On July 4, 2025, the One Big Beautiful Bill Act (OBBB) became law, making sweeping reforms to both individual and business tax law while locking in many of the temporary provisions from the 2017 Tax Cuts and Jobs Act (TCJA). Whether you’re a business owner, a salaried employee, a retiree, or planning for the next generation, this law will likely affect your financial picture. Here’s what you need to know, broken down by tax category.
Individual Income Tax Changes
The OBBB keeps the familiar TCJA tax brackets in place, ranging from 10 percent to 37 percent, and further extends inflation adjustments for the lower three brackets. Starting in 2025, the standard deduction will rise significantly: $31,500 for married couples filing jointly, $23,625 for heads of household, and $15,750 for single filers. These amounts will be indexed for inflation, increasing their value over time.
In addition to these changes, seniors aged 65 and older will be able to claim a new above-the-line deduction of $6,000, although this phases out for those with a modified adjusted gross income (MAGI) over $75,000. The child tax credit will also increase slightly to $2,200 per child beginning in 2026, with annual inflation adjustments.
One of the most debated parts of the tax code, the State and Local Tax (SALT) deduction cap, gets a temporary reprieve. From 2025 through 2029, the deduction cap rises to $40,000 for joint filers, indexed for inflation. However, this relief is limited for higher-income households: the cap phases down for those earning over $500,000, though it cannot fall below $10,000. In 2030, the cap is scheduled to return to its original $10,000 limit.
For those paying mortgage interest, the $750,000 loan limit remains in effect, and the treatment of mortgage insurance premiums becomes more favorable under the bill. The Alternative Minimum Tax (AMT) also sees structural reforms, with the exemption levels permanently preserved and a more aggressive phase-out threshold that reduces AMT exposure for middle- and upper-middle-income earners.
The bill also includes temporary deductions aimed at wage earners. Between 2025 and 2028, up to $25,000 in tip income and $12,500 in qualified overtime pay can be deducted from income. Those purchasing U.S.-manufactured vehicles can also deduct up to $10,000 in interest on qualifying auto loans during this window.
Business Tax Provisions
The OBBB delivers a win for businesses by making full expensing permanent. This allows companies to immediately deduct 100 percent of the cost of qualifying equipment and property, including certain structures placed in service before 2031. For those investing in longer-term projects, this provision offers more predictability in capital planning.
Research-intensive businesses will also benefit. The bill restores the immediate deduction of domestic R&D expenses and retroactively permits small businesses to deduct qualified R&D costs dating back to 2021, reversing a recent requirement to amortize these expenses over five years.
Interest deductibility rules are relaxed as well, with the limitation once again based on earnings before interest, taxes, depreciation, and amortization (EBITDA), rather than EBIT. This is a favorable development for capital-intensive industries.
Pass-through entities such as partnerships, LLCs, and sole proprietorships see the 20 percent qualified business income (QBI) deduction made permanent. Importantly, the bill raises the income thresholds for phaseouts and introduces a guaranteed minimum deduction of $400 for active owners with at least $1,000 of qualifying income. Section 179 expensing is also expanded, with the immediate write-off limit lifted to $2.5 million and the phase-out threshold increased to $4 million, both indexed for inflation.
However, the bill tightens one area: corporate charitable contributions. Now, only the portion of donations exceeding one percent of taxable income will be deductible, creating a higher hurdle for large philanthropic gifts made through C corporations.
Estate and Gift Tax
Wealth-transfer planning sees a substantial shift under the OBBB. Beginning in 2026, the lifetime estate and gift tax exemption will double to $15 million per individual, or $30 million per couple, indexed annually for inflation. While annual exclusion amounts remain unchanged, the increased exemption opens new planning opportunities for high-net-worth individuals and families to transfer assets without triggering federal estate tax. This may lead to increased interest in dynasty trusts, gifting strategies, and valuation discounts over the next several years.
International Tax Provisions
The international tax landscape is also restructured. The Global Intangible Low-Taxed Income (GILTI) regime is replaced with Net CFC Tested Income (NCTI), which operates with a top effective rate of 12.6 to 14 percent after accounting for foreign tax credits. The law also eliminates the QBAI exclusion, meaning businesses can no longer offset foreign profits with returns on tangible assets.
The Foreign-Derived Intangible Income (FDII) deduction is replaced with a new regime called FDDEI, which preserves a similar 14 percent benefit for qualifying export income. Meanwhile, the Base Erosion and Anti-Abuse Tax (BEAT) increases to 10.5 percent and continues to limit multinational corporations’ ability to shift profits offshore.
These changes will likely prompt multinational groups to reevaluate supply chains, transfer pricing, and international entity structures.
Employee Benefits and Fringe Deductions
The bill offers short-term tax relief for certain types of employee compensation. As noted earlier, between 2025 and 2028, workers can deduct specific amounts of tip income, overtime pay, and interest on car loans for U.S.-built vehicles. These deductions are designed to benefit hourly and service-industry employees and will require clear payroll documentation for substantiation.
However, other fringe benefits are scaled back. Employer reimbursements for bicycle commuting will now be considered taxable income. Additionally, moving-expense deductions remain suspended for all but active-duty military and intelligence personnel, continuing a TCJA-era limitation.
Energy Credits and Environmental Incentives
The OBBB significantly scales back many of the clean-energy credits introduced in recent years. Residential and electric vehicle credits will phase out for property placed in service after 2025, or one year after the bill’s enactment depending on the asset. The Section 45Y and 48E clean electricity credits, central to the Inflation Reduction Act, are scheduled to sunset after 2027.
Some programs will linger a bit longer. The clean-fuel production credit under Section 45Z is extended until 2030, but tighter restrictions around foreign entities of concern (FEOCs) will limit eligibility. Hydrogen and commercial-building energy incentives will also sunset soon, creating urgency for businesses planning environmental upgrades.
Next Steps for Taxpayers
With many provisions kicking in as early as the 2025 tax year, taxpayers should take proactive steps now. Individuals should review withholding amounts, plan for the expanded standard deduction, and reassess itemized deduction strategies during the temporary SALT cap window. Business owners will want to reevaluate their expensing plans, adjust for changes in interest deductibility, and ensure they’re maximizing the now-permanent QBI deduction.
Estate planners and wealth managers will need to update strategies before the new exemption rules take effect in 2026. And anyone impacted by the repeal of energy-related credits should act quickly to secure benefits before the window closes.
Final Thoughts
The One Big Beautiful Bill Act touches nearly every corner of the tax code. While it offers stability in many areas, particularly for individuals and small businesses, its time-sensitive provisions and the rollback of green energy incentives create both opportunities and risks. As always, working with a trusted tax advisor can help you navigate these changes and ensure you’re making the most of what this legislation has to offer.
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Frequently Asked Questions About the One Big Beautiful Bill Act (OBBB)
Q: What is the One Big Beautiful Bill Act?
A: The One Big Beautiful Bill Act (OBBB) is a comprehensive federal tax reform law signed into effect on July 4, 2025. It extends and makes permanent many provisions from the 2017 Tax Cuts and Jobs Act (TCJA), while also introducing new deductions, adjusting rates, and eliminating or phasing out certain credits.
Q: When do the changes from the OBBB take effect?
A: Most provisions take effect starting in tax year 2025 or 2026. Some incentives and deductions, such as temporary worker reliefs and SALT cap increases, apply only through 2028 or 2029, while certain clean energy credits begin phasing out immediately.
Q: How does the OBBB affect the standard deduction?
A: Beginning in 2025, the standard deduction increases to $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single filers. These amounts are indexed for inflation annually.
Q: Are the individual tax rates changing under the OBBB?
A: No, the bill keeps the current seven tax brackets in place, ranging from 10 percent to 37 percent, and extends inflation adjustments for the lower three brackets.
Q: What happens to the child tax credit under this law?
A: The child tax credit increases to $2,200 starting in 2026 and will continue to adjust for inflation annually. The expanded income eligibility and refundable structure introduced under TCJA are made permanent.
Q: Does the OBBB affect the SALT deduction cap?
A: Yes, the cap on state and local tax deductions temporarily increases to $40,000 from 2025 through 2029. After that, the cap reverts to $10,000.
Q: What does the OBBB mean for small businesses and pass-through entities?
A: The 20 percent qualified business income (QBI) deduction is made permanent and expanded to include a guaranteed minimum deduction for smaller pass-through business owners. Expensing limits and research deductions are also expanded.
Q: Are estate and gift taxes changing?
A: Yes. Starting in 2026, the lifetime exemption doubles to $15 million per person, or $30 million for couples, indexed for inflation. This provides expanded planning opportunities for high-net-worth individuals and families.