As part of our ongoing commitment to keeping you informed, we are providing this first look at the One Big Beautiful Bill Act, signed into law on July 4, 2025. This sweeping legislation introduces significant changes to individual and business tax provisions, as well as energy-related credits. While many of the provisions build on the foundation of the Tax Cuts and Jobs Act, others introduce new deductions, phaseouts, and sunset dates that may impact planning strategies in the years ahead.
Individual Tax Changes
Permanent Extensions & Enhancements
- TCJA Tax Rates: The individual income tax brackets from the 2017 Tax Cuts and Jobs Act (TCJA) are made permanent.
- Standard Deductions: The TCJA’s standard deductions are permanently extended, with slight increases for inflation.
- QBI Deduction: The 20% deduction for qualified business income (QBI) is permanent, with:
- Expanded phase-in thresholds.
- A minimum deduction of $400 for those with at least $1,000 in QBI.
Senior Benefits
- A new $6,000 deduction for seniors age 65+ (2025–2028), with income-based phaseouts.
New Temporary Deductions (2025–2028)
- Tips: Deduction for up to $25,000 in reported tips per taxpayer, phased out at higher incomes.
- Overtime: Deduction for up to $12,500 (single) or $25,000 (joint) in overtime pay, phased out at higher incomes.
- Auto Loan Interest: Deduction up to $10,000 for interest on loans for U.S. built vehicles purchased after 2024.
Other Changes
- SALT (State and Local Tax) Cap: Temporarily raised from $10,000 to $40,000 (2025–2029), with phaseouts starting at $500,000 income.
- Revised Pease Limitation: Reinstated for those in the 37% tax bracket starting in 2026, limiting itemized deductions.
- Estate & Gift Tax: Exemption increased to $15 million starting in 2026.
- Section 1202 Stock: For stock acquired after the enactment of the Act, enhanced capital gains exclusion for qualified small business stock:
- 50% exclusion after 3 years.
- 75% after 4 years.
- 100% after 5 years.
- Cap of $15M or 10x basis.
Business Tax Changes
Fixed Asset Incentives
- Bonus Depreciation: Restored to 100% for eligible assets placed in service after Jan. 19, 2025.
- Section 179 Expensing: Cap increased to $2.5M, with phase-out starting at $4M for property placed in service in taxable years beginning after Dec. 31, 2024.
R&D Expensing
- Domestic R&D costs can be fully expensed starting in 2025. Taxpayers can elect to take a deduction for the unamortized balance of domestic R&D expenditures previously capitalized. Generally, the deduction may be taken in 2025 or spread over 2 years beginning in 2025.
- Small businesses (under $31M in receipts) can retroactively apply this to 2022–2024.
Interest Deduction
- Returns to EBITDA-based limits (adds back interest, taxes, depreciation, and amortization) starting in 2025.
Manufacturing Incentives
- Qualified production facilities get 100% bonus depreciation for structural components (normally 39-year depreciation).
- Applies to construction started after Jan. 19, 2025, and placed in service before Jan. 1, 2031.
Service Industry Credit
- FICA tip credit extended to include beauty service industry tips starting in 2025.
Energy Tax Credits – Terminations
The bill ends several clean energy tax credits, including:
- New Energy Efficient Home Credit: Ends for homes acquired after June 30, 2026.
- Clean Vehicle Credits (new and used): Ends for vehicles acquired after Sept. 30, 2025.
- Commercial Clean Vehicle Credit: Ends for vehicles acquired after Sept. 30, 2025.
- Energy-Efficient Home Improvement Credit: Ends for property placed in service after Dec. 31, 2025.
- Residential Clean Energy Credit: Ends for property placed in service after Dec. 31, 2025.
This summary is intended to provide an early overview of some of the key provisions most likely to affect our clients. As the IRS issues further guidance and as we analyze the full implications of the law, we will continue to assess how these changes may impact your specific situation. We are here to help you navigate this evolving landscape and will provide more detailed insights and planning recommendations in the coming weeks.
