The House approved the “One Big Beautiful Bill Act” (OBBBA) in a 218-214 vote, after the Senate approved it July 1st by a 51-50 vote, with Vice President JD Vance casting the tie-breaking vote.
The OBBBA extends many of the expiring provisions from the Tax Cuts and Jobs Act (TCJA). It also puts in place other tax priorities of the Trump administration, including deductions to reduce/eliminate income taxes on tips and overtime pay. The OBBBA also makes revisions to some of the TCJA’s corporate tax provisions and foreign income and repeals many of clean energy tax incentives.
Summarized below are many of the key provisions.
Income Tax Provisions for Individuals
- For tax years beginning in 2025, the standard deduction increases to $15,750 for single filers and $31,500 for married individuals filing jointly. It will be adjusted for inflation after that.
- Temporarily increases the limit on the federal deduction for state and local taxes to $40,000 (from the current $10,000) and adjusts it for inflation. The deduction phases down starting at modified adjusted gross income of $500,000, but never below $10,000.
- Starting in 2026, the Bill increases the estate tax exemption and lifetime gift tax exemption amounts to $15 million for single filers and $30 million for married filing jointly. It will be indexed for inflation after that.
- Miscellaneous itemized deductions are permanently eliminated but allows for eligible educators deduct out of pocket expenses.
- Addition of a new deduction of up to $25,000 for “qualified tips,” subject to phaseout for a taxpayer with MAGI exceeding $150,000 ($300,000 for joint filers). However, tips from certain specified service trades or businesses don’t qualify; no deduction is allowed unless the taxpayer includes a Social Security Number on the applicable return; and other rules apply. Also, IRS is required to publish a list of occupations that customarily receive tips (including occupations that customarily and regularly received tips before 2025). IRS is also required to adjust withholding procedures to reflect the new deduction starting in 2026 (reporting entities may use reasonable methods to approximate designated tip amounts during the transition period). The deduction is set to expire after 2028.
- A new deduction of up to $12,500 ($25,000 for joint filers) for “qualified overtime compensation,” subject to phaseout for a taxpayer with MAGI exceeding $150,000 ($300,000 for joint filers). Qualified overtime compensation is defined by reference to the Fair Labor Standards Act (and doesn’t include qualified tips). Similar to the new tips deduction, no overtime deduction is allowed unless the taxpayer includes a SSN on the applicable return and the deduction is set to expire after 2028. Also, IRS is required to update withholding procedures beginning in 2026 to reflect the new deduction.
- The maximum annual amount excludable from income under dependent care assistance programs increases from $5,000 to $7,500.
- Tax-exempt distributions from Sec. 529 savings plans can now be used for additional educational expenses related to enrollment or attendance at an elementary or secondary school. The bill also allows tax-exempt distributions from 529 savings plans to be used for additional qualified higher education expenses, including “qualified postsecondary credentialing expenses.”
- Nonitemizers can now claim a deduction of up to $1,000 for single filers or $2,000 for married taxpayers filing jointly for certain charitable contributions. For itemizers, contributions for a tax year are reduced by 0.5% of the taxpayer’s contribution base for the tax year.
- The Act makes the Qualified Business Income (QBI) deduction permanent. It also sets a minimum deduction for active QBI for “applicable taxpayers” at $400; defines an applicable taxpayer as one whose aggregate QBI for all active qualified trades or businesses for the tax year is at least $1,000; and establishes inflation adjustments for the new minimums starting in post-2026 tax years. Also, the phase-in amounts are increased from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers.
Income Tax Provisions for Business
- The Act makes additional first-year (bonus) depreciation for certain qualified property permanent at 100% (under prior law, it was to phase out to zero ). This provision is effective for property acquired after Jan. 19, 2025. There is also a new 100% bonus depreciation provision for “qualified production property” (QPP, which is certain non-residential real property used in the manufacturing, production or refining of certain tangible personal property). This QPP provision is effective for property placed in service after July 4, 2025.
- For property placed in service after 2024, Section 179 expensing limits are increased to $2.5M and the phase down threshold is increased to $4M (both subject to inflation adjustments going forward).
- Beginning in tax years after December 31, 2024, the Act allows taxpayers to immediately deduct domestic research or experimental expenditures. Research or experimental expenditures conducted outside the United States will continue to be required to be capitalized and amortized over 15 years under Sec. 174. Small business taxpayers with average annual gross receipts of $31 million or less will generally be permitted to apply this change retroactively to tax years beginning after Dec. 31, 2021. All taxpayers that made domestic research or experimental expenditures after Dec. 31, 2021, and before Jan. 1, 2025, will be permitted to elect to accelerate the remaining deductions for those expenditures over a one or two year period.
- Information reporting, Form 1099-K: The Act retroactively reverts the Form 1099-K reporting threshold back to the pre-ARPA $20,000 and 200 transactions threshold.
- Information reporting, Forms 1099-NEC, 1099-MISC: For payments made after 2025, the reporting thresholds for Forms 1099-NEC and 1099-MISC are increased from $600 to $2,000 (adjusted for inflation after 2026).
- Beginning January 1, 2027, the Act makes opportunity zones permanent but with some changes, including narrowing the definition of “low-income community.”
The Act terminates a large number of clean energy tax incentives:
- Energy efficient commercial buildings deduction: Under the Act, the energy efficient commercial building deduction terminates for the cost of energy efficient commercial building property whose construction begins after June 30, 2026.
- Cost recovery for energy property: The Act eliminates 5-year MACRS classification for energy property effective for property for which construction begins after 2024.
- Advanced energy project credit: Effective July 4, 2025, “add backs” in the event of the revocation of a project certification are discontinued.
- Advanced manufacturing production credit: The Act terminates the credit for wind energy components produced and sold after Dec. 31, 2027. It also subjects pre-Act applicable critical minerals to a new phaseout schedule and tightens the rules regarding foreign entities.
- Energy efficient home improvement and new energy efficient home credits: The energy efficient home improvement credit under Code Sec. 25C is terminated for property placed in service after 2025. The new energy efficient home credit under Code Sec. 45L terminates for any qualified new energy efficient home acquired after June 30, 2026.
- Residential clean energy credit: The residential clean energy expenditures credit is terminated for any expenditures made after 2025.
- Clean vehicle credits: The credits for new and previously owned clean vehicles terminate for vehicles acquired after Sept. 30, 2025. The credit for qualified commercial clean vehicles also terminates for vehicles acquired after Sept. 30, 2025.
- Alternative fuel vehicle refueling property credits: The credit for “alternative fuel vehicle refueling property” (such as an EV charger) terminates for property placed in service after June 30, 2026.
Need help navigating these complex changes?
Shannon & Associates is here to guide you through the evolving tax landscape, whether you’re an individual taxpayer or a business owner. From deductions to depreciation to clean energy credits, our experts can help you understand how these provisions affect you.
Contact us today to start planning with confidence.
