Key points covered in this article:

  • Major individual tax changes include making lower tax brackets and higher standard deductions permanent, expanding the SALT cap to $40,000, increasing the child tax credit, and introducing new deductions (e.g., for tips, overtime, car loans, and seniors). A new savings vehicle called “Trump accounts” for minors is also established.

  • Business provisions make the 20% QBI deduction and 100% bonus depreciation permanent, restore immediate R&D expensing for domestic activities, and raise Section 179 expensing limits. The Opportunity Zones program and small business stock gains exclusions are expanded.

  • Clean energy incentives are being phased out, with key credits for electric vehicles, energy-efficient homes, and refueling stations set to expire by mid-2026, sparking concerns about slowed renewable adoption.

 

Signed into law on July 4, 2025, the One Big Beautiful Bill Act is an extensive piece of legislation that builds upon, modifies, and in some instances permanently extends major provisions of the Tax Cuts and Jobs Act (TCJA). Passed by a narrow margin in both the House and the Senate, the bill attracted debate over issues ranging from the expansion of certain deductions and credits to the termination of several clean energy incentives.

The bill is intended to update the tax code, provide stimulus for businesses, and introduce new benefits for individual taxpayers. The Congressional Budget Office estimates that the bill will increase the federal deficit by $3.4 trillion over the next 10 years.

Containing 100 provisions across multiple areas of the tax code, the legislation is too broad to address in full detail here. This article provides a summary of the key U.S. tax provisions. A separate article will cover international tax changes included in the bill.

Overview of Major Individual Tax Provisions

Lower Individual Rates Become Permanent: The bill locks in the lower TCJA tax brackets, which were initially set to expire this year. In addition to preserving the current rates, it also provides an extra year of inflation adjustment to bracket thresholds.

Standard Deduction Increases: For those who choose not to itemize, the standard deduction sees a permanent jump in 2025 to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married filing jointly. These amounts will be adjusted for inflation in each subsequent year.

SALT Deduction Cap: The state and local tax (SALT) deduction cap moves from $10,000 to $40,000 in 2025. While the new law retains a phase-down for high-income earners, it does not impose additional restrictions on existing workarounds such as pass-through entity taxes (PTET). This is a favorable outcome for pass-through businesses, as the PTET deductions were in jeopardy in earlier drafts of the bill.

Child Tax Credit Changes: The credit rises slightly to $2,200 per child. As with the TCJA, the higher income phaseout thresholds remain in place.

Changes to Mortgage Deductions: The limit on the mortgage interest deduction, capped at the first $750,000 in acquisition debt, becomes permanent. Mortgage insurance premiums are also formally recognized as deductible.

Estate and Gift Tax Exemption Increase: Another feature is the permanent increase of the federal estate and gift tax exemption to $15 million for single filers (and $30 million for married couples). After 2026, it will be indexed for inflation.

Deductions for Tips and Overtime Pay: The legislation introduces temporary deductions for both tips and overtime pay from 2025 through 2028. Individuals in occupations that customarily receive tips may deduct up to $25,000 in qualified tip income, while those earning qualified overtime compensation may deduct up to $12,500, or $25,000 for joint filers. Overtime must be paid in accordance with Fair Labor Standards Act. Both deductions begin to phase out at modified adjusted gross income of $150,000 for single filers and $300,000 for joint filers.

Senior Deduction: Seniors age 65 and older can claim a temporary $6,000 deduction from 2025 through 2028, with a phaseout beginning at $75,000 in modified adjusted gross income ($150,000 for joint filers).

Trump Accounts for Minors: The legislation introduces a new type of savings vehicle for children under 18, dubbed “Trump accounts.” These accounts must be designated as special IRAs, with a $5,000 per year contribution limit and restrictions on when distributions can begin. Employers can contribute under newly created rules, and certain charitable or government entities may fund them on a general basis for qualifying classes of minors. A pilot program offers a $1,000 tax credit for establishing accounts for children born between January 1, 2025 and December 31, 2028.

Additional individual tax changes include:

  • A deduction of up to $10,000 per year for car loan interest, phasing out above $100,000 MAGI ($200,000 for joint filers) and limited to U.S.-assembled vehicles
  • A charitable deduction for non-itemizers (up to $1,000 single/$2,000 joint) and a 0.5% AGI floor for itemizers
  • Gambling loss deductions now limited to 90% of gambling winnings
  • Expanded child and dependent care credits

Key Business Tax Provisions

Corporate Tax Rate: The corporate income tax rate remains at 21%. Although there was some debate about further reductions, the final bill leaves the current rate in place.

QBI Deduction: A hallmark of the TCJA was the creation of the 20% qualified business income (QBI) deduction under Section 199A. It will continue to benefit owners of pass-through entities. The new law cements this deduction beyond its original expiration, keeping the rate at 20% while expanding the wage and capital limitation phase-in ranges, so more taxpayers with specified service trades or businesses can potentially benefit.

Permanent 100% Bonus Depreciation: One of the more anticipated measures extends the immediate expensing of qualifying business assets. Under the new rules, 100% bonus depreciation is made permanent for property placed in service on or after January 19, 2025.

Section 179: The bill raises the maximum amount a taxpayer may expense under Section 179 to $2.5 million, with the deduction beginning to phase out once the cost of qualifying property exceeds $4 million. This gives business more flexibility to deduct the cost of equipment and other eligible property.

Qualified Manufacturing Property: Qualified manufacturing property, including certain real property, now qualifies for 100% bonus depreciation for the first time. This is expected to benefit capital-intensive industries and may influence long-term planning for related businesses.

Immediate R&D Expensing: Previously, the TCJA required businesses to amortize research and development expenditures over a period rather than expensing them immediately. Now, companies can expense eligible domestic R&D costs in the year incurred. However, research conducted outside the U.S. is still subject to a 15-year amortization schedule. Additionally, small businesses with average annual gross receipts of $31 million or less can retroactively apply this provision to 2022 or later.

Interest Expense Limitation Reverts to EBITDA: Businesses can once again calculate the interest deduction limit using earnings before interest, taxes, depreciation, and amortization (EBITDA).

Opportunity Zones: The legislation also turns the Opportunity Zones program into a permanent fixture, although it narrows the definition of what qualifies as a low-income community.

Small Business Stock: The bill increases the Section 1202 exclusion for gain from qualified small business stock, which under prior law allowed for a 50% exclusion. For stock acquired after the bill’s enactment and held for at least four years, 75% of the gain may be excluded from gross income. If held for five years or more, the exclusion rises to 100%. Taxpayers considering stock sales or planning new investments will want to review how the revised holding period rules affect eligibility and timing.

1099 Reporting Threshold: Beginning in 2026, the 1099 reporting threshold will increase from $600 to $2,000, and it will be adjusted for inflation going forward.

 Employee Retention Credit (ERC): Claims for the Employee Retention Credit are not eligible if filed after January 31, 2024, going forward. In addition, the statute of limitations for the IRS to review ERC claims has been extended to six years from the date the claim is filed. Businesses will want to assess any open claims and documentation in light of this change.

Clean Energy Incentives

Many clean energy incentives, such as credits for electric vehicles, residential investments, and energy-efficient home improvements, are being phased out on a rolling basis. Key expiration dates include:

  • September 30, 2025: Credits for new and used clean vehicles (Sections 30D and 25E) and commercial clean vehicles (Section 45W)
  • December 31, 2025:  Energy-efficient home improvement credit (Section 25C) and residential clean energy credit (Section 25D)
  • June 30, 2026: Alternative fuel vehicle refueling credit (Section 30C) and Section 179D deduction for energy-efficient commercial buildings (for properties where construction begins after this date)

In addition, the nuclear power production credit faces new restrictions for foreign-owned operators, and wind and solar facilities face accelerated deadlines to qualify for clean electricity production credits under Sections 45 and 48.

While proponents argue that these changes reduce inefficiencies and overlap, critics are concerned the rollbacks may slow the adoption of renewable technologies. Stakeholders are watching closely for future legislation or state-level incentives that could address the gap left by these federal changes.

Next Steps for Taxpayers

With many provisions set to begin in 2025, individuals will want to start reviewing their tax strategies now. The now permanent lower tax brackets, expanded standard deduction, and higher SALT cap may create planning opportunities in the years ahead. Those focused on estate planning may want to revisit trusts or gifting strategies.

Businesses will want to consider how the permanent QBI deduction, reinstated 100% bonus depreciation, and restored R&D expensing affect current plans. The revised interest expense limitation, based on EBITDA, could shift financing decisions. Companies subject to R&D or interest expense limitations in 2024 may find that 2025 estimated payments can be reduced under the new rules. Those planning equipment purchases or acquisitions may also benefit from modeling the impact of enhanced Section 179 and bonus depreciation provisions.

Companies investing in areas affected by clean energy credit changes may want to revisit project timelines while incentives remain available.

Additional guidance from the Treasury and IRS is expected in the coming months. This may include safe harbors for the new deductions and clarification on how pass-through entity taxes interact with the updated SALT cap.

Conclusion

As federal agencies begin releasing guidance and industry groups weigh in on implementation, both individuals and businesses will need to stay informed. Working with a qualified tax professional can help clarify how the new rules apply and ensure planning decisions align with both compliance and opportunity. For more information on tax planning, contact PBMares Tax Partner Charles Dean Smith, Jr.