Significant Tax Changes – One Big Beautiful Bill Act

Significant Tax Changes – One Big Beautiful Bill Act

On July 4, 2025, the President signed into law the One Big Beautiful Bill (OBBB) Act (the “Act”). The Act is incredibly broad and includes provisions that will impact almost every type of taxpayer. This alert is a general summary of the more relevant provisions of the Act and does not include everything contained in the Act.

Business Tax:

• The 100 percent bonus depreciation, which was being phased out and lowered to 40 percent in 2025, has been permanently restored for eligible property acquired after January 19, 2025.
• The Act increases the maximum amount of Section 179 expense allowed to $2.5 million in 2025, to be adjusted for inflation thereafter. The phasedown amount of total qualifying property for the 179 expense is also increased, beginning in 2025, to $4 million, adjusted for inflation thereafter.
• The Act establishes a new type of property, qualified production property (QPP), which is eligible for the 100 percent bonus depreciation. QPP is defined as nonresidential real property used in the manufacturing, production, or refining of certain qualified products as long as construction begins after January 19, 2025, and before January 1, 2029, and the property is placed in service before January 1, 2031. In general, the taxpayer must be the original user of the property, and portions of the property related to office space, parking, administration, and other non-qualified activities are excluded.
• The more favorable calculation for the business interest expense limitation under IRC section 163(j), allowing for the use of depreciation and amortization in calculating allowable business interest expense, is restored permanently for tax years beginning after December 31, 2024. Prior to the Act, the interest expense deduction was calculated based on earnings before income taxes (EBIT). Under the Act, calculation of the deduction based on earnings before income taxes, depreciation, and amortization (EBITDA) will be allowed.
• The Act permanently allows for the immediate expensing of domestic research costs, as well as provides the ability to accelerate any remaining unamortized amounts of previously capitalized research costs incurred in 2022 through 2024.
• The 20 percent section 199A Qualified Business Income (QBI) deduction has been permanently extended by the Act. In addition, the Act increases the limitation phase-in window from $100,000 for married filing jointly taxpayers to $150,000.
• For taxable years beginning after December 31, 2025, a corporation’s charitable contribution deduction will be limited to qualified contributions made in excess of 1 percent of modified taxable income. The 10 percent modified taxable income maximum deduction remains in place.
• Rules for allowable business meal deductions provided on fishing vessels and fish processing facilities are modified by the Act to allow 100 percent deduction beginning after 2025. The current disallowance for most employer-provided meals, to be effective beginning in 2026, remains in effect for all other employers.
• The Act increases the threshold for required filing of 1099-MISC and 1099-NEC forms from $600 to $2,000, beginning in 2026. The threshold amount will be adjusted annually for inflation starting in 2027.
• The Act makes significant changes to the various clean energy credits that were both created and modified under the previously passed Inflation Reduction Act (IRA). One such change is related to the investment tax credit (section 48E) and clean electricity production credit (section 45Y) for solar and wind facilities. Under the Act, these credits will no longer be available for facilities placed in service after December 31, 2027, unless construction begins within 12 months of July 4, 2025.

Individual Tax:

• The Act makes permanent the lowered tax rates and adjusted brackets that were enacted by the Tax Cuts and Jobs Act (TCJA), with some inflation adjustments. These rates/brackets were scheduled to revert back to pre-TCJA levels after December 31, 2025.
• The current standard deduction enacted by the TCJA is made permanent by the Act, with an increase in 2026 and inflation adjustments thereafter.
• The Act makes permanent the simplified overall limitation on itemized deductions enacted by the TCJA. The elimination of miscellaneous itemized deductions under the TCJA is also made permanent, although the educator expense deduction remains. A percentage cap on total itemized deductions for higher income individuals will apply.
• The elimination of the personal exemption enacted by the TCJA is made permanent.
• The Act permanently extends the increased alternative minimum tax (AMT) exemption and phase-out thresholds under the TJCA that were due to expire after December 31, 2025. The last seven years of inflation adjustments to the AMT exemption phase-out threshold for joint filers are removed under the Act.
• The $750,000 principal limit for the home mortgage interest deduction is made permanent.
• The current $10,000 state and local tax (SALT) deduction is increased temporarily to $40,000 for tax years beginning after December 31, 2024, through tax years ending December 31, 2029. There is a phase-out threshold for this higher SALT deduction amount, which begins at adjusted taxable income of $500,000. A 1 percent increase will apply to both the revised SALT cap and the phase-out threshold levels annually through tax year 2029. Beginning in 2030, the SALT cap will revert back to the $10,000 amount.
• The current limits on excess business losses allowed to offset other income is extended permanently.
• The increased child tax credit is extended permanently, as is the additional child tax credit. The non-refundable child tax credit amount is increased to $2,200, effective in 2026.
• Beginning in 2026, individuals who do not itemize deductions are able to claim a charitable contribution deduction of up to $2,000 for married filing jointly taxpayers and $1,000 for single filers.
• A new 0.5 percent of adjusted gross income floor on charitable contribution deductions for individuals that itemize will be effective for tax years beginning after December 31, 2025.
• The Act provides for a temporary $6,000 senior deduction for qualified individuals over the age of 65, with phase-outs for modified adjusted gross income exceeding $150,000 for married filing jointly taxpayers and $75,000 for single taxpayers. This deduction is effective for tax years 2025 through 2028.
• Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in specific occupations that are listed by the IRS as customarily and regularly receiving tips and that are reported on a Form W-2, Form 1099, or other specified statement, including Form 4137 reported directly by the individual. The maximum annual deduction is $25,000, with phase-outs for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). The taxpayer does not need to itemize to receive this deduction. The IRS is to publish the list of occupations that customarily and regularly receive tips by October 2, 2025.
• Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay that is required by the Fair Labor Standards Act (FLSA) and is reported on a Form W-2, Form 1099, or other specified statement. The maximum annual deduction is $12,500 ($25,000 for joint filers), and the deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). Employers and other payors will be required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year. The taxpayer does not need to itemize to receive this deduction.
• Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility requirements, including the requirement that the vehicle has undergone final assembly in the United States and has a gross vehicle weight rating of less than 14,000 pounds. The maximum annual deduction is $10,000 and phases out at a 10 percent rate when adjusted gross income is over $100,000 ($200,000 for joint filers). Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the year. The taxpayer does not need to itemize to receive this deduction; however the vehicle identification number (VIN) of the qualified vehicle will need to be included on the taxpayer’s tax return.
• The Act creates a new tax-favored account for children under the age of 18, known as a “Trump Account.” There is a $5,000 per year (indexed for inflation) contribution limit, with distributions generally prohibited until the child reaches the age of 18. These Trump Accounts will operate in a manner similar to IRAs, with contributions growing on a tax-deferred basis. Employers will also be able to make up to $2,500 in nontaxable contributions per employee. There will also be a pilot program established, which will include a one-time government-funded $1,000 deposit for qualifying children born between December 31, 2024, and January 1, 2029.
• The estate tax provisions under the TCJA, which were scheduled to expire at the end of 2025, have been permanently extended, with an increase in the estate, gift, and generation-skipping tax exemption amounts to $15 million, adjusted annually for inflation, effective December 31, 2025.
• Section 1202 exclusion for qualified small business stock (QSBS) is expanded in three areas. A tiered gain exclusion for QSBS is established, allowing for a 50 percent exclusion for shares held more than three years, a 75 percent exclusion for shares held more than four years, and a 100 percent exclusion for shares held more than five years. In addition, the dollar cap is increased from $10 million to $15 million, adjusted for inflation beginning in 2027. Lastly, the corporate gross asset ceiling is increased from $50 million to $75 million, adjusted for inflation beginning in 2027. The Act’s changes will generally be effective for stock issued or acquired after the Act’s enactment.
• Several clean energy credits applicable to individuals are impacted by the Act, including the termination of the credit for electric vehicles acquired after September 30, 2025, the credit for residential clean energy property (including solar energy property) placed in service after December 31, 2025, and the credit for electric vehicle charging equipment placed in service after June 30, 2026.

Other Provisions:

The Act contains numerous provisions impacting many other areas. Some of the major changes impact the following:

• International taxation
• Tax-exempt organizations
• Rural and agricultural lenders
• Private colleges and universities
• Opportunity zones
• Employee retention tax credit penalties
• 529 programs
• A new 1 percent excise tax on certain foreign remittance transfers
• Treatment of certain payments from partnerships to partners for property or services
• Modification of entity aggregation and allocation rules for the section 162(m) executive compensation deduction limitation

These changes may have a significant impact on taxpayers, and their details are not included in this Alert.