ALERT: Key Tax Provisions Provided for in “One Big Beautiful Bill Act”

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”), which includes many key tax provisions.

This alert summarizes just a few of the most relevant changes made to the Internal Revenue Code (“IRC”) by the OBBBA that, among other changes, extend and modify certain material tax provisions enacted in the Tax Cuts and Jobs Act of 2017 (“TCJA”).

INDIVIDUALS AND TAX-EXEMPT ENTITIES

1. TCJA’s Tax Rates, Standard Deduction, and Limitation on Itemized Deductions

The OBBA makes permanent the TCJA’s individual tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. It also makes permanent the near doubling of the standard deduction. For 2025, the standard deduction increases to $15,750 for single filers, $23,625 for heads of households, and $31,500 for joint filers, with annual inflation adjustments going forward.

As of 2026, the “Pease limitation” is repealed. The new limit reduces all itemized deductions, including state and local taxes (“SALT”), by 2/37 of the lesser of (i) total itemized deductions or (ii) amount of taxable income in excess of 37% bracket threshold.

2. State and Local Tax Deduction (Section 164)

The OBBBA raises the TCJA’s cap on the deduction for state and local taxes from $10,000 to $40,000 for taxable years 2025 through 2029 (with that cap increasing by 1% each year). The new cap starts to phase down when a taxpayer’s adjusted gross income (“AGI”) exceeds $500,000, but never falls below the TCJA’s original $10,000 cap.

3. Deductions of Tip and Overtime Income

The OBBBA makes up to $25,000 of tip income deductible for individuals in traditionally and customarily tipped industries for tax years 2025 through 2028; deduction phases out at a 10% rate when AGI exceeds $150,000 ($300,000 for joint filers).

It would also temporarily make up to $12,500 ($25,000 for joint filers) of overtime compensation deductible for tax years 2025 through 2028; the deduction phases out at a 10% rate when AGI exceeds $150,000 ($300,000 for joint filers).

Tip and overtime income would still be subject to payroll taxes even though eligible for above-the-line deductions from federal income tax, as stated above.

4. Deductible Auto Loan Interest

The OBBBA provides for deductible auto loan interest on new autos with final assembly in the United States for tax years 2025 through 2028. The deduction is limited to $10,000 and phases out at a 20% rate when income exceeds $100,000 for single filers/ $200,000 for joint filers.

5. Permanent Increase to Estate and Gift Tax Limitation

The OBBBA permanently increase the estate and lifetime gift tax exemption to an inflation-indexed $15 million for single filers and $30 million for joint filers beginning in 2026.

6. Affordable Care Act (“ACA”) Changes

The OBBBA limits the availability of premium tax credits (“PTCs”) for plans through the ACA marketplaces to certain non-citizens, disallows the availability of PTCs during the time certain non-citizens are not eligible for Medicaid, and requires monthly verification of eligibility for receipt of PTCs. The OBBA requires, by the end of 2026, most adults who do not have children younger than 14 to document 80 hours of work, volunteering, or training per month to receive Medicaid. Recipients are also required to prove eligibility to their state twice a year instead of once.

7. Deduction for Qualified Business Income (Section 199A)

The OBBBA makes the Section 199A pass-through deduction permanent, with no change to the current 20% deduction percentage. It increases the phase-in range of limitation to $75,000 for non-joint returns (previously $50,000) and to $150,000 for joint returns (previously $100,000). Additionally, the OBBA creates a minimum deduction of $400 for taxpayers with $1,000 or more of qualified business income for material participants.

8. Tax-Exempt Executive Compensation Excise Tax (Section 4960)

Previously, any nonprofit with employees earning over $1 million in compensation were required to pay a 21% excise tax on the amount of compensation over $1 million for its top five earners. The OBBA extends the excise tax to apply to all earners of a nonprofit receiving over $1 million in compensation, rather than just the top five earners.

9. Endowment Tax (Section 4968)

The OBBBA adds two new graduated rates to the TCJA’s 1.4% university endowment excise tax. Instead of the existing flat 1.4% excise tax rate, there would be a multi-tiered rate structure (up to 8%) based on a school’s “student adjusted endowment”, which effectively equals the school’s investment assets per student, with larger endowments subject to a higher rate of tax. It defines “applicable educational institution” to mean an eligible educational institution with at least 3,000 tuition-paying students.

10. Child Tax Credit

The OBBBA permanently extends and adds to the Child Tax Credit, totaling $2,200 per child by next year, and adjusts it for inflation thereafter. A new restriction requires at least one parent to have a Social Security number to claim the credit—currently, only the child needs one.

11. Dependent Care FSAs

The annual contribution limit for dependent care FSAs will be increased to $7,500 per household (up from $5,000).

12. New Deductions for Seniors

The OBBA provides individuals aged 65 and over with an additional $6,000 above-the-line deduction. This deduction phases out for individuals with modified adjusted gross income above $75,000 for singles and $150,000 for married filing jointly.

13. Charitable Contributions

Charitable contributions are now deductible only to the extent they exceed 0.5% of the taxpayer’s AGI. Taxpayers using the standard deduction may also deduct an additional $1,000 for single filers and $2,000 for married filing jointly for charitable contributions.

14. Mortgage Deduction

The OBBA permanently lowers the amount of mortgage interest deductible to $750,000 from up to $1.1 million on a primary residence and a second home. It excludes interest on home equity, but it does allow mortgage insurance premiums to be deducted like interest.

15. Trump Accounts

Establishes tax-favored “Trump Accounts,” which will provide eligible newborns with $1,000 in seed money, funded by a tax credit, beginning in 2026, with the ability to contribute up to $5,000 per year, with restrictions on use. 

16. Repeal of Commercial Clean Vehicle Tax Credit (Section 45W)

The OBBA eliminates the Commercial Clean Vehicle Tax for all vehicles acquired after September 30, 2025. This tax credit provided $7,500 back for qualified vehicles under 14,000 pounds and $40,000 back for vehicles over 14,000 pounds. Cities can still file for elective pay to offset the costs of commercial clean vehicles acquired before the September 30, 2025 cut-off; after that, the tax credit is repealed.  

GENERAL BUSINESS TAX PROVISIONS

1. Bonus Depreciation of Eligible Property (Section 168(k))

The OBBBA permanently reinstates the 100% bonus depreciation for eligible business property acquired after January 19, 2025. This had been added by the TCJA, which was subject to a phase-down that started in 2023 and expiration after 2026.

2. Asset Expensing (Section 179)

The OBBA increases the maximum amount a taxpayer may expense to $2.5 million from $1 million, reduced by the amount by which the cost of the property exceeds $4 million. This may be less important now that 100% bonus depreciation has been made permanent. 

3. Full Expensing of Domestic Research and Experimental Expenditures (Section 174A)

The OBBBA restores the ability to permanently deduct research or experimental expenditures paid or incurred after Dec. 31, 2024, but only if domestic; small businesses (revenue of $30 million or less) can apply this change retroactively to expenditures after Dec. 31, 2021, and others can accelerate remaining deductions

4. Relaxed Limitation on Deductibility of Business Interest (Section 163(j))

The OBBBA relaxes the limitation on the deductibility of business interest by reverting to the limitation that was in effect between 2017 and 2022, allowing addbacks for depreciation and amortization (generally, 30% of EBITDA). The change is effective taxable years beginning after 2024. Unlike the TCJA, which introduced the cap and its scheduled reduction to an EBIT-based cap in 2022, the OBBBA makes the more generous pre-2022 EBTIDA-based limit permanent.

However, the OBBBA also introduces rules that extend the application of the deductibility cap to business interest that is required to be capitalized, among other changes that reduce the cap in certain circumstances.

5. “Disguised Sales” of Property or Services (Section 707(a)(2))

Although section 707(a)(2) has been in the Code since 1984 (providing for the recharacterization of certain transactions between one or more partners and a partnership including recharacterization of certain transactions as so-called “disguised sales of partnership interests,” the Treasury and IRS have never issued final regulations contemplated by the 1984 statute. The OBBBA “clarifies” that section 707(a)(2) is self-executing upon enactment of the OBBBA and thus applies even in the absence of regulations.

6. Excess Business Loss Limitation (Section 461(l))

The OBBBA makes permanent the $250,000 limitation (adjusted annually for inflation, $313,000 in 2025) on excess business losses of non-corporate taxpayers. The provision was first introduced in the TCJA, under which it was to expire after 2028. It retains the “one and done” rule, which provides that the limitation applies only in the year in which the loss arises, with any disallowed loss becoming a net operating loss available in future years.

7. Deduction for Excessive Employee Compensation (162(m))

The aggregation rule under Section 162(m), which currently applies for (i) identifying a corporation’s covered employees and (ii) determining compensation that is subject to Section 162(m), is expanded to pick up all members of a covered corporation’s controlled group and affiliated service group under Section 414(b), (c), (m) and (o) (a broader group than under the existing aggregation rule). The amount of deductible compensation is allocated to each member of the controlled group or affiliated service group based on the pro-rata portion of the total compensation paid by that member. The change applies for taxable years beginning after December 31, 2025.

8. Income Exclusion for Qualified Small Business Stock (QSBS) (Section 1202)

The OBBBA increased QSBS. First, it shortens the holding period required to qualify for QSBS benefits by introducing a 50% exclusion for gain recognized if the stock is held for 3 years, and a 75% exclusion for gain recognized if the stock is held for 4 years. It retains the 100% exclusion under current law if the stock is held for 5 years or more.

Also, it increases the asset value cap from $50 million to $75 million and introduces an inflation adjustment. In addition, the OBBA amends the formula for the per-issuer cap on the QSBS exclusion by increasing the dollar-based limit on excluded gain to $15 million (also now adjusted for inflation), up from $10 million under current law.

All of these changes apply to QSBS issued after July 4, 2025.

OPPORTUNITY ZONES (OZs) (Sections 1400Z-1 and 1400Z-2)

The OBBBA also permanently renews the TCJA’s OZ regime by creating a second round of OZs for census tracts that have a poverty rate of at least 20% or a median family income that does not exceed 70 percent of the area median income.

The OBBA also excludes any census tract where the median family income is 125% or greater of the area median family income and requires that at least 33% of designated OZs must be comprised entirely of a rural area. In the case that there are fewer than 33% of rural qualified OZs, all eligible rural areas must be designated. The OBBA also adds significant reporting requirements for participants in the OZ program.

The renewed OZ program and related amendments apply to investments made after December 31, 2026.

In addition, the OBBBA made several notable changes with respect to international tax and energy tax.

INTERNATIONAL TAXATION

• Renames the Global Intangible Low-Taxed Income (“GILTI”) to Net CFC Tested Income (“NCTI”) and establishes a 12.6% to 14% top rate after foreign tax credit treatment. Also, the OBBA eliminate indirect expense allocation, raises foreign tax creditability to 90%, and removes the QBAI (qualified business asset investment) exclusion for the deemed return on physical capital.
• Renames the Foreign-Derived Intangible Income (“FDII”) to Foreign-Derived Deduction Eligible Income (“FDDEI”), and establishes a 14% rate, with parallel changes to those in GILTI.
• Increases the Base Erosion and Anti-Abuse Tax (“BEAT”) rate to 10.5% and preserves current policy on allowability of US tax credits under BEAT.

ENERGY

• Eliminates the clean electricity production credit and investment credit for projects placed in service after 2027, except for baseload power sources such as nuclear, hydropower, geothermal, and battery storage. The OBBA introduces restrictions related to foreign entities of concern and adds excise tax for wind and solar projects related to FEOC content thresholds.
• Repeals the clean hydrogen production credit after 2027 and the deduction for energy-efficient commercial buildings after one year of the law’s enactment.
• Extends the clean fuel production credit until 2030 and expands eligibility.

Please contact your Dilworth attorney or Stephanie Vogel, John Schmehl, or Matthew Whitehorn of Dilworth Paxson LLP’s Tax, Employee Benefits, and Trusts & Estates practice.