On July 4, 2025, President Trump signed into law legislation that has been dubbed, “One Big Beautiful Bill (OBBBA)”. The bill extends a number of provisions from the Tax Cuts and Jobs Act of 2017 and attempts to fulfill many of his campaign promises. The following is a highlight of certain provisions of the bill and does not encapsulate all changes.
Business Changes
Bonus Depreciation – Bonus depreciation, which allows companies to expense tangible property that otherwise would need to be capitalized and depreciated, was slowly phasing out each year by 20% with 2026 being the final year. As part of the OBBB, Bonus depreciation is now 100% and it is a permanent deduction. This allows businesses to expense 100% of the cost of tangible property in the year placed in service.
Section 179 – The deduction limit is increased to $1.25 million for 2025 and $2.5 million with a new phaseout threshold of $4 million for assets purchased and placed in service in 2025, and annual inflation adjustments after 2025.
Bonus Depreciation for qualified production property – Taxpayers are allowed to expense 100% of the cost of qualified production property, for qualified production property constructed after 1/19/25 and before 1/1/2029 and placed in service before 2031. Qualified production property is non-residential real property is used by the taxpayer as an integral part of a qualified production activity. Qualified production activity is related to manufacturing, production, or refining of tangible personal property. Production is limited to agricultural and chemical production. Qualified products include all tangible personal property , except food or beverages prepared in the same building as a retail establishment where the products are sold. This tax provision will be beneficial to any business looking to construct a new manufacturing facility between 2025 and 2029.
Qualified business income deduction
The 20% deduction for qualified business income from pass-through entities was set to expire in 2026. The OBBBA makes the QBI deduction permanent and also expands the deduction limit phase-in range by increasing the $50,00 (non-joint returns) and $100,000 (joint returns amounts to $75,000 and $150,000 respectively. The bill also modifies
Research & Development Expenditures
Under the tax cuts and jobs act, businesses that engaged in R&D were required to capitalize R&D and amortize domestic R&D over 60 months and foreign R&D over 180 months. Under the OBBB, R&D is once again allowed to be expensed in the year incurred. Small business taxpayers with average annual gross receipts of $31 million or less (based on the average three prior years) may retroactively elect to apply this change to tax years beginning after 12/31/2021. The election must be made by 7/4/2026 and requires the taxpayer to prepare amended returns for tax years impacted by the election.
For taxpayers that made domestic R&E expenditures from 2022 – 2024 and do not elect to amend their prior year returns, they may elect to accelerate the remaining deductions for such expenditures over a one-year period or ratably over a two-year period.
Qualified Opportunity Zone
A qualified Opportunity Zone allows taxpayers to defer capital gain by reinvesting any capital gain in a qualified opportunity fund within a certain time period. The OBBBA Established a permanent opportunity zone policy, creating rolling, ten -year opportunity zone designations beginning January 1, 2027.
In addition to the gain deferral, the new law allows investors to receive an incremental reduction in gain starting on the first anniversary of investment
For each year that an investor is invested in the fund, their basis will be increased according to the following schedule:
Year 1- 3 1%
Year 4- 5 2%
Year 6 3%
Qualified Small Business Stock
The QSBS gain exclusion rules are modified to provide for a tiered gain exclusion for QSBS acquired after July 4, 2025. The exclusion is 50% for stock held for three years, 75% percent for stock held for four years and 100% for stock held for five or more years. Prior to the OBBBA, taxpayers needed to hold QSBS stock for 5 years before they were entitled to exclude any gain on the sale of QSBS stock. In addition, the per-issuer dollar limitation is increased to $15 million and for stock acquired after July 4, 2025 the aggregate gross asset ceiling is increased to $75 million
Personal tax Changes
TIPS Deduction – Individuals can claim an income tax deduction for qualified tips received in tax years 2025 through 2028. The deduction equals the amount of qualified tips received during the tax year that are included on statements that payers must furnish to individuals payees or that the individual taxpayer must report on Form 4137. The qualified tip deduction cannot be more than $25,000 per year. The deduction amount is phased out when the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 for taxpayers filing a joint return).
Qualified Overtime Pay deduction – Individuals can claim an income tax deduction for qualified overtime pay received in tax years 2025 through 2028. The overtime amounts received must be included on a payee statement furnished by the payer to the individual. The deduction amount each year cannot be more than $12,500 ($25,000 for taxpayers filing a joint return). The deduction begins to phase out for taxpayers whose modified adjusted gross income exceeds $150,000 ($300,000 for joint filers).
State and Local Tax (SALT) Deduction – As part of the Tax Cuts and Jobs Act, the deduction for state and locate taxes for taxpayers that itemized their deductions was capped at $10,000 ($5,000 if married filing separately). Under the OBBBA, the deduction limit for 2025 has been increased to $40,000 ($20,00 if married filing separately). The deduction increases to $40,400 for 2026 and increases by one percent over the previous year’s amount in 2027 – 2029.
Standard Deductions – The increased standard deduction was set to expire at the end of 2025. The OBBBA makes the increased standard deduction permanent and adds an additional deduction of $6,000 for taxpayers that are 65 or older and have modified adjusted gross income of $75,000 ($150,000 if married filing jointly). The increased deduction of $6,000 will expire in 2029.
Energy Related Credit
Energy Efficient home improvements – the Energy efficient home improvement credit is terminated. A taxpayer may not claim a credit for property placed in service after December 31, 2025.
Clean Vehicle Credit – the credit of up to $7,500 for a qualified new clean vehicle is terminated and may not be claimed for vehicles acquired after September 30, 2025.
Previously-owned Clean Vehicle credit – the credit of up to $4,000 for the purchase of previously-owned clean vehicles is terminated and may not be claimed for vehicles acquired after September 30, 2025. This credit was part of the inflation reduction act and was available to taxpayers whose adjusted gross income was $150,000 or less and the vehicles sales price was $25,000 or less.
