On July 4, 2025, President Trump signed into law the bill knowns as the “One Big Beautiful Bill Act” (OBBBA). This legislation has significant tax consequences, many of which are effective for 2025.
Key takeaways from the bill include:
- Extending and/or making permanent many of the business tax provisions of the 2017 Tax Cuts and Jobs Act.
- Changes to certain items related to individual income tax.
- Removal of many of the clean energy tax incentives.
Key Business Tax Provisions
- Bonus Depreciation: Restores 100% bonus depreciation on qualifying assets acquired after January 19, 2025, and makes the 100% bonus depreciation permanent. Additionally, certain manufacturing buildings now qualify for bonus depreciation.
- Section 179 Expensing: Increases the Section 179 limit from $1 million to $2.5 million with a phase-out threshold of $4 million, both indexed for inflation.
- Research and Development Expenditures: Reinstates the deduction for research and development expenditures and allows for the acceleration of those expenditures incurred in 2022-2024 that were subject to amortization. Additionally, companies with less than $31 million in gross receipts have the opportunity to amend returns to recover the previously amortized research expenditures.
- Pass-through Entity Deduction: The additional 20% passthrough entity deduction under Sec 199A was set to expire after 2025, the bill makes this deduction permanent and expands the limitation phase in.
- Business Interest: The business interest limitation under 163(j) is extended using the original rules which allow for the exclusion of depreciation and amortization. This provision is effective through the end of 2029.
- Excess business losses: The bill makes Sec. 461(l)(1) limitation on excess business losses of noncorporate taxpayers permanent. It was scheduled to expire after 2028.
Key Individual Tax Provisions
- Tax Rates: Keeps rates at the current levels, which were set to increase in 2026.
- Standard deduction increase made permanent: 2025 set at $15,750 Single, $23,625 Head of Household, $31,500 Joint. This deduction will be indexed for inflation annually.
- Mortgage Interest: Makes permanent the cap on deductible mortgage interest for only mortgage acquisition indebtedness of $750,000.
- Estate and Gift Tax Exemption: Effective January 1, 2026, the estate and gift tax exemption is made permanent at $15 million/person, adjusted for inflation.
- State and Local Tax (SALT) Deduction Cap: For tax years 2025-2029 the state and local tax deduction allowed as an itemized deduction is $40,000, indexed for inflation at 1% per year (previously this amount was $10,000). The SALT deduction is subject to an income phase-out for taxpayers with adjusted gross income of $500,000 or more.
- Charitable Deductions: Beginning in 2026, individuals who do not itemize deductions can deduct up to $1,000 ($2,000 for joint filers) as an above the line deduction. Additionally, charitable deductions will have limitations that include a floor of 0.5% of adjusted gross income.
- Itemized Deduction Limitation: Itemized deductions and will be subject to a maximum deduction rate of 35%.
- Miscellaneous Itemized Deductions: Permanently eliminates the deduction for certain miscellaneous itemized deductions such as investment expenses and work-related expenses. An exception is made for educator related deductions including coaching.
- Child Tax Credit: The child tax credit is increased for tax years 2025-2029 to $2,200 (indexed for inflation after 2025) per qualifying child. The income phase-out for this credit remains at $200,000 ($400,000 for joint filers).
- Personal Exemptions: Permanently removes personal exemptions except for a $6,000 senior deduction for eligible individuals over the age of 65. The senior deduction phases-out with income over $75,000 ($150,000 for joint filers)
- Tips deduction: Tip income earned in certain industries is eligible for an income tax deduction of up to $25,000 per individual for those with incomes less than $150,000 ($300,000 for joint filers).
- Overtime Pay Deduction: Overtime compensation is eligible for an income tax deduction of up to $12,500 for taxpayers with income less than $150,000 ($300,000 for joint filers).
- Car Loan Interest: For tax years 2025-2028, individuals can deduct up to $10,000 per year in interest paid on qualifying car loan for taxpayers with income less than $100,000 ($200,000 for joint filers).
- Individual Trust Accounts (Trump accounts): Establishes a new type of account that allows for a contribution of up to $5,000/year for individuals under the age of 18, including a one-time government deposit of up to $1,000 for children born in tax years 2025-2028. Allows employers to make tax-free contributions to such accounts annually.
- Casualty Losses: Makes permanent the removal of the deduction for casualty losses except as it pertains to qualified disaster losses. Expands the definition for qualified disaster losses to include federally declared disaster losses and state declared disaster losses.
Clean Energy Cuts
- Wind and Solar Credits: Wind and solar production tax credits and investment tax credits are eliminated for facilities placed in service after December 31, 2027 except those that began construction by July 4, 2026.
- Energy Efficient Home Credit: Eliminates the credit for energy efficient homes after June 30, 2026.
- Qualified Commercial Clean Vehicles: Eliminates the credit for qualified commercial clean vehicles acquired after September 30, 2025
- Electric Vehicle Credit: Eliminates the $7,500 electric vehicle credit for vehicles acquired after September 30, 2025.
- Residential Energy Credit: Eliminates the residential clean energy property credit for property placed in service after December 31, 2025, including solar property. Eliminates the individual credit for EV charging equipment placed in service after June 30, 2026.
We’ve highlighted the key changes that we feel will impact you the most. There were numerous other changes in the bill, as well, including changes specific to foreign transactions. We will continue to review future guidance from the IRS related to this bill, and keep you informed. If you have any questions about your specific tax situation, please reach out to our professionals to understand how this bill impacts you.
