One Big Beautiful Bill Act (OBBBA) - A Summary of Key Tax Changes

Provision

Rates and Deductions

Income Tax Rates

TCJA tax brackets are now made permanent for tax years beginning after 2025. The permanent tax rates for individuals are: 10, 12, 22, 24, 32, 35, and 37 percent.

Standard Deduction

TCJA increased standard deduction is now made permanent for tax years beginning after 2025. The 2025 standard deduction will be $15,750 single/ $31,500 married filing joint. 

The AMT exemption thresholds are now permanently extended. With a higher State and Local Tax (SALT) cap, it is anticipated that more taxpayers will now be subject to AMT. 

The basic exclusion amount for estate and gift taxes as well as the exemption amount for generation-skipping transfer (GST) tax purposes is increased to $15 million. This is before the adjustment for inflation, for the estates of decedents dying as well as gifts and GSTs made after 2025. 

Eligible taxpayers 65 & older are now eligible for a new Senior Deduction of $6,000 single/$12,000 married filing joint (MFJ). This deduction begins to phase out for taxpayers with Adjusted Gross Income (AGI) above $75,000 for single taxpayers/$150,000 for Married filing joint. 

This is a new above-the-line deduction for eligible taxpayers of up to $25,000 on qualified tips they receive. This deduction begins to phase out for taxpayers with Modified Adjusted Gross Income (MAGI) of $150,000 single/$300,000 Married filing joint.

Overtime Deduction

(“No Tax on Overtime”) 

This is a new above-the-line deduction for eligible taxpayers of up to $12,500 single/ $25,000 married filing joint. This deduction begins to phase out for taxpayers with Modified Adjusted Gross Income (MAGI) of $150,000 single /$300,000 Married filing joint.

This is a new above-the-line deduction for eligible taxpayers of up to $10,000 in auto loan interest paid on new vehicle purchases of cars whose final assembly occurred in the US. The deduction is phased out for taxpayers with Adjusted Gross Income (AGI) of $100,000 single /$200,000 married filing joint.

Creates a new deduction for taxpayers who do not itemize their deductions and donate to charity of up to $1,000 single/ $2,000 married filing joint.

Itemizers are now subject to a new 0.5% Adjusted Gross Income (AGI) floor before amounts can be deducted.

The 60% Cash donation Adjusted Gross Income limitation is permanently extended. 

The SALT deduction limitation has increased to $40,000 for eligible taxpayers. This begins to phase out for taxpayers with Modified Adjusted Gross Income (MAGI) above $500,000. 

Gambling losses are now modified to limit deductions for wagering losses to 90% of the amount of such losses in excess of gains from the taxable year.

Taxpayers in the top 37% bracket will generally have their effective tax savings rate capped at 35% for their itemized deductions.

The mortgage principal balance limit on primary residence of $750,000 is now permanently extended. 

These miscellaneous itemized deductions were temporarily repealed under the TCJA and are now permanently repealed. 

These losses were temporarily limited under the TCJA and are now permanently limited. There has been an expansion to include losses from certain state-declared disasters.

The child tax credit has now increased to $2,200 per child in 2025, indexed for inflation.

This new credit creates $1,700 credit for contributions to a Scholarship Granting Organization (SGO) in covered states that have elected to participate. Beginning in 2027, taxpayers would receive a tax credit instead of a charitable deduction for these contributions. 

These new accounts are somewhat similar to IRA’s & 529’s. An amount of $1,000 is funded by the US government for children born between 2025 – 2028. Parents and family members may contribute additional funds to the account and employers of the parents are able to make up to $2,500 in annual tax-free contributions as well. 

This exclusion from an employee’s income is now permanently extended to allow employers to provide up to $5,250 and is indexed for inflation. 

The dependent care benefits annual cap has increased from $5,000 to $7,500, offering

families expanded access to tax-free support for child and dependent care expenses for

eligible taxpayers.

QOZs are now permanently extended with rolling 10-year designation windows and updates the definitions of low-income community (LIC)

The clean vehicle credit now expires for vehicles purchased after September 30, 2025. Eligible taxpayers who were considering purchasing a qualifying vehicle should consider making this purchase before the deadline.

Trade & Business Expenses

Permanently extended and expanded eligibility: 

All taxpayers are now eligible to immediately deduct domestic R&D expenses instead of having to capitalize and amortize over 5 years. Foreign R&D expense treatment remains the same, so taxpayers will still need to capitalize and amortize over 15 years.

Eligible taxpayers will be able to amend business returns from 2022 – 2024 to claim immediate deductions of domestic R&D expenses that were previously capitalized and amortized. 

PTET remains eligible for federal deductions despite earlier versions of the bill that proposed limitations on deductibility for certain industries. 

After previously being scheduled to phase out, bonus depreciation is now increased to allow for 100% immediate expensing for eligible assets acquired on or after January 19, 2025 and is now permanent. 

For 2025, the Section 179 deduction limits have increased to $2,500,000 (phaseout begins at $4,000,000) and are then indexed for inflation on an annual basis. 

QPP is now eligible for 100% bonus depreciation. QPP includes non-residential real property that is used in the activity of manufacturing, production or refining of qualified products. The change applies to construction that begins after January 19, 2025 and before January 1, 2029 and is placed in service by 2031. 

The business interest expense deduction reverts back to a more favorable EBITDA-based interest deduction limitation which should be a beneficial change for most taxpayers. 

The excess business loss limitation has been permanently extended and provisions for disallowing the use of these excess losses as Net Operating Loss (NOL) carryforwards in future years were removed from the bill. 

A new charitable deduction floor of 1% has been established for contributions made by C corporations, essentially limiting their charitable deduction to 9%. 

The reporting thresholds have increased from $600 to $2,000 for payments made on or after January 1, 2026.

The reporting thresholds for these forms have increased to $20,000 or 200 transactions beginning January 1, 2026. 

The credit has expanded to include beauty service businesses who provide barbering and hair care, nail care, esthetics or body and spa treatments. 

QSBS exclusions have been enhanced as follows for all QSBS acquired after July 4, 2025:

ERC claims for the third & fourth quarters of 2021 that were submitted after January 31, 2024 are now disallowed & the timeframe for the IRS to challenge ERC claims has been extended.