Congress has passed the One Big Beautiful Bill Act (OBBBA), and President Trump signed it in to law on July 4th. This is the bill that has been in the news a lot recently. Below are some highlights of the bill?
Here are the highlights of the OBBBA.
TCJA Extensions – Individuals:
- Individual tax rates: (10%, 12%, 22%, 24%, 32%, 35% & 37%) became permanent
- An additional year of inflation adjustment is added for determining the dollar amounts at which the 12% rate bracket ends and the 22% rate bracket begins.
- Standard deduction: there are two changes to the federal standard deduction:
- The increased standard deduction is permanent. The 2017 Tax Cuts and Jobs Act doubled the federal standard deduction.
- The law increases the base standard deduction amounts beginning in tax year 2025:
- For married taxpayers filing jointly (MFJ), the new base deduction is $31,500 (indexed)
- For single filers and married-filing-separate (MFS), the new base deduction is $15,750 (indexed)
- For Head of Household (HoH), the new base deduction is $23,625 (indexed)
- These amounts are subject to future inflation adjustments using the chained Consumer Price Index (CPI) methodology.
- Personal exemptions: permanent repeal of personal exemptions
- Temporary deduction for seniors: for tax years 2025 through 2028:
- individuals age 65 or older by year-end may qualify for a new federal deduction of $6,000 ($12,000 for MFJ returns)
- There is an income phaseout
- This deduction is not allowed if the taxpayer is filing married-filing-separate (MFS)
- Child tax credit (CTC): the nonrefundable CTC increases to $2,200 per child beginning in 2025 (indexed) effective for tax years 2025-2028. Note: each child must have valid SSN
- Mortgage interest deduction:
- Starting in 2026
- Permanent extension of lower mortgage loan cap of $750,000
- The exclusion of home-equity indebtedness has been removed from the definition of qualified residence interest (permanent)
- This new law reinstates the deduction for mortgage insurance premiums (PMI) treating them as qualified residence interest.
- State and local tax (SALT) deduction:
- Increased to $40,000 for all taxpayers except Married-Filing-Separate (MFS), who are entitled to $20,000
- It is a temporary increase. It will increase slightly every year until 2030 at which point it reverts to the $10,000 cap
- This enhanced SALT deduction is limited for higher income taxpayers
- No tax on tips and overtime (new): for 2025-2028, an above-the-line deduction has been created for qualified tips (in certain occupations) and for overtime premium pay, subject to income and occupation limitations
- Deductible car loan interest (new): for 2025-2028, up to $10,000 of interest on loans for U.S.-assembled passenger vehicles for personal use my be deducted, subject to income phaseouts
- Changes to charitable contributions:
- There is a new 0.5% floor that applies to charitable contributions
- The first 0.5% of their AGI becomes their contribution base
- Only charitable contributions in excess of this contribution base can be deducted
- Charitable deductions for non-itemizers: Starting in 2026
- Reinstates and increases the above-the-line deduction limit
- Maximum deduction is $1,000 (single) and $2,000 (MFJ)
- Casualty and theft loss deductions: permanent extension of casualty or theft loss suspension, except for those in federally declared disaster areas
- Moving expense deduction: This deduction has been permanently terminated except for members of the Armed Forces
- Miscellaneous itemized deductions:
- Miscellaneous itemized deductions subject to the 2% of AGI is now permanent
- This means that deductions for unreimbursed employee costs, investment advisory fees, union dues, tax prep fees, hobby expenses and safe deposit box fees are no longer deductible
- Educator expenses are no longer considered miscellaneous itemized deductions
- Estate and gift tax: the increased exemption amount is made permanent and raised to $15 million per person ($30,000 million for married couples) in 2026 (indexed)
- Clean energy and IRS credits: several clean energy credits from the Inflation Reduction Act (IRA) are terminated
TCJA Extension – Business:
- QBI deduction: the qualified business income (QBI) deduction has been made permanent with the deductible amount for each qualified business remaining at 20%
- Bonus depreciation: 100% expensing (bonus depreciation) for qualified property placed in service between 1/20/25 – 12/31/29
- Section 163(j) interest deduction:
- Reinstates the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) limitation under section 163(j) 1/1/25 – 12/31/29
- Adjusted taxable income is computed without regard to the deduction for depreciation, amortization, or depletion
- Section 174 Research & Experimental (R&E) expenditures: Immediate deduction of domestic R&E expenses paid or incurred in 2025 is allowed. However, R&E expenses attributable to research that is conducted outside the United States will continue to be capitalized and amortized over 15 years
- Section 179 expensing: the maximum amount a business may expense for qualifying expenses has been increased to $2.5 million, with the phaseout threshold raised to $ million, both indexed for inflation after 2025.
- Excess business loss permanency: the excess business loss limitation has been made permanent, and the existing treatment of loss carryforwards is maintained
- Business interest deduction: the interest expense limitation is calculated using earnings before interest, taxes, depreciation and amortization (EBITDA), rather than earnings before interest and taxes (EBIT)
- Third-party network transaction reporting threshold: Form 1099-K, Payment Card and Third Party Network Transactions, reporting reverts back to the previous rules where reporting required if transactions exceed $20,000 and the aggregate number of transactions exceeds 200
TCJA Extension – Pass-Through Entities (PTE):
- Section 199A pass-through deduction:
- Permanent extension of deduction
- State and local tax deduction for PTEs:
- If PTE and 75% of gross receipts derived from qualifying trade or business, then unlimited PTET SALT deduction
- Section 461(I) excess business loss deduction:
- Permanent limitation on excess business losses
- Modifies limitation on carryforwards