Understanding the One Big Beautiful Bill Act and Its Impact on Your 2025 Taxes

Ricky Shoker
Aug 26, 2025
6 min read

Updated: Aug 27, 2025

Summary

The recent enactment of the "One Big Beautiful Bill Act" (OBBBA) marks a significant update to the U.S. tax code, bringing both permanent changes and temporary provisions that will impact individuals, families, and businesses. Signed into law on July 4, 2025, OBBBA builds upon the 2017 Tax Cuts and Jobs Act (TCJA) and introduces new elements that can reshape tax planning for years to come.

This article provides a summary of the key tax provisions within OBBBA.

Summary of Key Provisions:

Individual Taxation: OBBBA makes the TCJA’s individual income tax rates and brackets permanent and introduces new, temporary deductions for tips, overtime, and senior citizens, as well as for new vehicle loan interest. The bill also modifies itemized deductions and expands tax-advantaged savings vehicles.
Business Taxation: The legislation provides substantial benefits for businesses, including permanent 100% bonus depreciation, immediate expensing of domestic research and development (R&D) costs, and the permanent extension of the Qualified Business Income (QBI) deduction.
Estate and Gift Taxes: For high-net-worth individuals, OBBBA permanently increases the estate and gift tax exemption, providing certainty for wealth transfer planning.
Energy Credits: The bill significantly alters the landscape of clean energy tax credits, with many incentives set to expire sooner than previously planned.
International Taxation: OBBBA introduces major changes to how U.S. multinational corporations are taxed on foreign income, with key provisions impacting GILTI, FDII, and BEAT.

Breakdown of OBBBA Tax Provisions

1. Individual and Family Tax Changes

Permanent TCJA Provisions: The OBBBA permanently extends the individual income tax brackets and reduced tax rates, which were set to expire at the end of 2025. This provides long-term certainty for personal income tax planning. The higher standard deduction amounts are also made permanent and are slightly increased to $15,750 for single filers and $31,500 for joint filers for the 2025 tax year, indexed for inflation. The suspension of the personal exemption is also made permanent, which is offset by the higher standard deduction and an expanded Child Tax Credit. The Child Tax Credit is now $2,200 for the 2025 tax year and will be indexed for inflation in future years.
Temporary Deductions and Credits:
- Tip and Overtime Deductions: For tax years 2025 through 2028, OBBBA introduces new "above-the-line" deductions for qualified tip income (up to $25,000) and qualified overtime compensation (up to $12,500 for single filers, $25,000 for joint filers). These deductions are subject to income phase-outs.
- Senior Deduction: A new temporary deduction of up to $6,000 ($12,000 for a qualified couple) is available for taxpayers age 65 and older from 2025 to 2028. This deduction is also subject to income limitations.
- New Vehicle Loan Interest Deduction: From 2025 to 2028, individuals may deduct up to $10,000 in interest paid on a loan used to purchase a new vehicle. This is an "above-the-line" deduction, meaning it is available even for those who do not itemize. The deduction is available for loans originated after December 31, 2024, and is subject to income phase-outs. The vehicle must be for personal use and its original use must start with the taxpayer.
Itemized Deductions:
- SALT Cap: The State and Local Tax (SALT) deduction cap is temporarily increased from $10,000 to $40,000 for tax years 2025 through 2029, with a gradual phase-out for higher-income taxpayers. This change offers significant relief for residents in high-tax states.
- Charitable Contributions: The legislation introduces a 0.5% of Adjusted Gross Income (AGI) floor for itemized charitable contribution deductions for individuals, effective for tax years beginning after December 31, 2025. It also adds a deduction for non-itemizers, allowing them to deduct up to $1,000 ($2,000 for married couples filing jointly) for cash gifts to public charities.
Tax-Advantaged Savings Vehicles:
- "Trump Accounts": The OBBBA establishes a new type of tax-advantaged savings account, referred to as a "Trump Account," for eligible minor children. The accounts are structured similarly to IRAs and have an annual contribution limit of up to $5,000, with a one-time government contribution of $1,000 for certain children born from 2025 through 2028.
- Qualified Small Business Stock (QSBS): OBBBA makes significant changes to the QSBS gain exclusion rules, including a phased-in exclusion for QSBS held for three to five years. The new law also increases the gross asset value limitation for a company to qualify as a "qualified small business" to $75 million (from $50 million) and the per-issuer cap on QSBS gain exclusion to $15 million (from $10 million).

2. Business Tax Provisions

100% Bonus Depreciation: The law makes 100% bonus depreciation for qualified property permanent, allowing businesses to fully deduct the cost of eligible new and used assets placed in service after January 19, 2025. This provision was previously scheduled to phase down.
R&D Expensing: OBBBA permanently reinstates the ability for businesses to immediately deduct domestic research and development (R&D) expenses. This reverses the prior law that required R&D costs to be amortized over a five-year period. Small businesses may even be able to retroactively apply this change to tax years beginning after 2021.
Qualified Business Income (QBI) Deduction: The 20% QBI deduction for pass-through entities (sole proprietorships, partnerships, and S corporations) is made permanent. This eliminates the sunset provision and offers long-term tax certainty for the majority of American businesses.
Section 179 Expensing: The bill increases the maximum amount that can be immediately expensed under Section 179 to $2.5 million, with a phase-out threshold of $4 million, adjusted annually for inflation. This provides additional flexibility for small and mid-sized businesses to write off capital expenditures.
Business Interest Limitation: Starting in 2025, the calculation of Adjusted Taxable Income (ATI) for the business interest limitation under Section 163(j) will no longer include depreciation, amortization, and depletion. This change will generally allow businesses to deduct more interest expense.

3. Estate and Gift Tax Changes

Increased Exemption: OBBBA permanently increases the federal estate and gift tax exemption to $15 million per individual, indexed for inflation, effective January 1, 2026. This provides a new baseline for high-net-worth individuals and families, removing the uncertainty of the previously scheduled reduction. The generation-skipping transfer (GST) tax exemption is also increased to match the new exclusion amount.

4. Energy and Clean Vehicle Tax Credits

Significant Expiration Dates: The OBBBA shortens the availability of several key clean energy tax credits. The new clean vehicle credit, used clean vehicle credit, and the qualified commercial clean vehicle credit are all set to expire on September 30, 2025. The energy-efficient home improvement credit and the residential clean energy credit are also now set to expire on December 31, 2025, instead of their previously scheduled later dates.
Foreign Sourcing Rules: The bill introduces stricter foreign ownership and sourcing requirements, making projects with components from "foreign entities of concern" ineligible for clean energy tax credits. This will have a major impact on the clean energy supply chain and project development.

5. International Tax Provisions

Refined Rules: The OBBBA introduces significant changes to several international tax provisions, effective for tax years beginning after December 31, 2025.
- GILTI: The Global Intangible Low-Taxed Income (GILTI) regime is renamed and its calculation is modified, which will likely result in more foreign income being subject to U.S. tax for multinational corporations.
- FDII: The Foreign-Derived Intangible Income (FDII) deduction is reduced, and the calculation of the deduction is changed, potentially raising the effective tax rate on certain foreign-derived income.
- BEAT: The Base Erosion and Anti-Abuse Tax (BEAT) rate is permanently set at 10.5%, up from its previous rate.
- R&E Expensing: The ability to immediately deduct domestic R&E expenses does not apply to foreign R&E costs, which must still be amortized over 15 years.

How OBBBA Affects Your Tax Strategy

The OBBBA is a complex piece of legislation with provisions that have a wide range of effective dates and implications. The changes present both opportunities and challenges for tax planning for individuals and businesses.

The temporary nature of some deductions (e.g., for tips, overtime, and seniors) means that careful consideration must be given to their sunset dates, while the permanent changes for business expensing and estate taxes allow for long-term strategic planning.

Given the intricacies of the new law, it is essential to consult with a qualified tax professional to understand how these changes specifically apply to your financial situation.

Contact us today to schedule a consultation and discuss how the OBBBA can impact your tax planning.