Landmark Tax Legislation of the One Big Beautiful Bill Act: What It Means for You

Takeaways:

• • TCJA provisions—including individual and business tax cuts—are now permanent.
  • New deductions target middle-class earners, including relief on tips, overtime, and car loans.
  • Major boosts for businesses: 100% bonus depreciation, expanded R&D expensing, and more.
  • Green energy tax credits are rolled back, while Opportunity Zones receive a permanent extension.

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On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“Act”), passed in the House of Representatives on July 3, 2025, by a 218-214 vote. This Act makes significant changes to the federal tax law and builds upon the foundation established by the 2017 Tax Cuts and Jobs Act (“TCJA”). The TCJA, which was enacted during President Trump’s first term on January 1, 2018, introduced comprehensive tax reform focused on tax cuts and a variety of other benefits for individuals and businesses. Many TCJA provisions were scheduled to expire in 2025. The Act extends many TCJA provisions and includes other significant revisions to the Internal Revenue Code (“Code”).

The Act was passed pursuant to the budget reconciliation process, which allowed it to pass the Senate with a simple majority and without the possibility of a filibuster. After a narrow vote in the House, the Senate modified parts of the bill and approved it with Vice President J.D. Vance casting the tie-breaking vote. The use of reconciliation limited the number of amendments and expedited the timeline, resulting in a relatively swift legislative journey. Supporters view the Act as a continuation and expansion of earlier tax reform efforts, aiming to stimulate economic growth and simplify the tax system. Critics, however, have raised concerns about its potential impact on the federal deficit and the reduction of public assistance programs. The Act’s passage reflects broader debates about tax policy, government spending, and the country’s long-term fiscal direction. Below is a summary of the key tax provisions of the Act.

Key Tax Items

• Individual Income Tax Rates: The reduced statutory income tax rates established by the TCJA are made permanent, with an additional year of inflation adjustments applied to the 10%, 12%, and 22% income tax brackets.
• Standard Deduction: The TCJA’s near doubling of the standard deduction is made permanent. For 2025, the deduction is $31,500 for joint filers, $23,625 for heads of household, and $15,750 for all other filers, with amounts adjusted for inflation annually.
• Personal Exemptions: The elimination of personal exemptions under TCJA is made permanent.
• Child Tax Credit: The TCJA’s child tax credit is made permanent. The maximum credit for qualifying taxpayers will be $2,200 in 2026, which is adjusted for inflation each year.
• Alternative Minimum Tax (AMT): The increase in the alternative minimum tax exemption is made permanent. The exemption phaseout thresholds have been reset to their 2018 levels: $500,000 for single filers and $1 million for joint filers, with adjustments for inflation going forward. Additionally, the AMT phaseout rate has been increased.
• Pass-Through Business Deduction: The Code Section 199A pass-through deduction is made permanent. The income limitation phase-in range has been expanded by $50,000 for individual filers and $100,000 for those filing jointly. Additionally, a minimum deduction of $400 is now available to taxpayers who materially participate in a business and report at least $1,000 in qualified business income.
• Estate and Gift Tax Exemption: The estate and gift tax exemption amounts under the TCJA are made permanent. Starting in 2026, the estate and gift tax exemption will be $15 million indexed for inflation each year thereafter, permitting a total $30 million exemption available to married individuals in 2026 for estate planning purposes.
• State and Local Taxes (SALT): The cap on the itemized deduction for state and local taxes has been temporarily raised to $40,000 for 2025, with a 1% annual increase through 2029. This enhanced cap is subject to a phaseout for taxpayers earning more than $500,000. Beginning in 2030, the cap will return to a flat $10,000.
• Bonus Depreciation: Full expensing (100% bonus depreciation) for certain business investments is restored and made permanent.
• Research and Development Expensing: Immediate expensing for domestic research and development costs has been permanently reinstated. Small businesses with gross receipts of $31 million or less are allowed to retroactively expense research and development expenditures incurred after December 31, 2021. A small business will satisfy the gross receipts test as provided in Code Section 448(c)(1) if the average annual gross receipts of the entity for the prior three taxable years do not exceed $31 million. For all other domestic research and development conducted between December 31, 2021, and January 1, 2025, remaining deductions can be accelerated over a one- or two-year period.
• Section 179 Expensing: The expanded Section 179 increased dollar limitations for expensing of certain depreciable business assets are made permanent.
• Interest Deduction Limitation: The more generous limits on business interest deductions (based on EBITDA) are restored and made permanent.
• Qualified Small Business Stock: The Act significantly expands the benefits of Code Section 1202 related to Qualified Small Business Stock (“QSBS”) by allowing for gain exclusions of 50%, 75% and 100% for shares held for more than three years, four years, and five years, respectively. The gain exclusion limit is increased from $10 million to $15 million per issuer, and the corporate-level gross asset ceiling increases from $50 million to $75 million.

New Middle-Class Tax Relief

• “No Tax on Tips”: For tax years 2025–2028, the Act provides an “above-the-line deduction” (adjustment) for tips with a maximum of $25,000 that decreases for individuals making more than $150,000 a year, $300,000 for joint filers.
• “No Tax on Overtime”: For tax years 2025–2028, the Act provides an “above-the-line deduction” (adjustment) on overtime pay from taxable income with a maximum of $12,500 that decreases for individuals making more than $150,000 a year. For joint filers, the deduction is capped at $25,000 with an income cutoff of $300,000.
• Deduction for Car Loan Interest: For tax years 2025–2028, the Act provides a deduction up to $10,000 on new car loan interest for vehicles assembled in the U.S., subject to income-based phaseouts.
• Enhanced Deduction for Seniors: For tax years 2025-2028, the Act provides a new “above-the-line deduction” (adjustment) for seniors of $6,000, who earn no more than $75,000 per year or $150,000 for joint filers.
• Trump Accounts: The Act provides for new individual retirement accounts for qualifying children to be used for qualified expenses, with annual contributions up to $5,000, indexed for inflation. For U.S. citizens born after 2024 and before 2029, the Act provides for a credit to established accounts with an initial government contribution of $1,000.

Charitable and Other Deductions

• “Above-the-Line Charitable Deduction”: The Act provides a permanent “deduction” (adjustment) up to $1,000 for individuals and $2,000 for joint filers who do not itemize for charitable contributions.
• 0.5% Floor on Charitable Deductions: The Act establishes a new 0.5% floor on charitable contributions made by individuals in order to take them as itemized deductions.
• Itemized Deductions: Corporate and individual deductions were limited. The corporate charitable deduction allowed pursuant to Section 170(b)(2)(A) was amended to include a minimum floor amount. A corporation can deduct charitable contributions if they exceed 1% of the corporation’s taxable income and may deduct amounts up to 10% of taxable income. The amount of itemized deductions allowed for an individual was reduced by 2/37ths of the lesser of: (1) such amount of itemized deductions, or (2) the amount of taxable income of the taxpayer for the taxable year that exceeds the dollar amount at which the 37% tax rate bracket begins with respect to the taxpayer.

Further, miscellaneous itemized deductions, other than the deduction for educator expenses, were permanently abolished. The deduction for personal casualty losses in Section 165(h)(5) was amended to make the time limitation permanent. The moving expense deduction provided in Section 217(g) was expanded to apply to employees or new appointees of the intelligence community who move due to a change in assignment that requires relocation.

Repeal and Phase-Out of Green Energy Credits: A wind or solar facility placed in service after December 31, 2027, will not qualify for the clean electricity production credit. Numerous clean energy credits were terminated, including the Clean Vehicle Credit, the Qualified Commercial Clean Vehicles Credit, the Alternative Fuel Vehicle Refueling Property Credit, the Energy Efficient Home Improvement Credit, and the Residential Clean Energy Credit.

Opportunity Zones: The opportunity zones tax incentive was made permanent. The eligibility requirements for census tracts were tightened, and new tracts will be designated every 10 years beginning December 1, 2027. Gain invested in a qualified opportunity fund on or after January 1, 2027, will be eligible for deferral until December 31, 2033, and gain invested on or after January 1, 2034, will be eligible for deferral until December 31, 2043, and so forth for 10-year periods.

Business Credits: The advanced manufacturing investment credit was increased from 25% to 35% of the qualified investment for the taxable year for an advanced manufacturing facility. The depreciation deduction provided in Section 167(a) now allows for the full depreciation of qualified production property, up to the adjusted basis, for the year the property is placed into service.

International Tax Reforms: The foreign-derived intangible income and global intangible low-taxed income deductions were reduced from 37.5% and 50%, respectively, to 33.34% and 40%. The base erosion minimum tax amount will be calculated using the amount equal to the excess of 10.5% of modified taxable income, increased from 10%.

If you have any questions about the informaiton in this alert, contact Mike Cumming, Asel Lindsey, Arthur Nathan, Scott Kocienski, Emily Jacobs, Mackenzie Kraus, Deborah Ransom, or your Dykema relationship attorney.