As you likely have heard, the One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. This complex sequel to the Tax Cuts and Jobs Act (TCJA) extends many TCJA provisions and creates additional tax breaks for individuals and businesses. Some of these provisions were made permanent, and others are set to expire over the next few years. In this article, we’re highlighting key provisions that individuals and businesses need to be aware of.
Key Updates for Individuals
Increased Standard Deduction Made Permanent
In 2018, the TCJA nearly doubled the standard deduction for individual tax returns. The OBBA has made this change permanent. For 2025, married couples filing jointly are entitled to a standard deduction of $31,500. The deduction is $15,750 for single filers and $23,625 for heads of household. After 2025, these amounts will be indexed for inflation. As a result, many households no longer benefit from itemizing deductions.
State and Local Tax Deduction Temporarily Expanded
The TCJA’s creation of a $10,000 cap on the state and local tax (SALT) deduction had a dramatic impact on taxpayers across the nation. As a result, many are celebrating that the OBBA substantially raised this cap, allowing taxpayers to deduct up to $40,000 in state and local taxes for tax years 2025 through 2029. The new cap, however, includes both income and property taxes, which limits the value of the increase for many high-income households.
The cap begins phasing out at $500,000 in income and is fully phased out at $600,000. While the amount of the cap and the phaseout levels are the same for both single and joint filers, they are halved for married taxpayers who file separately. From 2026 to 2030, the cap is set to increase by 1% annually. In 2030, however, it is set to revert back to the $10,000 level.
Temporary “Above-the-Standard” Deductions
The OBBBA has created new deductions aimed at low-to-middle income taxpayers that do not require itemizing. For tax years 2025 through 2028, many taxpayers will be able to deduct tips, overtime income, and interest on loans for new, U.S.-made automobiles. The law also created a new deduction just for seniors. Here are the details:
- Workers may deduct up to $25,000 in tips as well as $25,000 in overtime income. These deductions begin to phase out at $300,000 for joint returns and $150,000 for all others.
- Purchasers of new vehicles that were assembled in the U.S. may deduct up to $10,000 in car loan interest. This deduction phases out for joint filers between $200,000 and $250,000 in income and for others between $100,000 and $150,000.
- Taxpayers who are 65 or better are entitled to an additional $6,000 deduction per person. This deduction phases out at $150,000 on joint returns and at $75,000 for others.
Permanent Changes to Charitable Deduction Rules
For Taxpayers Who Don’t Itemize
Beginning in 2026, taxpayers will be able to claim charitable deductions in addition to the standard deduction—without having to itemize. Joint filers can claim up to $2,000 in charitable contributions, and others can claim up to $1,000. This move restores and expands the pandemic-era "above-the-line" charitable deduction, offering tax incentives for charitable giving to a wider swath of the U.S. population.
For Taxpayers Who Itemize
Beginning in 2026, taxpayers who itemize their deductions must contribute a minimum of a 0.5% of their adjusted gross income (AGI) before charitable gifts become deductible. The OBBBA also permanently maintains the limit of 60% of AGI on the deduction for cash contributions to qualified charities.
Permanent Increase to the Child Tax Credit
The new law increases the child tax credit form $2,000 to $2,200 per qualifying child. The increase is effective for the 2025 tax year and is set to be indexed annually for inflation.
Children’s Savings Accounts
To promote long-term financial security, OBBBA created a new, tax-advantaged savings account for minors. To qualify, children must be under 18, have a valid Social Security number (SSN), and have at least one parent with a valid SSN. For children born between 2025 and 2028, the government will also provide a one-time contribution of $1,000.
Parents and others can contribute up to a total of $5,000 per year to the account, tax free, until the child’s 18th birthday. After that, the child can withdraw funds to cover educational, small business, or first-home purchase costs. Funds may also be used for expenses related to the birth or adoption of a child as well as for costs related to natural disasters. Otherwise, the account works much like an individual retirement account (IRA): withdrawals taken before age 59½ that are not used to cover the expenses listed above incur a 10% tax penalty. Unlike an IRA, however, all investments within this account must be based in the U.S.
Permanent Estate & Gift Tax Exemption Increase
The TCJA temporarily doubled the lifetime exemptions for estate, gift, and generation-skipping transfer tax. This increase was set to expire in 2025, but the OBBBA has made it permanent. For 2025, the exemption is $15 million per person, and this amount will be indexed for inflation beginning in 2026.
Alternative Minimum Tax
The OBBBA brings mixed news regarding alternative minimum tax (AMT) applicability. The TCJA significantly increased the amount taxpayers can exempt from their AMT calculation for the years 2018–2025. The OBBBA makes this increase permanent with annual adjustments for inflation. On the other hand, the new law has rolled back inflation adjustments to the AMT exemption phaseout levels, resetting them at $1 million for married joint filers and $500,000 for single filers beginning in 2026. As a result, high income households may see increased AMT exposure.
Key Updates for Businesses
100% Bonus Depreciation Reinstated & Made Permanent
The TCJA allowed businesses that could not claim a Section 179 business expense deduction to write off 100% of qualified property expenses in the year the property is placed in service. This “bonus depreciation” began phasing out in 2023 at a rate of 20% per year; and this phase-out was set to continue until 2027, when it would have reached 0%. The OBBBA reversed the phase-out, again allowing businesses to fully expense qualified assets beginning in 2025. This provision applies to certain structures used in domestic production activities, which is a significant incentive for manufacturers looking to build or upgrade their U.S. facilities.
Permanent Expansion of Section 179 Deductions
In addition to reinstating 100% bonus depreciation, the OBBBA expanded the §179 business expense deduction and made it permanent. The cap for expensing property under Section 179 increased from $1.0 million to $2.5 million, and the phase-out threshold rose from $2.5 million to $4 million. This change is especially useful for costs that do not qualify for bonus depreciation and for businesses in states whose tax codes are more closely aligned with Section 179 deductions than with bonus depreciation.
Permanent Qualified Business Income Deduction
The TCJA established the Section 199A qualified business income (QBI) deduction, allowing owners of pass-through businesses to deduct up to 20% of their QBI. This deduction was scheduled to expire at the end of 2025, but the OBBBA has made it permanent and increased the phase-out level from $100,000 to $150,000 for joint filers and from $50,000 to $75,000 for others. Due to restrictions on certain service businesses, the QBI deduction will continue to exclude professionals such as attorneys, CPAs, and financial advisors.
Permanent Adjustment to Business Interest & Loss Rules
The OBBBA has made permanent both the business interest deduction and the limitation on excess business losses. This gives businesses that are cyclical, capital-intensive, or reliant on debt greater predictability and flexibility, allowing them to build long-term tax strategies around these deductions without worrying they’ll disappear or change dramatically in the near future.
Research & Development Expenditures
The TCJA required companies to amortize their R&D costs over five years instead of deducting them immediately each year. The OBBBA eliminates this requirement, once again allowing companies to immediately expense qualified R&D. Additionally, small businesses are permitted to amend prior returns or adjust future filings to recover capitalized research costs, which could result in substantial refunds or tax savings. Consult with your tax advisor to determine whether an amended return or prospective deduction is more beneficial for your business, given its cash flow and tax profile.
Qualified Small Business Stock Expansion
The OBBBA has enhanced the Section 1202 gain exclusion for qualified small business stock (QSBS), offering new opportunities in long-term exit planning. Prior to the OBBA, QSBS had to be held for a minimum of five years to qualify for preferential tax treatment under Section 1202. The OBBA modified this rule, allowing shareholders to sell earlier and still enjoy tax benefits. Shareholders can exclude varying amounts from federal tax, depending on how long shares are held:
- 50% of the gain if the shares are held at least three years
- 75% of the gain if the shares are held at least four years
- 100% of the gain if shares are held at least five years
Additionally, the OBBA increased the total amount that can be excluded from federal taxation from $10 million to $15 million. This exemption amount will be indexed for inflation starting in 2027.
Pass-Through Entity Tax Workarounds Preserved
Despite prior legislative efforts to curtail state-level pass-through entity tax (PTET) workarounds, the final version of the OBBBA leaves these provisions untouched. This means that owners of pass-through businesses can continue using PTET elections in states that allow them to circumvent the federal SALT deduction cap. For many business owners, this provides meaningful tax savings and planning flexibility.
International Tax Provisions
The OBBBA makes permanent the treatment of global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII). It also imposes a new 1% remittance tax, which applies as an excise tax on certain cross-border transfers. This provision could have real implications for multinational firms and those with offshore operations, so if this describes your business, be sure to discuss its impact with your tax planning professional.
What Comes Next?
At Stable Rock, we are already assessing how the OBBBA affects each client, identifying both opportunities and potential risks. If you have a significant transaction or income event on the horizon in 2025, now is the time to start planning. Our team can help you navigate the updated rules and phase-out thresholds so you can make the most of these new provisions.