On July 4, 2025, President Trump signed the bill known as the One Big Beautiful Bill into law. This bill contains many tax provisions that will impact the American taxpayer. In this alert, our BRC Tax Professionals, will provide an overview of the most relevant individual tax provisions contained in the bill and the impact they may have on you and your business.
Under the new bill, the tax rates enacted in 2017 under the TCJA Act are made permanent. The seven tax brackets remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The bill also makes the TCJA’s increased standard deduction amount permanent.
This bill provides for these specific revisions:
· The bill adds an additional year of inflation adjustment for determining the dollar amounts at the level when the 12% bracket ends and before any bracket higher than the 22% bracket begins.
· Standard Deduction: In 2025, the standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married taxpayers filing jointly. The standard deduction will be adjusted for inflation after 2025.
Effective Date: The provision for income tax rates becomes effective for tax years beginning after December 31, 2025. The provision for the increased standard deduction becomes effective for tax years beginning after December 31, 2024.
The bill permanently retains the zero deduction for personal exemptions as established by the TCJA Act of 2017. It also allows a temporary $6,000 deduction for individual taxpayers who are age 65 or older.
· The $6,000 deduction for seniors applies to any taxpayer who has attained age 65 before the end of the tax year, and if filing a joint tax return the taxpayer’s spouse has attained age 65 before the close of the tax year.
· The deduction begins to phase out when the taxpayer’s modified adjusted gross income (MAGI) exceeds $75,000, or $150,000 if filing a joint tax return. If a taxpayer’s MAGI exceeds the threshold amounts, the $6,000 deduction is reduced by 6% of the amount over the MAGI thresholds.
· In order to be eligible for the $6,000 deduction, the taxpayer and spouse, if applicable, must report their social security number on the tax return for the year the deduction is claimed.
Effective Date: Both provisions become effective for tax years beginning after December 31, 2024. The temporary $6,000 deduction for seniors is effective for years 2025 through 2028.
The new bill permanently extends the TCJA Act of 2017 increased individual alternative minimum tax (AMT) exemption amounts and it reverts the exemption phaseout thresholds to the 2018 levels of $500,000, or $1 million for a jointly filed tax return.
· The bill increases the phase out of the exemption amount from 25% to 50% of the amount by which that taxpayer’s alternative minimum taxable income exceeds the threshold amount.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2025.
The bill temporarily increases the limit on the federal deduction for state and local taxes (SALT cap) to $40,000 from the current $10,000, and adjusts it for inflation.
· In 2025, the SALT cap will be $40,000. The amount of the deduction phases down for taxpayers with modified adjusted gross income (MAGI) over $500,000. The MAGI threshold will be adjusted annually for inflation. The phasedown will reduce the taxpayer’s SALT deduction by 30% of the amount the taxpayers MAGI exceeds $500,000, however the limit on a taxpayer’s SALT deduction cannot go below $10,000.
· In 2026, the SALT cap will be $40,400 and then it will increase by 1% annually through 2029. Staring in 2030, the amount will revert back to $10,000.
· This provision does not change any workarounds that taxpayers are currently using to avoid the SALT cap, including the Pass Through Entity Tax (PTET). The provision solely increases the cap to $40,000.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2024.
The new bill permanently extends the TCJA Act of 2017 provision limiting qualified residence interest deduction to the first $750,000 in home mortgage acquisition debt.
This bill also makes the following provisions permanent:
· It makes permanent the exclusion of interest on home equity indebtedness from the definition of qualified residence interest. If the loan proceeds were used to buy, build or substantially improve the taxpayer’s home that secures the loan, it is considered acquisition debt, not home equity debt.
· The new bill treats certain mortgage insurance premiums in acquisition indebtedness as qualified residence interest.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2025.
Under the new bill, the TCJA Act of 2017 provision which limited the itemized deduction for personal casualty losses to only losses resulting from federally declared disasters becomes permanent. However the bill expands the provision to include certain state-declared disasters.
This bill defines a state declared disaster as the following:
· Any natural catastrophe, including disasters such as hurricanes, tornadoes, storms, tidal waves, fires, floods, or explosions, in any part of the State, in which the Governor of such state determines the damages are severe enough to classify the catastrophe to the application of the provisions of a casualty loss.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2025.
The new bill makes permanent the provision enacted by the TCJA Act of 2017 which suspends the deduction for miscellaneous itemized deductions, such as unreimbursed employee expenses, investment expenses, and tax preparation fees through 2025.
The bill makes the following exception to miscellaneous itemized deductions:
· The bill removes unreimbursed employee expenses for eligible educators from the list of disallowed miscellaneous itemized deductions.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2025.
Under the new bill, the overall limitation on itemized deductions, known as the Pease limitation was permanently removed.
This bill provides a new overall limitation on the tax benefit of itemized deductions for those taxpayers in the 37% tax bracket:
· The amount of itemized deductions otherwise allowable would be reduced by 2/37 of the lesser of: (1) the amount of itemized deductions or (2) the amount of the taxpayer’s taxable income that exceed the 37% tax bracket.
· The new limitation is applied after the application of any other limitation of any other itemized deduction.
· The limitation does not impact the calculation of Section 199A, Deduction for Qualified Business Income.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2025.
Under the new bill, the amount of the nonrefundable child tax credit is increased from the current $2,000 to $2,200 and adjusts the amount for inflation. The bill also provides other enhancements to the child tax credit:
· This bill makes permanent the $1,400 refundable child tax credit, adjusted for inflation.
· The bill makes permanent the increased income phaseout threshold amounts of $200,000, or $400,000 if filing a joint return, as well as the $500 nonrefundable credit for each dependent of the taxpayer other than a qualifying child.
· The credit is allowed for a qualifying child if the taxpayer includes his/her social security number on the tax return. In the case of a joint tax return, the social security number of one spouse is required, as well as the social security number of each qualifying child.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2024.
Under the new bill, the maximum amount of the child and dependent care tax credit is permanently increased from 35% to 50% for qualifying expenses.
This bill provides income thresholds for phaseout of the credit as follows:
· For taxpayers with adjusted gross income (AGI) over $15,000, the credit is reduced by 1% point (but not below 35%) for each $2,000 that the taxpayer’s AGI exceeds $15,000.
· For taxpayer’s with adjusted gross income (AGI) over $75,000 ($150,000 for joint returns), the credit will be further reduced (but not below 20%) by 1% point for each $2,000 ($4,000 for joint returns) that their AGI exceeds $75,000 of $150,000 (joint returns).
Effective Date: The provision becomes effective for tax years beginning after December 31, 2025.
Starting in 2026, individuals who do not itemize deductions can claim a charitable deduction of up to $1,000 (or $2,000 for married couples filing jointly). For those who do itemize, the new bill imposes an additional limitation on the deductibility of charitable contributions. In addition to other existing limitations, charitable contributions will only be deductible to the extent they exceed 0.5% of AGI (without regard to net operating losses in the taxable year) .
New carryover rules also apply to amounts not entitled to be deducted in the current year. In addition, the 60% AGI limitation for cash contributions to public charities is made permanent.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2025.
The Bill includes a significant change for noncorporate taxpayers, the permanent extension of the excess business loss (EBL) limitation under Section 461(l). Originally enacted as part of the 2017 Tax Cuts and Jobs Act (TCJA), the EBL limitation was set to expire at the end of 2028. The Bill removes that sunset provision, making the limitation a permanent feature of the tax code.
About the EBL Limitation:
The EBL rule limits the amount of net business losses that noncorporate taxpayers, such as sole proprietors, partners, and S corporation shareholders, can deduct against non-business income. For tax year 2025, the cap is set at $313,000 for single filers and $626,000 for joint filers, with annual inflation adjustments thereafter.
Effective Date: The provision retains the limitations enacted by the TCJA set to expire as of December 31, 2028 and makes them permanent.
The Bill delivers updates to Section 1202 of the Internal Revenue Code, commonly referred to as Qualified Small Business Stock (QSBS) exclusion. These changes significantly expand the tax benefits available to startup investors and small business shareholders.
The Bill introduces three major reforms to Section 1202:
- Increased Asset Threshold: The corporate-level aggregate asset ceiling for QSBS eligibility will rise from $50 million to $75 million. This expansion allows more growing businesses to qualify for the exclusion, particularly those in capital-intensive sectors.
- Higher exclusion cap: The per-taxpayer lifetime gain exclusion is increased from $10 million to $15 million. This change enhances the incentive for long-term investment in qualifying small businesses.
- Tiered Holding Periods: Previously, taxpayers had to hold QSBS for five years to qualify for the full 100% exclusion. Under the new rules, the benefits phase in gradually:
50% exclusion after 3 years
75% exclusion after 4 years
100% exclusion after 5 years
Effective Date: These provisions apply to stock issued after the bill’s enactment.
Under Section 70201 of the new bill, individuals may be able to deduct qualified tips that are received in a year for tax years 2025 through 2028, as long as the qualified tips are reported to the taxpayers each year and the taxpayer is within certain income limitations. The tips would be reported on Form W-2, Form 1099-K, Form 1099-NEC, or Form 4137. This is a temporary provision that would end on December 31, 2028.
This deduction is limited to $25,000 of qualified cash tips for any taxable year. For a married couple to take this deduction they must file a joint return. They would not be able to take the deduction if they file married filing separate. The deduction is available no matter if a taxpayer itemizes or takes the standard deduction and will be reduced by $100 for each $1,000 by which the modified adjusted gross income of the taxpayer for that taxable year exceeds $150,000 ($300,000 for a joint return). The taxpayer must have a social security number to put on the return to take this deduction. If tips are received by a taxpayer in the course of operating a trade or business (other than being an employee), the qualified tips received can be deducted only to the extent that the gross income from the trade or business (including the tips) exceeds the deductions (other than the tip deduction) for the trade or business in a taxable year. Thus, a taxpayer has to receive tips in the business and the business has to be profitable in order to take the qualified tip deduction for those not treated as employees.
Qualified Tips are defined as cash tips received by an individual in an occupation which customarily and regularly received tips before December 31, 2024. Cash tips are defined as tips received in cash, charged on a credit card or paid as part of a tip sharing agreement for employees. For the payment to qualify as a tip, it has to be voluntary without any consequence to the person paying the tip, cannot be a negotiated amount and is determined by the payor, not the payee. The trade or business that the taxpayer receives tips cannot be a specified service trade or business. Th qualified tip income will also be excluded from qualified business income. Within 90 days of the enactment of the bill there will be a list provided of occupations that typically receive tips before 12/31/2024.
The bill also extends the Tip Credit normally allowed to employers in the industry of serving of food or beverages for consumption to those in the beauty service business to include services such as barbering and hair care, nail care, esthetics and body and spa treatments.
Effective Dates: This deduction becomes effective for tax years beginning after December 31, 2024, and expires for tax years beginning after December 31, 2028. This includes the 2025 through 2028 tax years.
Under Section 70202 of the new bill, individuals may be able to deduct from taxable income qualified overtime compensation that is received for tax years 2025 through 2028, as long as the compensation qualifies as overtime, is reported to the taxpayer each year and the taxpayer is within certain income limitations. This is a temporary provision that would end on December 31, 2028.
This deduction is limited to $12,500 of qualified overtime compensation for an individual and $25,000 in the case of a joint return. For a married couple to take this deduction, they must file a joint return. They would not be able to take the deduction if they file married filing separate. The deduction is available no matter if a taxpayer itemizes or takes the standard deduction and will be reduced by $100 for each $1,000 by which the modified adjusted gross income of the taxpayer for that taxable year exceeds $150,000 ($300,000 for a joint return). Qualified overtime compensation is defined as overtime under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate of pay at which an individual is employed. Qualified tips are not included. The taxpayer must have a Social Security number and the compensation must be reported on Form W-2 or Form 1099 as qualified overtime compensation.
Effective Dates: This deduction becomes effective for tax years beginning after December 31, 2024, and expires for tax years beginning after December 31, 2028. This includes the 2025 through 2028 tax years.
Under Section 70203 of the new bill, individuals may be able to deduct from taxable income loan interest paid on applicable passenger vehicles used for personal purposes for tax years 2025 through 2028 as long as the vehicle qualifies, the financing qualifies and is used for a qualifying purpose and the individual is within certain income limitations. This is a temporary provision that would end on December 31, 2028.
This deduction is limited to $10,000 of interest in a tax year. This would be available to all taxpayers whether they itemize or take the standard deduction subject to certain income limitations. The deduction will be reduced by $200 for each $1,000 (or portion thereof) the modified adjusted gross income of the taxpayer for that taxable year exceeds $100,000 ($200,000 for a joint return). Taxpayers who pay $600 or more of qualified vehicle loan interest in a calendar year, will receive an information statement from the lender by January 31 each year detailing the interest paid for the previous year, loan date, principal balance and information related to the qualified vehicle the interest was paid on.
An applicable passenger vehicle is one in which:
- original use is with the taxpayer,
- primary use on public streets, roads and highways,
- has at least two wheels,
- is a car, minivan, van, sport utility vehicle, pickup truck or motorcycle,
- qualified as motor vehicle under title II of the Clean Air Act,
- has gross vehicle weight rating of less than 14,000 pounds, and
- final assembly of the vehicle is in the United States.
Qualified passenger vehicle loan interest is paid or accrued during the year by the taxpayer for the purchase of and is secured by the first lien on an applicable passenger vehicle for personal use in 2025 through 2028. Taxpayers will be required to provide the VIN of the qualified vehicle on their returns. The loan can be the original loan or a refinance of the loan as long as it is taken out after December 31, 2024, the loan otherwise qualifies and the loan cannot be with a related party.
Certain loans that will not qualify for interest deductions are as follows:
- loan to finance fleet sales,
- loan to purchase a commercial vehicle not used personal purposes,
- lease financing,
- loan to finance vehicle with salvage title, or
- loan to finance vehicle to be used for scrap or parts.
Effective Dates: This deduction becomes effective for tax years beginning after December 31, 2024 and expires for tax years beginning after December 31, 2028. This includes the 2025 through 2028 tax years.
Under the new bill, the Energy Efficient Home Improvement Credit, provided under Section 25C, will be terminated. This credit currently allows taxpayers to claim up to 30% of the cost of qualifying energy-efficient improvements installed in their primary residences during such taxable year, subject to annual limits.
Effective Date: The provision terminates the credit for any property placed in service after December 31, 2025.
Under the new bill, the Residential Clean Energy Credit, provided under Section 25D, will be terminated. This credit currently allows taxpayers to claim a percentage of the cost of installing qualified clean energy property—such as solar panels, solar water heaters, geothermal heat pumps, small wind turbines, and battery storage systems—on their residences.
Effective Date: The provision terminates the credit for any expenditures made after December 31, 2025.
The bill terminates the Previously Owned Clean Vehicle Credit provided under Section 25E. This credit currently allows eligible taxpayers to claim up to $4,000 for the purchase of a qualifying used electric or clean vehicle, subject to income and vehicle price limitations.
Effective Date: The provision terminates the credit for any vehicle acquired after September 30, 2025.
The bill terminates the Clean Vehicle Credit provided under section 30D, which currently provides up to $7,500 for the purchase of new qualifying electric vehicles (EVs) and fuel cell vehicles. This credit applies to vehicles meeting specific criteria, including final assembly in North America, battery capacity thresholds, and income and MSRP limits for buyers.
Effective Date: The provision terminates the credit for any vehicle acquired after September 30, 2025.
Note: The provisions discussed within this alert are federal tax provisions. The various state taxing authorities may or may not conform to these newly enacted federal provisions.
If you have any questions about how this impacts you or your business, please don’t hesitate to reach out to your trusted BRC tax advisor.
To read other alerts associated with the passing of this bill, click here.