Let's Prepare for 2025 Tax Year...Here are what changes that came out for the upcoming year!

The “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, 2025, is a sweeping tax package extending key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and enacting numerous new tax measures. Focused on tax policy, the OBBBA makes permanent many individual and business tax cuts set to expire after 2025 and repeals several green energy incentives from the 2022 Inflation Reduction Act. This summary provides tax professionals with a detailed overview of the new law’s impact on individuals, businesses, and estates.

Individual Tax Changes

Permanent Extension of TCJA Individual Rates and Deductions: The OBBBA makes permanent the lower individual income tax rate brackets introduced by the TCJA. All seven tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) were scheduled to sunset at the end of 2025, but will remain in place. The standard deduction was permanently increased. Beginning in 2025, the deduction will be $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single filers, indexed for inflation in the following years. The TCJA’s elimination of the personal exemption has also been made permanent.

Child & Family Tax Credits: The expiring Child Tax Credit (CTC) was made permanent and increased to a maximum of $2,200 per child in 2026, indexed for inflation in the following years. The higher income limits at which the Child Tax Credit phases out and the refundable portion of the credit are also permanent. The Child and Dependent Care Credit (CDCC) was enhanced to cover up to 50% of qualifying expenses, but there are phase-downs for higher income. The CDCC gradually decreases for AGI over $15,000 but not below 20%.

New Temporary Deductions (2025-2028):

• No Tax on Tips: Up to $25,000 in tip income can be deducted annually for workers in traditionally tipped industries. The deduction is above the line and phases out when modified AGI exceeds $150,000 (or $300,000 for joint filers).

• No Tax on Overtime: Up to $12,500 ($25,000 for joint filers) of overtime premium pay can be deducted above the line. The same phaseout thresholds as the deduction for tip income apply.

• Auto Loan Interest Deduction: Up to $10,000 of interest on new auto loans is deductible, which is limited to U.S.-assembled vehicles. The deduction phases out when modified AGI exceeds $100,000 ($200,000 for joint filers).

The temporary deductions for tips, overtime pay, and auto loan interest are notable carve-outs from standard tax principles and are intended as tax relief for certain workers. They come with complex eligibility rules and sunset after 2028, creating added compliance burdens in the interim.

Itemized Deduction Changes

• State and Local Tax (SALT) Deduction Cap: The SALT deduction cap was temporarily increased from $10,000 to $40,000, increasing by 1% each year through 2029. The cap is only fully available to taxpayers with a modified AGI up to $500,000 ($1M for joint filers) and permanently reverts to $10,000 starting in 2030.

• Mortgage Interest Deduction: The qualified residence interest deduction continues to be limited to interest on the first $750,000 of home debt. Additionally, interest on home equity loans remains excluded from the definition of qualified residence interest under IRC § 163.

• Casualty Losses: Personal casualty losses remain deductible only if they result from an officially declared disaster, including federally declared events and certain qualifying state-declared disasters.

• Miscellaneous Deductions: The OBBBA permanently disallows miscellaneous itemized deductions. However, unreimbursed educator expenses are removed from the list of miscellaneous itemized deductions.

• High-Income Limitation: The overall cap on itemized deductions for high-income taxpayers has been permanently removed, and a new limitation has been implemented. For taxpayers in the 37% bracket, itemized deductions are reduced by a formula (2/37 of the lesser of the total itemized deductions or the excess of taxable income beyond the 37% bracket threshold).

• ‍Charitable Contributions: Two significant changes aim to encourage charitable giving while limiting its tax shelter value. First, the Act creates a new above-the-line charitable deduction allowing taxpayers who claim the standard deduction to additionally deduct up to $1,000 of charitable contributions (or $2,000 for joint filers) each year. Second, those who do itemize must reduce the charitable contribution deduction by 0.5% of their contribution base for that tax year.

Other Individual Provisions

• Senior Deduction: A $6,000 above-the-line deduction is provided for taxpayers 65 or older, from 2025-2028, which phases out at a modified AGI of $75,000 ($150,000 for joint filers).

• AMT Reforms: Beginning in 2026, the OBBBA permanently extends the TCJA’s individual AMT exemption amounts, with continued inflation indexing. The exemption phaseout thresholds return to their 2018 levels ($500,000 for single filers and $1 million for joint filers), also indexed for inflation. Additionally, the phaseout rate has been increased from 25% to 50% of the amount by which a taxpayer’s AMT income exceeds the threshold.

• Trump Accounts: The OBBBA establishes new tax-preferred savings accounts for minors, nicknamed “Trump Accounts.” These are structured as a traditional IRA for children under 18. Contributions are capped at $5,000 annually, indexed for inflation after 2027. Withdrawals are allowed starting in the calendar year the beneficiary turns 18. To jump-start this program, the government will provide a $1,000 “baby bonus” tax credit for each child born from 2025 through 2028 when a Trump Account is opened for them. The OBBBA does not allow Trump Account contributions until 12 months after the law’s enactment.

• Education Provisions:

  • Section 529 education savings plans are expanded. Tax-free 529 plan distributions can now cover broader expenses, including certain homeschooling and K–12 expenses.

  • A new $1,700 credit was created for charitable contributions to scholarship-granting organizations. ‍

• Student Loan Forgiveness: After 2025, student loan forgiveness due to death or permanent disability remains excludable from income.

Business Tax Changes

Expensing and Depreciation

• 100% Expensing (Bonus Depreciation): Full business property expensing was permanently extended. Businesses can continue to immediately deduct 100% of the cost of eligible property acquired after January 19, 2025.

• Qualified Production Property: The OBBBA permits a full first-year deduction for the cost of certain real property used in manufacturing.

• ‍Section 179 Expensing: The cap for Section 179 immediate expensing was significantly raised. Businesses can now expense up to $2.5 million in qualifying equipment purchases per year, reduced by the amount that the property costs exceed $4 million. Both of these thresholds are indexed for inflation.

R&D and Interest Deduction

• R&D Expensing: Reversing the TCJA provision that forced the capitalization of R&D costs starting in 2022, the OBBBA allows full expensing of domestic R&D costs in the year incurred. The change is effective for tax years beginning after December 31, 2024. However, retroactive relief is provided. Small businesses (average gross receipts ≤ $31 million) may elect to apply full expensing to past R&D costs paid or incurred after 2021. Larger firms that capitalized R&D from 2022-2024 are allowed a catch-up deduction by either deducting the remaining amortization in the first post-2024 year or spreading it over two years.

• ‍Business Interest Deduction (163(j)): The OBBBA permanently relaxes the limitation on business interest deductions to 30% of EBITDA, which takes effect for tax years beginning after 2024.

Pass-Through Business Income

• Section 199A Pass-Through Deduction: The 20% Qualified Business Income deduction for pass-through entities (sole proprietors, partnerships, S-corporations) was made permanent for tax years beyond 2025.

• Excess Business Losses: The limitation on excess business losses under section 461, which disallows non-corporate business losses above a certain threshold, was also made permanent. However, the limitation applies only in the year the loss is incurred, and any disallowed amount is carried forward as a net operating loss for use in future years.

Industry-Specific Incentives

• Qualified Small Business Stock (QSBS): The QSBS issuer asset limit was raised from $50M to $75M, indexed for inflation in following years. For QSBS acquired after the bill’s enactment, taxpayers may exclude 50% of the gain if the stock is held for at least three years, 75% if held for four years, and 100% if held for five years or more.

• Semiconductor Manufacturing Investment Credit: The credit rate increased from 25% to 35% for eligible investments in facilities for manufacturing semiconductors or semiconductor manufacturing equipment.

• Paid Family Leave Credit (45S): The credit for employers who provide paid family and medical leave to their employees was made permanent.

• Opportunity Zones: The OBBBA permanently extends the TCJA’s Opportunity Zone (OZ) program, which allows taxpayers to defer, and in some cases exclude, gains recognized through 2026 if reinvested in designated OZs, with reforms to zone eligibility and reporting.

• ‍REITs and Construction Rules: The taxable REIT subsidiary limit under the REIT asset test was increased from 20% back to 25%, which was the pre-2018 threshold, and is effective for taxable years beginning after 2025

International Tax Reforms

• GILTI & FDII Overhaul: GILTI (Global Intangible Low-Taxed Income) was renamed “Net CFC Tested Income (NCTI),” and FDII was renamed “Foreign-Derived Deduction Eligible Income (FDDEI).” More importantly, their effective tax rates were raised from 13.125% to 14%. This increase is achieved by reducing the § 250 deduction percentages. The GILTI deduction drops to 40%, and the FDII deduction from 33.34%.

• ‍CFC Look-Through Rule: The OBBBA makes the CFC look-through rule permanent, which allows certain intra-company payments to avoid being taxed as Subpart F income.

• ‍BEAT: The Base Erosion and Anti-Abuse Tax (BEAT) on large multinational corporations that make deductible payments to foreign affiliates was adjusted. The BEAT rate is permanently set at 10.5%. BEAT was 10% for 2025 and was scheduled to rise to 12.5% in 2026.

Estate and Gift Tax Provisions

• Exemption Increased: Starting in 2026, the estate and lifetime gift tax exemption is permanently increased to $15 million per person ($30 million for joint filers), indexed for inflation. The OBBBA prevented a scheduled reversion of the exemption to $7.2 million per person on January 1, 2026.

Repeal and Modification of Green Energy Credits

• EV and Residential Credits Terminated (25E, 30D, 45W, 25C, 25D):

  • EV credits (new, used, and commercial) end after Sept. 30, 2025.

  • Residential energy credits (solar, heat pumps, etc.) end after 2025.

  • Homebuilder and commercial building credits sunset in 2026.

• Clean Electricity Credits (45Y/48E): Terminated for wind and solar facilities placed in service after 2027.

• Clean Hydrogen Credit (45V): Terminates after 2027.

• Clean Fuel Credit (45Z): Extended through 2029.

• Carbon Capture Credit (45Q): Equalizes the credit rate for utilized carbon oxide with the rate for carbon oxide stored in geological formations

• Foreign Entity Restrictions: New rules bar credits for projects with components or ownership tied to China and other adversaries.

Conclusion

The OBBBA represents the most consequential tax overhaul since the TCJA. It locks in many individual and business tax cuts, revises international tax rules, and curbs green energy incentives, reshaping the long-term landscape for tax planning and compliance. While the OBBBA offers fresh opportunities, especially for manufacturers, families, and small businesses, it also introduces temporary carve-outs, sunset dates, and evolving thresholds that demand careful attention. 

Tax professionals must brace for a transition period marked by new administrative rules, heightened reporting obligations, and shifting planning strategies through 2026 and beyond. Your clients will ask about these changes tomorrow—be the advisor who already has the answers today. TaxGPT puts every new statute, ruling, and planning scenario at your fingertips, turning legislative turbulence into clarity. 

Start your TaxGPT trial now and convert the OBBBA and every law that follows into an advantage, not a burden.

It will be interesting to see how this plays out, especially at the state level, for the SALT cap and pass-through entity election tax regimes in place.

Thanks, y'all! Talk to you next week!