President Trump signed the One Big Beautiful Bill Act (OBBBA) into law on July 4th. This comprehensive legislation affects individuals, businesses, and international taxpayers, and introduces new credits, deductions, and compliance requirements. Below is a summary of the most relevant provisions and their potential impact.
1. Individual Tax Changes
- The lower individual tax rates from the 2017 Tax Cuts and Jobs Act are now permanent.
- The standard deduction is further increased and made permanent, while personal exemptions remain suspended. New temporary deduction of $6,000 per individual for qualified seniors for 2025 through 2028.
- The Child Tax Credit is increased and made permanent, with stricter eligibility requirements.
- The cap on the state and local tax (SALT) deduction is raised through 2029, then reverts to prior levels starting in 2030.
- Deduction for tips and overtime pay in 2025 through 2028. Deduction starts to phase out for single filers when modified adjusted gross income exceeds $150,000 ($300,000 for married filing jointly).
- Deduction for car loan interest for new U.S.-assembled vehicles in 2025 through 2028. Deduction is limited to $10,000 per year and phases out for single filers with modified adjusted gross income in excess of $100,000 ($200,000 for married filing jointly).
- Charitable giving incentives are expanded, including an above-the-line deduction of $1,000 ($2,000 for married filing jointly) for certain charitable contributions, and new floors for itemized deductions. Charitable contributions claimed as itemized deduction must be reduced by 0.5% of adjusted gross income starting in 2026.
- Itemized deductions for individuals in the highest income tax bracket are limited starting in 2026.
- Permanently increases the estate tax exemption and lifetime gift tax exemption amounts to $15 million for single filers ($30 million for married filing jointly) in 2026 and indexes the exemption amount for inflation after that.
- Establishes “Trump Accounts” which may be set up for any child under 18, with $5,000 annual contribution limit. Employer and charitable contributions can be made to these accounts. A pilot program provides a $1,000 tax credit for opening an account for a child born in 2025 through 2028.
- Up to $5,000 of adoption credit is refundable, and the amount will be adjusted for inflation.
- Limitation on deductibility of excess business losses of noncorporate taxpayers made permanent.
- Tax on sale of farmland to a qualified farmer can be paid in four annual installments, with certain restrictions.
2. Business Tax Changes
- The Qualified Business Income (QBI) deduction is made permanent, the deduction rate remains at 20%, the phase-in threshold is increased, and a minimum deduction is established.
- 100% bonus depreciation for qualified property is made permanent for property acquired and placed in service on or after January 19, 2025. Section 179 expensing limits increased to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million.
- Domestic research and development expenses can be fully expensed immediately for tax years beginning after December 31, 2024. Small businesses will be permitted to apply this change retroactively to tax years beginning after December 31, 2021. All taxpayers that have research and development expenditures after December 31, 2021 and before January 1, 2025 will be permitted to elect to accelerate the remaining deductions over a one- or two-year period.
- Foreign research and development expenses must continue to be amortized over 15 years.
- The business interest deduction limitation for tax years beginning after December 31, 2024 defines adjusted taxable for purposes of Sec. 163(j) as EBITDA. Therefore, the limitation is computed without regard to the deduction for depreciation, amortization or depletion. Definition of motor vehicle for floor plan financing modified to include certain trailers and campers.
- The bill provides that the Sec. 163(j) business interest limitation will be calculated prior to the application of any interest capitalization provision. Any disallowed interest is not subject to future capitalization.
- The paid family and medical leave credit is made permanent and expanded.
- Allows 100% expensing for certain nonresidential real property used in manufacturing.
- The advanced manufacturing investment credit rate increases from 25% to 35%, effective for property placed in service after Dec. 31, 2025.
- Exception for requirement to use the percentage-of-completion accounting method expanded to certain residential construction contracts entered into after the date of the bill’s enactment.
- Qualified childcare expenses for purposes of the Sec. 45F employer-provided childcare credit increased from 25% to 40%. The maximum amount of the credit increases from $150,000 to $500,000 ($600,000 for eligible small businesses) and will be adjusted for inflation.
- Charitable contribution deduction must be reduced by 1% of taxable income.
3. International Tax Provisions
- Changes to the foreign tax credit rules and the treatment of controlled foreign corporations (CFCs) may affect multinational businesses.
- The “GILTI” regime is renamed and modified, with changes to deduction percentages.
- The Base Erosion and Anti-abuse Tax (BEAT) rate is increased.
4. Family and Education Incentives
- Permanently increases the amount of the child and dependent care tax credit from 35% to 50% of qualifying expenses. Credit rate phases down for individuals with adjusted gross income in excess of $15,000.
- Student loan payment exclusions are increased and made permanent.
- The maximum annual amount excludable from income under a Sec. 129 dependent care assistance program increases from $5,000 to $7,500.
- 529 education accounts are expanded to cover more expenses and higher annual limits.
- A new federal credit of $1,700 is available for contributions to scholarship granting organizations.
5. Energy and Environmental Provisions
- Many clean energy credits are terminated earlier than previously scheduled.
- New restrictions apply to foreign-influenced entities and the use of foreign materials in qualifying for energy credits.
- A new excise tax is imposed on remittance transfers from U.S. accounts to foreign persons, with certain exceptions.
6. Enforcement and Compliance
- The Employee Retention Credit (ERC) is significantly restricted, with new penalties and extended IRS assessment periods.
- Information reporting thresholds for Forms 1099 increased to $2,000 and indexed for inflation after 2026.
- Information reporting for third-party network transactions not required unless the aggregate value exceeds $20,000 and the aggregate number of transactions exceeds 200 per year.
7. Other Notable Provisions
- Opportunity Zones are made permanent with new designation and reporting requirements.
- The Low-Income Housing and New Markets Tax Credits are made permanent and expanded.
- The exclusion for Qualified Small Business Stock under Sec. 1202 is modified, with increased limits and phased-in benefits depending on the holding period.
We are continuing to monitor additional guidance as it is being issued. We recommend reviewing your current tax situation in light of these changes and considering potential adjustments to maximize benefits and ensure compliance. Please contact us to discuss how these changes may affect your specific circumstances or for assistance with tax planning under the new law.
