GOP’s "One Big Beautiful Bill" Act Signed into Law

President Trump signed the Republican reconciliation bill, colloquially known as the “One Big Beautiful Bill Act” (OBBBA), into law on July 4, 2025. The bill significantly alters the tax code and makes many expiring provisions of the Tax Cuts and Jobs Act (TCJA) permanent. It also significantly accelerates the termination of many credits created under the Inflation Reduction Act (IRA).

Individual Provisions

Tax Rates: Permanently extends the reduced tax rates from the TCJA and adds an additional year of inflation adjustment for the lowest two rates’ income brackets.

Standard Deduction: Permanently extends the increased standard deduction amounts from the TCJA, with a slight increase to $15,750 for single filers, $23,675 for head of household filers, and $31,500 for joint filers for tax year 2025.

Increased Senior Deduction: Adds a temporary $6,000 deduction (available if itemizing or not) for each individual over the age of 65 for tax years 2025-2028, subject to phaseouts starting at MAGI of $75,000 ($150,000 if MFJ). The full deduction is phased out at $175,000 (or $250,000 if MFJ).

Personal Exemptions: Permanently terminates personal exemptions.

Child Tax Credit: Permanently increases the child tax credit to $2,200 beginning in 2025, indexed for inflation (including the refundable portion), and makes the $500 dependent credit permanent.

State and Local Tax Deduction: The state and local tax deduction limitation is temporarily increased to $40,000 ($20,000 if married filing separately). The marriage penalty is continued. This amount will increase by 1% for tax years 2026, 2027, 2028, and 2029. Beginning in 2030, the amount will “snap back” to $10,000/$5,000 permanently, with no inflation adjustment.

Qualified Business Income (QBI) Deduction: Permanently extends the Qualified Business Income (QBI) Deduction under IRC Sec. 199A, with the deduction amount generally remaining 20%, and increases the beginning phase-out threshold to $75,000 ($150,000 if married filing jointly). It also adds a $400 minimum deduction for taxpayers who materially participate in a business and have $1,000 of QBI.

Estate Tax Exemption: Permanently increases the estate and gift tax exemption to $15,000,000, adjusted annually for inflation.

Alternative Minimum Tax: Makes the increased thresholds at which the Alternative Minimum Tax applies permanent and reverts the threshold amounts back to pre-inflation adjusted levels beginning in 2026. The phaseout amount is increased to 50% of the amount by which the taxpayer’s AMT income exceeds the threshold amount.

Mortgage Interest Deduction: Makes the $750,000 mortgage interest deduction limitation permanent.

Permanent Disallowances: Permanently disallows miscellaneous itemized deductions (other than educator expenses), moving expenses reimbursements, and bicycle commuting reimbursements. 

Itemized Deduction Limitation: Permanently replaces the “Pease limitation” and limits the amount of itemized deductions by reducing the allowable deductions by 2/37s of the lesser of: 

• The amount of allowable deductions, or
• The amount by which the taxpayer's taxable income exceeds the dollar amount at which the 37% tax bracket begins.

This effectively limits the deduction for taxpayers in the highest bracket to $0.35 per dollar otherwise allowable.

No Tax on Tips: Creates a temporary deduction of up to $25,000 of qualified tips received by a qualified individual with a MAGI of $150,000 ($300,000 if MFJ) for tax years 2025-2028.

No Tax on Overtime: Creates a temporary deduction of $12,500 ($25,000 if MFJ) for qualified overtime compensation for individuals with a MAGI of $150,000 ($300,000 if MFJ) for tax years 2025-2028.

Trump Accounts: Allows individuals or employers to contribute up to $5,000 per year (adjusted annually for inflation after 2027) for children who are under the age of 18. A pilot program would automatically create an account and deposit a one-time, $1,000 tax credit for qualifying children born during taxable years 2025-2028.

Adoption Credit: Allows for up to $5,000 of the adoption tax credit to be refundable, increases the exclusion for dependent care assistance to up to $7,500, and increases the maximum credit for child and dependent care to 50% of qualified expenses, up to $3,000 ($6,000 if caring for two or more dependent individuals), subject to income thresholds.

Car Loan Interest Deduction: Creates a temporary deduction for interest from loans for vehicles (with final assembly in the U.S.) for tax years 2025-2028. The deduction begins to phase out with MAGI of $100,000 ($200,000 if MFJ) and is reduced by $200 for each $1,000 over the threshold.

Charitable Deduction for Non-Itemizers: Creates a permanent charitable deduction for taxpayers who take the standard deduction of $1,000 ($2,000 if MFJ).

Charitable Deduction Floor: Creates a permanent floor of 0.5% of the taxpayer's AGI for charitable contributions made by itemizers and permanently extends the increased charitable contribution limit of 60% of AGI for cash contributions. 

ABLE Account Enhancements: Permanently extends the following ABLE account provisions:

• the additional ABLE account contribution amounts for employed beneficiaries,
• the ability to use contributions to ABLE accounts to qualify for the Saver’s Credit, and
• the ability to utilize tax-free rollovers from IRC Sec. 529 plans to qualified ABLE programs.

529 Plan Enhancements: Allows certain elementary, secondary, homeschool, and post-secondary credentialing expenses to be treated as “higher education” expenses for purposes of IRC Sec. 529.

Scholarship Granting Organization Credit: Creates a credit of up to $1,700 for qualified cash contributions made by the taxpayer to a scholarship granting organization.

Business Provisions

Qualified Small Business Stock/IRC Sec. 1202: Sec. 1202 is enhanced for stock acquired after the date of enactment of the bill as follows:

• The exclusion amount is increased to $15,000,000 and will be increased with inflation beginning in 2027,
• The aggregate assets amount is increased to $75,000,000 and will be increased with inflation, and
• The percentage that taxpayers can exclude is now dependent on the following holding periods:
  • 3 Years – 50%
  • 4 Years – 75%
  • 5 Years – 100%

Full Expensing for Domestic R&D: Creates IRC Sec. 174A, which permanently allows businesses to fully expense domestic research and development expenditures, retroactive to January 1, 2025. The bill allows:

• Small businesses (those with gross receipts under $31 million in 2025) to amend returns back to tax years beginning after December 31, 2021, and
• All taxpayers to immediately deduct any domestic expenses paid or incurred between December 31, 2021, and January 1, 2025, that are being amortized over one or two years ratably, starting with the 2025 taxable year.

IRC Sec. 163(j): The bill contains two provisions regarding 163(j):

• Revives the use of EBITDA (instead of EBIT) for purposes of determining the business interest expense deduction limitation under IRC Sec. 163(j) retroactive to taxable years beginning on or after January 1, 2025.
• Appears to disallow the use of interest capitalization (that is, IRC Sec. 266, 263A, and 263(a)) as a way to deduct the interest expense for tax years beginning on or after January 1, 2026. (This does not impact the 2024/2025 tax years.)

Bonus Depreciation: The bill contains two bonus depreciation provisions

• Permanently extends 100% bonus depreciation for property acquired and placed in service after January 19, 2025. (Note: Property placed in service before January 20, 2025, would be limited to 40% bonus (or 60% if long-term property).
• Temporarily allows 100% depreciation for qualified production property, construction of which begins after January 19, 2025, and before January 1, 2029, and is placed in service before January 1, 2031.

IRC Sec. 179 Expensing: Permanently increases the IRC Sec. 179 expensing amount to $2.5 million and the phase-out threshold amount to $4 million, retroactive to Jan. 1, 2025.

Paid Family and Medical Leave Credit: Permanently extends the paid family and medical leave credit.

IRC Sec. 48D: Increases the advanced manufacturing investment credit from 25% to 35%.

Employer Provided Childcare Credit: Permanently enhances the employer-provided childcare credit by increasing the maximum credit to $500,000 ($600,000 for small businesses with gross receipts under $31 million) and the percentage of covered expenses to 40% (50% for small businesses).

IRC Sec. 461(l) Excess Business Losses: Permanently extends the limitation on excess business losses for taxpayers other than corporations under IRC Sec. 461(l). (Note: Provisions disallowing the use of excess business loss carryfowards as Net Operating Losses in future years were removed from the bill.)

Charitable Deduction Floor: Creates a 1% floor for charitable contributions by C corporations, effectively limiting their deduction to 9%.

International Provisions

Foreign-Derived Intangible Income: Renames Foreign-Derived Intangible Income to “Foreign-Derived Deduction Eligible Income,” reduces the deduction to 33.34% (currently, 37.5%), effectively increases the tax rate to approximately 14%, and modifies the calculation.

Global Intangible Low-Taxed Income: Renames the Global Intangible Low-Taxed Income to “Net CFC Tested Income,” reduces the deduction to 40% (currently, 50%), effectively increases the tax rate to approximately 14%, and modifies the calculation.

Base Erosion and Anti-Abuse Tax: Increases the BEAT rate to 10.5% (currently, 10%).

Remittance Tax: Creates a 1% “remittance tax” on money sent abroad. This would not apply to funds that are:

• Withdrawn from accounts held in financial institutions subject to the Bank Secrecy Act,
• Funded with debit or credit cards issued in the U.S.

Foreign Tax Credits (FTCs): Increases the IRC Sec. 960 deemed paid credit to 90% (currently, 80%).

Tax-Exempt Organizations Provisions

Increased Application of IRC Sec. 4960: Includes all employees receiving remuneration in excess of $1 million in the definition of “covered employees” for purposes of the IRC Sec. 4960 excise tax.

Increase of University Endowment Tax: Increases the IRC Sec. 4968 excise tax rate on applicable educational institutions’ net investment income as follows:

• 1.4% for institutions with an endowment of at least $500,000 per student,
• 4% for institutions with an endowment in excess of $750,000 per student, and
• 8% for institutions with an endowment in excess of $2,000,000 per student.

Energy Credit Provisions

Clean Vehicle Credits: Terminates clean vehicle credits under IRC Secs. 25E (Used Clean Vehicle Credit), 30D (Clean Vehicle Credit), and 45W (Qualified Commercial Clean Vehicle Credit) after September 30, 2025.

Clean Building Credits: Terminates IRC Secs. 30C (Alternative Fuel Vehicle Refueling Credit), 45L (New Energy Efficient Home Credit), and 179D (Energy Efficient Commercial Buildings Deduction) after June 30, 2026.

Home Efficiency Credits: Terminates IRC Secs. 25C (Energy Efficient Home Improvement Credit) and 25D (Residential Clean Energy Credit) after December 31, 2025.

IRC Sec. 45Q: Keeps the current law for IRC Sec. 45Q (Carbon Oxide Sequestration Credit) and increases the credit for certain processes.

IRC Sec. 45U: Terminates IRC Sec. 45U (Zero-Emission Nuclear Power Production Credit) after December 31, 2032.

IRC Sec. 45V: Terminates IRC Sec. 45V (Clean Hydrogen Production Credit) for construction beginning after December 31, 2027.

IRC Sec. 45X: Generally, keeps the current phase out for IRC Sec. 45X (Advanced Manufacturing Production Credit), but phases out for wind components sold after December 31, 2027, and delays the phase out for critical minerals until December 31, 2030 (75% allowed in 2031, 50% in 2032, 25% in 2033, and no credit beginning in 2034).

IRC Sec. 45Y and 48E: Terminates IRC Sec. 45Y (Clean Electricity Production Credit) and IRC Sec. 48E (Clean Energy Investment Credit) for wind and solar that begin construction after July 4, 2026, or are placed in service after December 31, 2027. Hydropower, nuclear, and geothermal continue to qualify for 100% of the credit for facilities that begin construction before December 31, 2033, with a phase-out beginning in 2034 (75% in 2034, 50% in 2035, with no credit after December 31, 2035).

IRC Sec. 45Z: Extends IRC Sec. 45Z (Clean Fuel Production Credit) through December 31, 2029, and limits the credit to feedstocks produced in North America.

IRC Sec. 48C: Freezes the IRC Sec. 48C (Advanced Energy Project Credit) credit allocation at current levels.

Industry Specific Provisions

Qualified Opportunity Zones Provisions: The bill extends Qualified Opportunity Zones, with ten-year rolling designations for tracts starting January 1, 2027, and

• Alters the definition of Low-Income Communities (LIC) to mean population centers with either:
  • a median family income that does not exceed 70% of the area’s median family income, or
  • a median family income that does not exceed 125% of the area’s median family income and a poverty rate of at least 20%.
• Creates staggered holding periods for taxpayers to receive up to a 10% step-up in basis as follows:
  • Years 1-3: 1% (total of 3%)
  • Years 4-5: 2% (total of 4%)
  • Year 6: 3%
• Creates qualified rural opportunity funds which can receive up to a 30% step-up in basis.
• Modifies the substantial improvement requirement for QOZ business property (i.e., improvements must generally exceed 100% of adjusted basis of qualifying property during a 30-month period). In the case of property located in a qualified opportunity zone comprised entirely of a rural area, improvements must only exceed 50% of the adjusted basis.

Rural Interest Exclusion: Allows specified financial lenders to exclude up to 25% of interest income derived from qualified real estate loans from gross income.

Capital Gains from Qualified Farmland Property: Allows taxpayers to pay the net income tax from the sale of a qualified farmland property to a qualified farmer over four years in equal installments.

Low-Income Housing Tax Credit: Increases the state housing credit ceiling under the Low-Income Housing Tax Credit for calendar years 2026-2029 to 12.5% and allows additional buildings that are financed with tax-exempt bonds to qualify for housing credits if at least 25% of the aggregate basis of the building is financed with qualified bonds.

Qualified Productions: Extends the expensing rules for qualified film, television, and live theatrical productions to qualified sound production costs until January 1, 2026; and allows bonus depreciation for qualified sound recording productions placed in service (i.e., released or broadcast) before January 1, 2029.

Firearm Silencers: Repeals the excise tax on firearm silencers.

Employee Retention Tax Credit: Creates new penalties for employee retention tax credit (ERTC) promoters, disallows ERTC refunds claimed after January 31, 2024, and extends the statute of limitations to assess penalties for the ERTC to six years after the latest of:

• the date the original return was filed,
• the date the return was treated as filed, or
• the date the claim for the ERTC credit or refund is made.

Notable Removals

The bill does not contain the following provisions that were included in previous versions:

• IRC Sec. 899 (the so-called “revenge tax”),
• The litigation funding proceeds excise tax of 31.8%,
• The wind and solar excise tax of 30%-50%,
• All the HSA enhancements in the House version,
• The increase on private foundations’ net investment income tax,
• The limitation of amortization of intangibles under IRC Sec. 197 to 50% for sports franchises, and
• The increase in the IRC Sec. 448(c) threshold for small U.S. manufacturers.

The changes made by the OBBBA will impact every taxpayer. For businesses, third-quarter reporting will likely be impacted most immediately; but businesses that filed extensions in anticipation of retroactive provisions will also need advice quickly. Individuals may have questions about how the retroactive increases to the standard deduction, new deductions for seniors, and increase to the estate and gift tax exemption will impact their planning this year and next.

If you have questions about how these legislative changes will impact you, contact us below.