On July 3, Congress passed the One Big Beautiful Bill Act (OBBBA), and it was signed by President Trump on July 4. The bill includes substantial tax law changes, as well as massive spending cuts for healthcare and food assistance, spending increases for defense and border security, and other provisions of the Trump administration’s budget proposals. Though not an exhaustive list, the major tax changes and their timing are categorized and summarized below. More detailed discussions of many of these provisions will be forthcoming in future publications.
Marginal personal tax rates have been “permanently” extended, meaning they will maintain their current rates and annual adjustments for inflation, rather than expiring and reverting to rates in effect prior to the Tax Cuts and Jobs Act (TCJA) of 2017.
The standard deduction for individuals is increased by $750 ($1,500 for married couples) in 2025 and made permanent with inflation adjustments. For tax years 2025 to 2028, seniors aged 65 or older will receive a $6,000 additional standard deduction ($12,000 for married couples), though the deduction is phased down at income levels starting at $75,000 adjusted gross income ($150,000 for married couples).
The new law also makes permanent the termination of personal exemptions (they were temporarily replaced by a larger standard deduction and child tax credit in the 2017 TCJA).
The bill permanently extends the increased individual alternative minimum tax exemption amounts that were established by the TCJA, but it reverts phaseout thresholds to 2018 levels ($500,000 and $1 million for single and married taxpayers respectively) starting in 2026, and phases them out twice as quickly as the TCJA.
The child tax credit is made permanent and increased to $2,200 in 2026 and requires a Social Security number from at least one parent. The credit will also begin to be adjusted for inflation on an annual basis.
The bill permanently allows a charitable deduction up to $1,000 ($2,000 for married couples) for those who do not itemize, but will now require a minimum contribution based on income level for those taxpayers who do itemize. The first .5% of charitable donations will be nondeductible unless total donations exceed .5% of the taxpayer’s adjusted gross income.
The itemized deduction for state and local taxes is increased and capped at $40,000 per household in 2025, increased annually by 1%, then reduced back to $10,000 in 2030. The passthrough entity tax regime passed by many states as a workaround to the limitation on state taxes was not impacted by the final version of the new law.
The bill makes permanent the termination of most miscellaneous itemized deductions and imposes a new limit on all itemized deductions for high-income taxpayers. Rules regarding wagering losses are permanently extended and limits are modified. The casualty loss deduction is permanently limited to losses resulting from federally declared disasters. The moving expense exclusion and deduction are permanently eliminated, except for active-duty military and “intelligence workers”. The limit on the home mortgage interest deduction is permanently extended, capping the interest deduction on the first $750,000 in debt.
The limitation on excess business losses by individual taxpayers is now made permanent, though it resets to a limit of $250,000 in 2026 ($500,000 for married couples) and is adjusted for inflation thereafter.
Reduced Tax on Overtime
The new law will allow workers to deduct overtime pay from taxable income for tax years 2025-2028. The deduction is capped at $12,500 and decreases for those making more than $150,000 a year ($25,000 and $300,000, respectively, for married couples). Overtime is defined by the Fair Labor Standards Act and will need to be separately included on the worker’s W-2.
Reduced Tax on Tips
The new law will allow workers to deduct qualified tips from taxable income for tax years 2025-2028. The deduction is capped at $25,000 and decreases incrementally for those making more than $150,000 a year ($300,000 for married couples). Tip income must be received from a job that is customarily and regularly associated with tips prior to 2025, and reported on the worker’s W-2.
Reduced Tax on Auto Loan Interest
The bill provides a deduction of up to $10,000 for loan interest on new vehicles that undergo final assembly in the U.S. for tax years 2025-2028.
“Trump Accounts”
The legislation creates new tax-deferred savings accounts for children under age 18, with a contribution limit of $5,000 annually (adjusted for inflation) and a government contribution to be piloted as a tax refund of $1,000 per child born between 2025 to 2029. Employers may make tax-free contributions on behalf of employees up to $2,500. The child beneficiary must be a US citizen.
The estate and lifetime gift exemption amount is currently at $13.99 million per person for 2025 and was set to expire and revert to a decreased maximum of approximately $7 million in 2026. The OBBA makes the exemption amount permanent and increases it to $15 million in 2026 ($30 million for married couples). It will be adjusted annually for inflation thereafter.
The 20% deduction against net profits in qualifying small businesses is made permanent and the phaseout range of income for specified service businesses was expanded. The bill also created a minimum deduction of $400 for certain taxpayers.
Bonus depreciation for qualifying property acquired after January 19, 2025, is reinstated at 100% and made permanent. A new 100% depreciation deduction on “qualifed production property” is also allowed in 2025. The bill also increases 2025 Section 179 expensing limits from $1 million to $2.5 million and increases the phaseout threshold from $3.13 million to $4 million.
Full expensing of domestic research and development expenditures is permanently reinstated beginning with the 2025 tax year. Previously capitalized costs can be deducted in 2025 or deducted evenly in 2025 and 2026. Small business taxpayers will be allowed to amend their previous returns to remove and deduct the capitalized costs.
The business interest expense limitation is modified and reverts back to excluding depreciation, amortization, and depletion from the adjusted taxable income computation, similar to the methodology used prior to 2022.
The exclusion for gains on qualified small business stock is expanded to a tiered methodology applying to 50% of gain for stock held at least three years, 75% of gain for stock held at least four years, and 100% of gain for stock held at least five years. The bill also increases the limit on a qualifying business from $50 million in value to $75 million, and increases the exclusion from $10 million to $15 million.
Under a new rule, the sale of qualified farmland to a qualified farmer will be eligible to report the gain and related tax liability over a four-year period. This rule would apply to sales occurring in 2026 and later.
The information reporting threshold for business payments to independent contractors and other payees is raised from $600 to $2,000 starting in 2026 and indexed for inflation thereafter.
Charitable contributions by corporations will have a new 1% floor starting in 2026, meaning that contributions less than 11% of the corporation’s taxable income will have a 1% disallowance.
The Production Tax Credit (PTC) and the Investment Tax Credit (ITC) for wind and solar energy projects will be terminated for projects placed in service after 2027. As a safe harbor, the cut-off will not apply to projects that begin construction within one year of the new law’s enactment date.
The Manufacturing Production Credit (MPC) will be phased out and terminated, applying a 25% reduction to the tentatively calculated credit each year from 2031 to 2034. The manufacture of wind energy components will not be eligible for the credit after 2027.
Electric vehicle tax credits will be terminated for purchases after September 30, 2025. This includes the clean vehicle credit, the commercial clean vehicle credit, and the previously-owned vehicle credit. The tax credit for alternative fuel vehicle refueling property will be terminated for property placed in service after June 30, 2026.
For taxpayer homes, the residential clean energy tax credit and the energy efficient home improvement tax credit will be terminated after December 31, 2025. The energy efficient home credit will end for homes acquired after June 30, 2026. Also, the energy efficient commercial building deduction under Section 179D will end for any property construction that begins after June 30, 2026.
The New Markets Tax Credit (NMTC) is now permanently extended. Also, the Low-Income Housing Tax Credit (LIHTC is expanded with a permanent increase to the state allocation ceiling from 9% to 12% beginning in 2026.
Both the Global Intangible Low-Taxed Income (GILTI) inclusion and the Foreign-Derived Intangible Income (FDII) deduction are effectively increased under the new law by eliminating the 10% qualified business asset investment reduction. The bill also modifies the preferential rates that were scheduled to decrease under the 2017 Tax Cuts and Jobs Act. GILTI inclusions are offset by a 50% deduction which will be adjusted to 40%, and the FDII deduction is calculated using a 37.5% rate which will be adjusted to 33.34%. All of these changes will take effect beginning in 2026.
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com.
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