On July 3rd, Congress passed the bill commonly known as the One Big Beautiful Bill Act (OBBBA). It is the most significant piece of federal tax legislation since the Tax Cuts and Jobs Act of 2017 (TCJA). Much of the TCJA was set to expire at the end of 2025, and the new bill modified or made permanent several of the TCJA tax provisions. Below are key tax provisions of the OBBBA for business owners, retired individuals, families and other individual taxpayers.
Employers and Business Owners
- Qualified business income (QBI) deduction, section 199A, was made permanent for pass-through businesses (i.e. sole proprietors, partnerships, LLCs and S Corporations) with no change to the current 20% deduction percentage.
- Permanently restores 100% bonus depreciation for qualified assets acquired after January 19, 2025.
- Pass-through entity tax (PTET) is still a legal and valuable option for pass-through entities, even with the increased SALT deduction (see below in the Families/Individual section) and with no limitations based on income.
- Increased Form 1099-NEC threshold filing from $600 to $2,000 in total payments to contracted service providers in a calendar year, beginning in 2026. This threshold will be adjusted for inflation starting in 2027.
- A new 1% floor for charitable contributions made by a C-corporation. Thus, only contributions above 1% of taxable income will be deductible, subject also to the existing limitation of 10% of taxable income.
- Domestic research and development (R&D) expensing is permanently restored to include expenses incurred in 2025 and after. Businesses with average gross receipts of $31 million or less can elect to apply the new R&D expense rules retroactively to 2022, 2023 and 2024. Businesses that capitalized R&D expenses from 2022 to 2024 and don’t qualify for retroactive relief can accelerate the deduction of remaining unamortized amounts beginning in 2025. Further guidance from the IRS is pending.
Seniors and Retired Individuals
- New deduction for those over age 65 is available beginning in 2025. The new deduction of $6,000 per individual is available in addition to the existing extra standard deduction for seniors. A married couple with less than $150,000 in adjusted gross income will receive an additional deduction of $12,000 if both individuals are at least 65 years of age. The new benefit can be claimed whether you itemize deductions or take the standard deduction. However, the full deduction amount is only available to those making less than $150,000 if filing a joint return ($75,000 single) and is fully phased out for those making more than $250,000 ($175,000 single.)
Families and Individual Taxpayers
- State and local tax deduction limitation (SALT cap) has been increased to $40,000 for 2025 for joint filers ($20,000 for single) indexed for inflation though 2029. This itemized deduction was formerly capped at a maximum of $10,000. The limitation is subject to a phase out for taxpayers with a modified adjusted gross income over $500,000.
- Charitable contribution deduction up to $2,000 for joint filers ($1,000 single) for those who use the standard deduction instead of itemizing deductions. For those who do itemize, charitable contributions will only be deductible to the extent they exceed 0.5% of adjusted gross income. Both of the new rules go into effect in 2026.
- Child tax credits increased by the TCJA have been made permanent. The non-refundable child tax credit increased under the OBBBA to $2,200 and is effective in 2026. The refundable portion of the child tax credit for 2025 is $1,700. Both the non-refundable and refundable child tax credits are subject to income phase-out thresholds.
- Other Dependent tax credit of $500 has been made permanent. This is subject to income phase-out thresholds.
- Tip income deduction of up to $25,000 for years 2025-2028, subject to phase out for modified adjusted gross income over $300,000 for joint filers ($150,000 single). Taxpayers will still see tip income reported on their paychecks and Form W-2. Individuals will claim the deduction on their personal tax returns. Social Security and Medicare payroll taxes are still required on tip income.
- Overtime wage deduction of up to $12,500 for years 2025-2028, subject to phase out for adjusted gross income exceeding $300,000 for joint filers ($150,000 single). The deduction amount is equal to the overtime portion (half time) of compensation and is subject to some limitations. Only non-exempt wage earners who qualify for paid overtime will qualify for the deduction. Taxpayers will still see overtime wages included on their paychecks and Form W-2. Social security and Medicare payroll taxes. Employers will be required to report the deductible portion of overtime compensation to employees on their Form W-2.
- Personal exemptions have been permanently eliminated.
- Income tax rates and brackets from the TCJA have been made permanent, along with the preferential capital gain tax rate. There are no changes in the capital gains tax rates, but these brackets will be adjusted each year for inflation.
- Termination of miscellaneous itemized deductions was made permanent.
- Phase out of itemized deductions from pre-TCJA law has been replaced starting in 2026 with a limitation on itemized deductions to 35 cents on the dollar for taxpayers in the top tax bracket.
- Auto loan interest is deductible in some cases. To qualify for the new deduction, the interest must be on loans secured by new vehicle, made in the years 2025-2028. The vehicle must have been assembled in the United States. The deduction is limited to $10,000 and is phased out for those making more than $200,000 if filing a joint return ($100,000 single). This new deduction is available to all buyers of eligible vehicles, regardless of whether they itemize deductions or take the standard deduction.
- The use of 529 plan savings has been expanded to include more K-12 and homeschool expenses and post-secondary credentialing expenses. Annual withdrawal limits for elementary and secondary education have expanded from $10,000 to $20,000. The plans continue to have tax-free growth and tax-free distributions for qualified education expenses.
- Creation of Trump Accounts, to be used for higher education, job training, or a down payment on a home. The US government will deposit $1,000 into a government-funded savings account for all children born in 2025-2028. Parents can contribute up to $5,000 into this account per year, with funds growing tax deferred. Further guidance from the IRS is pending.
- Most energy credits, including clean vehicle and residential clean energy credit, will end in 2025.
- Increased standard deduction amounts under TCJA were made permanent.
- Mortgage interest deduction limited to interest on up to $750,000 in mortgage debt was made permanent. However, the OBBBA also reinstated the itemized deduction for mortgage insurance premiums.
- Alternative minimum tax (AMT) higher exemption was made permanent with modifications made to the phase out amount.
- Caps on federal student loans have been added for graduate and professional degrees (Grad PLUS Loans) of $100,000 and $200,000. Parent PLUS loans are now limited to an annual $20,000 and an aggregate of $65,000 per student. This limitation will begin July 2026.
- Estate and lifetime gift tax exemption has increased to $15 million beginning in 2026 and was made permanent.
- Moving expenses are permanently included in income and excluded from deduction, except for the Armed Forces.