On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This expansive legislation makes permanent many of the tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025, as well as increasing or creating new deductions in many areas. Both business and individual tax provisions are impacted by the new legislation.
OBBBA contains a multitude of narrow or industry-specific items. Additionally, due to the broad nature of the Act, the Treasury Department, IRS, and other agencies will spend the next year or more issuing regulations, forms, and notices that fill in the operational details of these new provisions. The following is a high-level summary of the changes most relevant to our clients and is not an exhaustive report.
Business Tax Provisions
Bonus Depreciation – 100% expensing of qualifying property under §168(k) has been a tax tool popular on both sides of the aisle for many years as a way to encourage business investment in equipment and other necessary long-lived assets. The TCJA originally extended 100% bonus depreciation, but for tax years 2023 and 2024, this additional deduction was reduced to 80% and 60%, respectively. OBBBA now makes 100% bonus depreciation permanent for qualifying property for assets purchased after January 19, 2025.
For manufacturers and other producers, a new provision under §168(n) allows 100% depreciation for “Qualified Production Property” (QPP), defined as nonresidential real property that is used as an integral part of a qualified production activity. QPP must be constructed between January 20, 2025, and December 31, 2028, and placed in service by December 31, 2030. Additionally, existing property not used in a qualified production activity between January 1, 2021, and May 12, 2025, will also qualify if acquired after January 19, 2025, and before January 1, 2029. This new provision will significantly accelerate the available depreciation on property otherwise commonly subject to a 39-year depreciable life.
Higher Ceiling for §179 Expensing – As a companion to bonus depreciation, §179 also allows businesses to deduct the cost of most tangible equipment (and certain building improvements) instead of depreciating it over time. OBBBA raises the annual dollar cap to $2.5 million and begins phasing the benefit out when total qualifying purchases top $4 million in a year. Both thresholds will adjust for inflation going forward.
Research Expenditure Expensing Under §174 – OBBBA restores the current year deductibility of §174 expenditures relating to research activities. Due to a change included in the TCJA, beginning with the 2022 tax year, businesses were required to capitalize and amortize research expenditures over five years (domestic) or fifteen years (foreign-sourced). This required capitalization has been a sore spot for many companies due to the decrease in available tax deductions despite incurring the economic outlay for these expenditures. With the OBBBA, Congress has finally passed a fix for this issue, along with the ability for small taxpayers (less than $31 million in gross receipts) to retroactively claim deductions for the previously capitalized expenditures. Other taxpayers may choose to accelerate their remaining unamortized research expenditures over one or two years beginning with their 2025 tax year.
§163(j) Business Interest Deduction – Another key provision from the TCJA was the limitation under §163(j) for deducting business interest expense. This provision specifically applied to larger taxpayers who failed to meet the gross receipts test for small businesses or certain businesses with passive investors. The provision ultimately limited the deductibility of business interest expense to 30% of Adjusted Taxable Income (ATI). The OBBBA reinstates a more favorable method of calculating ATI that allows taxpayers to add back depreciation, depletion, and amortization, providing for greater ability to deduct interest expense for equipment-heavy taxpayers.
Qualified Business Income Deduction Permanently Extended – OBBBA permanently extends the Qualified Business Income (QBI) deduction under IRC §199A. This deduction allows eligible taxpayers, including owners of sole proprietorships, partnerships, LLCs, and S corporations, to deduct up to 20% of their QBI, effectively reducing the top marginal rate from 37% to 29.6% on this income. The permanent extension includes additional modifications that expand eligibility and clarify qualification rules to benefit a broader range of small business owners.
§179D Energy Efficient Commercial Building Deduction – The §179D deduction has been a useful tool for commercial building owners and certain architects, engineers, and contractors involved in the construction or retrofit of energy-efficient commercial buildings. OBBBA terminates the §179D deduction for property beginning construction after June 30, 2026.
Individual Tax Provisions
Tax Rates – The reduced TCJA individual tax rates applicable since 2018 have now been made permanent. The top tax rate remains at 37% rather than reverting to the pre-TCJA era rate of 39.6% after 2025.
Standard Deduction – OBBBA maintains the nearly doubled standard deduction under the TCJA and increases these amounts for 2025 with inflation indexing thereafter. For 2025, the standard deduction is $31,500 for joint filers, $23,625 for heads of households and $15,750 for single taxpayers and married filing separate taxpayers.
Child Tax Credit – OBBBA takes the increased child tax credit under the TCJA and permanently increases the base rate from $2,000 to $2,200 for 2025, with annual inflation-adjusted increases. The base refundable portion of the credit is now $1,700, also with annual inflation-adjusted increases.
SALT Deduction – The State and Local Tax (SALT) deduction provisions resulted in a bevy of new state legislation since the passage of the TCJA, and were the subject of much debate with OBBBA. The TCJA previously limited the itemized deduction for state and local taxes to $10,000. OBBBA now temporarily increases that limitation to $20,000 (single filers) and $40,000 (joint filers) for 2025 with an annual 1% increase in this limit before returning to $10,000 again in 2030. For taxpayers with modified adjusted gross income (MAGI) over $500,000, the SALT deduction is reduced by 30% of the amount by which the taxpayer’s MAGI exceeds that amount, but will not reduce the deduction below $10,000. The $500,000 threshold increases by 1% each year.
Itemized Deduction Limitation – The TCJA removed the “Pease” limitation on itemized deductions for high-income taxpayers. OBBBA now permanently repeals the “Pease” limitation and replaces it with a new limitation on itemized deductions applicable to all taxpayers in the 37% tax bracket, starting with the 2026 tax year. This reduction in available itemized deductions is a hidden tax increase for itemizers in the top marginal tax bracket.
Excess Business Loss Cap – The limitation on excess business losses of noncorporate taxpayers is now permanent. It was originally scheduled to expire after 2028.
Alternative Minimum Tax (AMT) Exemptions – The larger post-2017 exemption amounts remain in place, but the income levels at which the exemption phases out revert to their pre-TCJA starting points – approximately $500,000 (single) and $1 million (joint) in 2025, indexed thereafter. Result: most middle-income filers remain untouched, while very high-income taxpayers may lose more of the exemption than under current rules.
$6,000 Senior Deduction – OBBBA creates a new deduction for seniors aged 65 and older for the 2025 through 2028 tax years. The $6,000 ($12,000 joint filers) deduction begins to phase out for those individuals with MAGI of $75,000 ($150,000 joint filers), and is fully phased out at $175,000 ($250,000 joint).
Tips and Overtime Pay Deductions – OBBBA introduces two temporary deductions for tips and overtime pay from 2025 to 2028. Both deductions phase out starting at $150,000 ($300,000 joint filers) of MAGI at a rate of $100 for each $1,000 of income above the threshold.
Up to $25,000 of cash tips received in an occupation that already customarily received tips on or before December 31, 2024, may qualify for a deduction. Tips that are mandatory service charges, like automatic gratuities, or those received by certain occupations, do not qualify. The Treasury must publish a list of qualifying occupations within 90 days, and employers will be required to report both total cash tips and the worker’s occupation on the 2025 Form W-2.
For taxpayers who receive overtime pay, up to $12,500 ($25,000 for joint returns) may be deductible. The deduction applies only to the overtime premium required by the FLSA, not the entire overtime payment. For example, if an employee’s base wage is $30 per hour and the FLSA-mandated rate for overtime is $45, only the $15 premium portion is deductible. Contractual “double-time” or state-only overtime rules do not qualify.
Employers must report the qualified premium separately on Forms W-2 starting with 2025 wages, which will require payroll systems to track regular pay and FLSA-required premiums as distinct items. The Treasury is expected to allow a “reasonable approximation” method for 2025 while programming catches up.
Vehicle Loan Interest Deduction – Up to $10,000 of interest paid each year on a qualified passenger-vehicle loan may be deductible. A vehicle generally qualifies if its final assembly occurred in the United States and was purchased after 2024. The deduction does not apply to leases or fleet financing. The deduction is available for 2025 through 2028 tax years and begins to phase out once MAGI exceeds $100,000 for single filers ($200,000 joint filers) at a rate of $200 for each $1,000 of income above the threshold. The Treasury has 12 months to prescribe reporting rules for this deduction.
Trump Accounts – Starting with children born or adopted between January 1, 2025, and December 31, 2028, the Treasury will open a federally administered savings account and seed it with $1,000. Once the program goes live in 2026, parents and others may contribute up to $5,000 per year (aggregated per child). Earnings grow tax-deferred and may be withdrawn without federal penalty for qualified education expenses, up to $15,000 of first-home costs, or up to $25,000 to start or buy a business.
Think of the accounts as something between a 529 plan and a UTMA/UGMA. It has broader permitted uses than a 529, but less favorable tax treatment. When compared to a UTMA/UGMA, the contributions and earnings in these accounts may avoid kiddie-tax rules while they stay in the account, but funds are locked to the three qualified categories until age 30, so there’s a little less flexibility.
Expansion of 529 Plan Uses – OBBBA expands permitted uses of funds in 529 plans. Previously restricted to higher education expenses, these accounts can now cover expenses related to elementary, secondary, and home schooling, providing families with broader financial flexibility in managing educational costs.
Opportunity Zones – The Opportunity Zone program is renewed indefinitely, with zones set to be re-designated every ten years. There’s also a narrower definition of “low-income community,” and a new “Qualified Rural Opportunity Fund” (QROF) that offers investors more substantial tax benefits. QROFs offer a rolling 30% basis step-up after 5 years (compared to 10% for others) and a reduced “substantial improvement” requirement, which reduces the amount that must be reinvested in property improvements.
Estate and Gift Tax Exemption – The doubled lifetime exemption that was due to sunset after 2025 is made permanent and larger: $15 million per person ($30 million married), indexed for inflation beginning in 2026. By making the higher exemption amounts permanent, the new bill reduces uncertainty surrounding estate planning for taxpayers.
Green Energy Credits
Clean Energy Credits – Congress targeted many of the tax credits created under the Inflation Reduction Act (IRA) for elimination with the new bill, primarily as a method for paying for many of the new deductions and similar provisions. These changes significantly reduce incentives for consumer adoption of certain clean energy technologies. While there are some allowances for certain projects, most energy credits under the IRA end after 2025, including:
- Previously-owned clean vehicle credit
- Clean vehicle credit
- Qualified commercial clean vehicle credit
- Alternative fuel refueling property credit
- Energy-efficient home improvement credit
- Residential clean energy credit
- New energy-efficient home credit
The passage of the One Big Beautiful Bill Act once again reshapes the tax landscape for businesses and individuals. Many of the provisions are effective for the 2025 tax year, creating the need for careful tax planning strategies and action now to create the most value for you and your business.
As your trusted advisors, it is our goal to help you find the opportunities most impactful to you and help you continue to succeed in a changing world. We at HSC are continuing to analyze the many provisions under this new bill and will continue to provide relevant and useful guidance throughout the year. For guidance tailored to your individual situation, please reach out to your trusted HSC advisor or contact us at 800.880.7800.
