bill permanently extends the limitation on excess business losses and retains the existing treatment of loss carryforwards as net operating loses. The carryforwards will not be subject to re-testing in subsequent years.
Corporate Charitable Deductions: For corporations, the Bill limits the charitable deduction to the amount by which contributions exceed 1% of the corporation’s taxable income.
Accelerated Cost Recovery:
Bonus Depreciation: The Bill permanently extends and modifies additional first-year depreciation. The depreciation allowance is increased to 100% of property acquired and placed in service on or after January 19, 2025.
Qualified Production Property (Manufacturing): The Bill creates a new class of property called Qualified Production Property on which bonus depreciation may be claimed. Qualified Production Property is generally nonresidential real property used in manufacturing where construction begins after January 19, 2025, and before January 1, 2029, and the property is placed in service by the end of 2030.
Section 179: The Bill increases the maximum amount a taxpayer may expense under § 179 from $1,160,000 to $2,500,000 and increases the phase-out threshold from $2,890,000 to $4,000,000.
The Bill modifies § 174 to allow for full expensing of domestic R&D from January 2025 (foreign R&D remains subject to 15-year amortization). All taxpayers have the option to deduct unamortized domestic R&D from 2022 through 2024 on their 2025 return or ratably between 2025 and 2026. Additionally, small businesses have the option to apply the change retroactively to 2022 through amended returns.
Business Tax Credits:
Employer Provided Childcare Credit: The Bill increases the credit from 25% of qualified expenses to 40% (50% for small businesses). Additionally, the maximum credit is increased from $150,000 to $500,000 ($600,000 for small businesses).
Paid Family and Medical Leave Credit: The Bill permanently extends and enhances the credit, which was set to expire after 2025. The credit now allows for insurance premiums and modifies aggregation and eligibility rules.
The New Markets Tax Credit: The Bill permanently extends this program, which was set to expire at the end of 2025.
Tip Credit: The Bill expands the credit to include the beauty service industry. The credit previously only covered the food and beverage industry.
Work Opportunity Tax Credit: The Bill did not extend the WOTC; accordingly the credit is scheduled to expire at the end of 2025.
Clean Energy Tax Credit Rollback
To balance the tax cuts, the Bill rolls back the following deductions and credits:
- The Energy Efficient Commercial Buildings Deduction (§ 179D) is terminated for property that begins construction after June 30, 2026.
- The Energy Efficient Home Improvement Credit (§ 25C) is terminated for property placed into service after December 31, 2025.
- The Residential Clean Energy Credit (§ 25D) is terminated for property placed into service after December 31, 2025.
- The Previously Owned Clean Vehicle Credit (§ 25E) is terminated for expenditures made after September 30, 2025.
- The Alternative Fuel Refueling Property Credit (§ 30C) is terminated for property acquired after June 30, 2026.
- The Clean Vehicle Credit (§ 30D) is terminated for vehicles acquired after September 30, 2025.
- The New Energy Efficient Home Credit (§ 45L) is terminated for homes acquired after June 30, 2026.
- The Commercial Clean Vehicle Credit (§ 45W) is terminated for vehicles acquired after September 30, 2025.
- The Clean Electricity Production Credit (§ 45Y) and the Clean Electricity Investment Credit (§ 48E) are terminated for wind and solar facilities placed in service after December 31, 2027 and all other facilities after 2032. There are also new foreign entity restrictions on these credits.
Administrative and Reporting Changes
Form 1099-MISC Reporting: The Bill increases the information reporting threshold for payments engaged in a trade or business from $600 to $2,000.
Form 1099-K Reporting: The Bill reinstates the 200 transaction and $20,000 threshold for reporting third-party payment network transactions (e.g., Venmo, PayPal, etc.) on Form 1099-K.
Farmland Sales: The Bill adds a new provision to allow income tax resulting from the sale of farmland to a qualified farmer to be paid in annual installments.
Remittance Transfer Tax – The Bill imposes a 1% excise tax on remittance transfers to foreign recipients.
Federal Spending Cuts and Policy Reforms
In addition to the rollback of clean energy programs, the Bill includes spending cuts and policy reforms that aim to save a combined $1.4 trillion to offset tax cuts. Specifically, the Bill (1) cuts $1.2 trillion in Medicaid spending over a decade through stricter eligibility, reduced funding, and new copays; (2) boosts resources for border wall construction and immigration enforcement; and (3) trims SNAP benefits and alters student loan forgiveness programs.
Understanding the Impact: What This Means for You
The OBBBA is a bold move to reshape U.S. fiscal policy. Its tax cuts, spending reductions, and policy shifts aim to stimulate economic growth and prioritize Republican policy goals, but its long-term effects on the economy, equity, and the federal budget remain uncertain. As it takes effect, the Bill will be a focal point for future policy debates and will significantly impact tax planning strategies for individuals and businesses.
Don’t Navigate These Complex Changes Alone
The One Big Beautiful Bill Act introduces sweeping changes that will affect virtually every aspect of tax planning and compliance. From new deduction limitations to modified business credits, the implications for your personal finances or business operations are substantial and require careful analysis.
Our comprehensive Legislation Impact Assessment provides you with a detailed, customized analysis of how these changes specifically affect your situation. Our expert team will review your current tax position, identify opportunities and risks, and develop strategic recommendations to help you maximize benefits while ensuring compliance.
Contact us today to schedule your Legislation Impact Assessment and gain the clarity you need to make informed decisions in this new tax landscape.
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