2025 One Big Beautiful Bill Act (OBBBA) – Tax Update

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The One Big Beautiful Bill Act (OBBBA) also known as H.R. 1 was signed into law in 2025 and brings significant changes to the U.S. tax system for both individuals and businesses. Below is a summary of some of the key tax provisions, divided into individual and business categories.

INDIVIDUAL PROVISIONS

Permanent Lower Tax Rates: The lower individual tax rates from the 2017 Tax Cuts and Jobs Act (TCJA) are now permanent. There will be no reversion to higher pre-2018 rates.

Standard Deduction Increased and Made Permanent: The standard deduction is permanently increased and further enhanced. For 2025, it is $31,500 for married filing jointly, $23,625 for heads of household and $15,750 for single filers, with future inflation adjustments.

SALT Deduction: The state and local tax (SALT) deduction cap is increased to $40,000 ($20,000 for married filing separately) for 2025. This higher cap is subject to a phase-out at higher income levels. After 2029, the cap returns to $10,000.

Personal Exemptions: Personal exemptions are permanently terminated, except for a new $6,000 deduction for seniors (age 65+), available through 2028 and phased out at higher incomes.

Child Tax Credit: The expanded child tax credit is made permanent, increased to $2,200 per child with $1,400 refundable, indexed for inflation. Stricter Social Security Number (SSN) requirements apply.

Dependent Care and Adoption: The dependent care assistance exclusion is increased to $7,500 ($3,750 for married filing separately) for tax years after 12/31/2025. The child and dependent care tax credit is enhanced, and up to $5,000 of the adoption credit is now refundable.

Estate and Gift Tax Exemption: The exemption is permanently increased to $15 million (indexed for inflation) for estates and gifts after 2025.

Alternative Minimum Tax (AMT): Higher AMT exemption and phaseout thresholds are made permanent, with improved inflation adjustments.

Mortgage Interest Deduction: The $750,000 cap on mortgage interest is made permanent, and mortgage insurance premiums are now treated as interest.

Casualty Loss Deduction: The deduction is now permanently limited to federally or certain state-declared disasters.

Miscellaneous Itemized Deductions: Permanently terminated, except for educator expenses (now expanded to include coaches and nonathletic supplies).

Itemized Deductions Limitation:  A new formula reduces itemized deductions for high-income taxpayers.

Wagering Losses:  Limits losses from wagering transactions to 90% of the amount of such losses, only to the extent of winnings

Temporary and New Deductions:

  • No Tax on Tips: For 2025–2028, up to $25,000 in qualified tips per year can be deducted, phased out at higher incomes.
  • No Tax on Overtime: For 2025–2028, up to $12,500 ($25,000 joint) in qualified overtime pay per year can be deducted, phased out at higher incomes.
  • Car Loan Interest: For 2025–2028, up to $10,000/year of interest on loans for new U.S.-assembled passenger vehicles is deductible, phased out at higher incomes.

Retirement and Savings:

  • Trump Accounts: New tax-advantaged savings accounts for children under 18, with a $5,000 annual contribution limit and a $1,000 government-funded pilot for newborns (2025–2028).
  • 529 Plans: Expanded to cover more K-12 expenses and postsecondary credentialing programs, with higher annual limits.

Charitable and Community Incentives

  • Above-the-Line Charitable Deduction: Increased to $1,000 ($2,000 joint) and made permanent.
  • Charitable Deduction Floors: Only contributions exceeding 0.5% of AGI (individuals) or 1% of taxable income (corporations) are deductible, with carryforward rules.
  • Opportunity Zones, Low-Income Housing, and New Markets Tax Credits: These programs are permanently extended and enhanced.

Energy and Green Incentives: Termination of Clean Energy Credits: Credits for clean vehicles, home improvements, and other energy-related incentives are phased out or terminated earlier than previously scheduled.

BUSINESS PROVISIONS

Qualified Business Income (QBI) Deduction: The QBI deduction permanently extended. The phase-in threshold for the QBI deduction is increased to $75,000 ($150,000 for joint filers), and a $400 minimum deduction is established for active business income.

 

Depreciation and Expensing:

  • Full Expensing: 100% bonus depreciation for qualified business property is made permanent.
  • Section 179 Expensing: The expensing limit is increased to $2.5 million, with a phaseout at $4 million, both indexed for inflation.
  • Special Depreciation for Production Property: 100% expensing for certain nonresidential real property used in manufacturing, with recapture rules.

Research and Development (R & D):  Domestic R&D expenses can be fully expensed immediately for tax years beginning after December 31, 2024; foreign R&D remains amortized over 15 years.

Business Interest Limitation: The EBITDA add-back is restored permanently, increasing allowable business interest deductions. The limitation now applies before capitalization, and disallowed interest is not subject to future capitalization.

Excess Business Loss Limitation:  Makes the excess business loss limitation permanent and retains the existing treatment of excess business loss carryforwards

Qualified Small Business Stock (QSBS) Exclusion: Modified to provide a tiered exclusion determined on the holding period. Eligibility limit on corporate aggregate gross assets at the time of issuance increased from $50 to $75 million. 

Credits and Incentives:

  • Advanced Manufacturing Investment (CHIPS) Credit: Increased to 35% of qualified investment.
  • Paid Family and Medical Leave Credit: Made permanent and expanded to include insurance premiums.
  • Employer-Provided Child Care Credit: Increased to 40% (50% for small businesses), with higher maximums and inflation adjustments.

Reporting and Compliance

  • 1099 Reporting Threshold: Increased to $2,000, indexed for inflation.
  • Third-Party Network Transactions: The reporting threshold is restored to $20,000/200 transactions.

International Tax:  The OBBBA/H.R. 1 significantly reforms U.S. international tax rules by increasing the deemed paid foreign tax credit from 80% to 90%, eliminating the allocation of certain deductions (like interest and R&D) against foreign-source net CFC tested income for FTC purposes, and renaming the GILTI regime as “net CFC tested income” while repealing the deemed return and reducing the relevant deductions. The Act also permits up to 50% of profits from U.S.-produced inventory sold by foreign branches to be treated as foreign-sourced, makes the CFC look-through rule permanent, and limits downward attribution of stock ownership, introducing new provisions for “foreign controlled U.S. shareholders”

 

Energy and Environmental Provisions

  • Clean Energy Credits: Many credits and deductions for clean energy, vehicles, and related property are terminated or restricted, with new limitations for foreign ownership and materials.

Covid-Related Employee Retention Credit (ERC) Enforcement Provisions: Strict enforcement provisions introduced.  Retroactively bars refunds for ERC claims filed after January 31, 2025.  Substantially extends the statute of limitations to at least six years and imposes significant penalties on promoters. 

 

Note that only some of the significant OBBBA/H.R. 1 provisions have been briefly covered here. The information provided herein is for general informational purposes only and does not constitute legal, tax, or accounting advice. The tax provisions discussed, including those related to the OBBBA/H.R. 1, may not reflect the most current legal developments and interpretations and may not apply to your situation. You should not rely on this information as a substitute for obtaining professional advice from a qualified tax advisor or attorney. We recommend consulting your tax professional before making any decisions based on the content herein