& Sarah Reeves | Senior Tax Manager
The One Big Beautiful Bill Act was signed into law on July 4, 2025. The bill permanently extends many of the tax provisions in the 2017 Tax Cuts and Jobs Act while introducing several new pieces of tax legislation prioritized during the campaign. Here is a breakdown of the key provisions affecting individuals and businesses.
Individual Tax Provisions:
- Income tax rates – permanently retains the current tax bracket structure, indexed for inflation, with a top tax rate of 37% (was set to expire after 2025 and revert back to 2017 levels with top rate of 39.6%).
- Standard deduction – permanently retains increased standard deduction, indexed for inflation (was set to be roughly cut in half after 2025).
- Personal exemptions – permanently terminated (previously only temporarily suspended through 2025).
- NEW enhanced senior deduction – temporary $6,000 “bonus” deduction for seniors age 65 and over for years 2025-2028. Deduction phases out for taxpayers with modified adjusted gross income (AGI) exceeding $75,000 ($150,000 for married filing joint).
- Child tax credit – permanently extends and enhances credit to $2,200 per child in 2025 (was temporarily $2,000 and was set to revert back to $1,000 after 2025).
- Other dependent credit – permanently retains the $500 credit for dependents other than a qualifying child (was set to expire after 2025).
- State and Local Tax (SALT) deduction – temporarily increases maximum deduction allowed to $40,000 for 2025 with a 1% inflation increase per year in 2026-2028. The deduction reverts back to a cap of only $10,000 in 2030. This deduction phases out for higher earners with modified AGI over $500,000 in 2025. Note: although discussed in some of the earlier versions of the bill, there is no SALT limitation on pass-through entities in the final bill.
- Other itemized deductions:
- Mortgage interest deduction – permanently retains the $750k mortgage acquisition indebtedness limit.
- Charitable contribution deduction – newly limits itemized deduction to contributions exceeding a 0.5% AGI “floor” for years after 2025. However, for taxpayers who do not elect to itemize, the bill permanently extends and enhances the deduction for cash contributions to $1,000 ($2,000 for married filing joint).
- Miscellaneous itemized deductions – permanently terminated except for certain educator expenses.
- Casualty loss deduction – permanently limited to only federal declared disasters except expanded to also include state declared disasters after 2025.
- Moving expense deduction – permanently terminated except for Armed Forces.
- Wagering loss deduction – permanently limited to 90% of wagering losses and only to the extent of winnings during the tax year for years after 2025 (previously no limit was temporarily in effect for years 2018-2025).
- Limit on itemized deductions – permanently eliminates the former “pease” limitation which has been temporarily on suspension. However, a NEW cap on itemized deductions is effective starting in 2026 for higher earners in the top 37% bracket.
- NEW “no tax on car loan interest” – temporary deduction up to $10,000 per year allowed for qualified passenger vehicle loan interest for years 2025-2028. This deduction is available to non-itemizers. There are many requirements to be considered “qualified” – certain passenger vehicles for personal use, new (not used), acquisition/loan incurred after December 31, 2024, final assembly in the U.S. and with phase-out for higher earners.
- NEW “no tax on tips” – temporary deduction up to $25,000 per year for qualified tips in years 2025-2028. This deduction is also available to non-itemizers. To be qualified, tips must be received in a business that typically receives tips (list of occupations to be published within 90 days.) The deduction begins phasing out for higher income levels with modified AGI exceeding $150,000 ($300,000 for married filing joint.)
- NEW “no tax on overtime” – temporary deduction up to $12,500 ($25,000 on joint return) for qualified overtime compensation in years 2025-2028. This deduction is also available to non-itemizers and applies to qualified overtime properly reported on both Form W-2 and 1099. The deduction begins phasing out for higher income levels with modified AGI exceeding $150,000 ($300,000 for married filing joint.)
- NEW “Trump account” – creates a new tax-deferred retirement savings account for individuals under age 18. The bill also includes a pilot program which provides a one-time $1,000 credit funded to this account for qualifying children born in years 2025-2028. However, this new program is still under development.
- Alternative minimum tax – permanently retains the higher exemption amounts, but increases the phase-out rate for higher earners.
- Energy efficient credits – terminates the energy efficient home improvement credit and residential clean energy credit for expenditures and property placed in service after December 31, 2025.
- Clean vehicle credits – terminates both the clean vehicle and previously-owned clean vehicle credits for vehicles acquired after September 30, 2025.
- NEW 1% excise tax on remittance transfers – assessed on transfers of cash, money order, cashier’s check, or similar physical instrument by individuals located in the U.S. to a person located in a foreign country. This applies to transfers made after December 31, 2025.
Estate Tax Provisions:
- Estate and gift tax exemption – permanently increases lifetime exemption to $15 million after December 31, 2025, indexed for inflation for years after 2026 (was $13.61 million in 2024 and was set to be roughly cut in half after 2025).
Business Tax Provisions:
- Qualifying business income (QBI) deduction – permanently retains 20% deduction for qualifying pass-through business income (deduction previously set to expire after 2025). The bill also enhances the deduction for tax years after 2025 by increasing the taxable income limitation phase-in amounts and provides for a minimum deduction for certain taxpayers.
- Expensing business property:
- Bonus depreciation – permanently reinstates 100% expensing for qualified property acquired and placed in service after January 19, 2025 (previously deduction % was gradually phasing down to zero and is only 40% for property acquired in 2025 prior to the January 19th date).
- Section 179 expensing – permanently increases the annual expensing deduction allowed to $2,500,000 with investment phase-down threshold of $4,000,000 for tax years beginning after 2024, indexed for inflation thereafter (was previously $1,160,000 with investment phase-down threshold of $2,890,000).
- NEW Qualified production property special depreciation – temporary 100% bonus depreciation allowed on qualified production property (i.e. generally new non-residential property used in manufacturing in the U.S.) where construction begins after January 19, 2025 and before January 1, 2029 and is placed in service before January 1, 2031.
- Research and Development (R&D) expensing – permanently reinstates full expensing for domestic R&D incurred in taxable years beginning after December 31, 2024. Alternately, taxpayers can elect to capitalize and amortize domestic R&D. Foreign R&D must continue to be capitalized and amortized. Small businesses may elect to retroactively apply this change for taxable years beginning after December 31, 2021.
- Business interest deduction limitation – permanently reinstates the addback of amortization and depreciation in the calculation of the interest limitation threshold, effectively allowing a greater interest deduction for tax years beginning after December 31, 2024 (previously threshold was reduced to an “EBIT” calculation in years 2022-2024 and is now returning to an “EBITDA” calculation.)
- Excess business loss limitation – permanently limits the aggregate deduction for pass-through business losses on an individual return (previously, limitation was set to expire after 2028.) The limitation amount for 2025 is $313,000 ($626,000 for married filing joint) and is indexed annually for inflation.
- Qualified small business stock gain exclusion – expands the Section 1202 exclusion allowed to non-corporate taxpayers by increasing the eligibility, increasing the maximum dollar limit of the exclusion, and providing a tiered exclusion percentage based on the number of years held.
- 50% exclusion – held for 3 years
- 75% exclusion – held for 4 years
- 100% exclusion – held for 5+ years
- NEW charitable contribution deduction limitation for corporations – limits deduction to contributions exceeding a 1% taxable income “floor” for tax years beginning after 2025. The same 10% taxable income “ceiling” continues to apply.
- 1099 reporting threshold – increases the information reporting threshold for certain payments (typically reported on Form 1099-MISC and 1099-NEC) from $600 to $2,000 for payments made after December 31, 2025, indexed annually for inflation thereafter.
International Tax Provisions:
- Global Intangible Low-Taxed Income (GILTI) deduction – decreased to 40% for tax years beginning after December 31, 2025 (formerly 50% deduction.) The bill also provided a few favorable changes that effectively increase the amount of the foreign tax credit potentially received. The bill renames GILTI to “net CFC tested income” (NCTI).
- Foreign-Derived Intangible Income (FDII) deduction – decreased to 33.34% for tax years beginning after December 31, 2025 (formerly 37.5% deduction.) The bill also renames FDII to “foreign-derived deduction eligible income” (FDDEI).
- Base Erosion and Anti-Abuse Tax (BEAT) – increases BEAT rate from 10% to only 10.5% for tax years beginning after December 31, 2025 (previously set to increase to 12.5% after 2025).
Need Help Navigating These Changes?
The new tax bill contains significant changes which have wide-reaching implications for both individuals and businesses. Our tax team is closely monitoring new guidance as it evolves and is prepared to assist with the tax planning needs for you and your business.
Contact our team today to discuss how these tax law changes impact you.
