07/16/2025
The One Big Beautiful Bill Act brings sweeping tax changes
Article 07.15.2025
By J. Gregory Hamm, J.D.,
Pennsylvania Institute of CPAs - PICPA
The recently enacted One Big Beautiful Bill Act (OBBBA) introduces significant tax reforms that affect both individuals and businesses.
The OBBBA makes changes — some permanent, some temporary — to numerous Tax Cuts and Jobs Act (TCJA) provisions that are set to expire after 2025. It introduces new deductions, modifies income treatment, and phases out or eliminates various green energy credits.
Individual tax provisions
The OBBBA enacts several permanent changes to individual tax rules. Key provisions include:
Made permanent:
Individual rate brackets remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%
Elimination of personal exemptions
Alternative Minimum Tax (AMT) exemption and threshold levels
$750,000 limit for acquisition debt eligible for the mortgage interest deduction
Limitation of casualty and theft loss to federally declared disasters (expanded to include some state-declared disasters)
Termination of miscellaneous itemized deductions
Higher standard deduction
Provisions OBBBA modified:
Mortgage insurance premiums are now permanently treated as qualified residence interest.
Casualty and theft losses now also apply to certain state-declared disasters.
Unreimbursed educator expenses are excluded from the definition of miscellaneous itemized deductions.
SALT:
The state and local tax (SALT) deduction cap of $10,000 was not made permanent. However, the OBBB raises the cap to $40,000 for tax years through 2029, increasing by 1% per year during that period. The cap is reduced by 30% of the amount by which a taxpayer’s modified adjusted gross income exceeds $500,000.
New deductions available for tax years 2025 through 2028 include:
Qualified tip deduction
Qualified overtime pay deduction
Car loan interest deduction
Charitable contribution deduction for non-itemizers
Estate and gift tax provisions:
The OBBBA permanently increases the estate and gift tax exclusion amount to $15 million, beginning in tax years after December 31, 2025. This amount will be indexed for inflation using 2025 as the base year.
Because the Generation-Skipping Transfer (GST) tax exemption is tied to the basic exclusion amount, it is also set at $15 million, subject to the same inflation adjustments starting in 2026.
Business tax provisions:
The OBBBA contains several major provisions that impact business taxpayers, particularly regarding expensing, depreciation, and interest deductibility.
Key highlights include:
100% Bonus Depreciation is made permanent for property acquired after January 19, 2025. For property acquired in early 2025 (before Jan. 20), a 40% bonus depreciation rate applies.
A new election allows 100% bonus depreciation for qualified production property (new nonresidential real estate used in manufacturing, refining, or production) constructed between Jan. 20, 2025, and Dec. 31, 2028.
The OBBBA also:
Increased the section 179 expensing limit from $1,000,000 to $2,500,000 and the investment limit from $2,500,000 to $4,000,000. The increases are permanent and inflation-adjusted for tax years beginning in 2025.
Makes permanent the 20% qualified business income deduction (Section 199A) for partnerships, S corporations, or sole proprietorships and raises the deduction limit phase-out thresholds.
Restores the EBITDA standard for the Section 163(j) interest limitation, allowing interest to be deducted based on earnings before interest, taxes, depreciation, and amortization starting in 2025.
Permanently disallows excess business losses for noncorporate taxpayers.
Research and experimental expenditures:
Taxpayers may immediately deduct R&E costs in the year incurred starting in 2025 or may elect to amortize them over at least 60 months.
Small businesses (with average annual gross receipts under $31 million) may apply this retroactively to tax years beginning after December 31, 2021.
For domestic R&E costs incurred from 2022 to 2024, taxpayers may elect to accelerate the amortization period over one or two years.
Green energy provisions:
To offset revenue losses from other provisions, the OBBBA terminates or modifies many green energy credits, with phaseouts occurring between September 30, 2025, and December 31, 2027.
Affected programs include:
Section 179D deduction for energy-efficient commercial buildings
Energy efficient home improvement credit
Residential clean energy credit
Clean and previously owned vehicle credits
Alternative fuel refueling property credit
New energy-efficient home credit
Commercial clean vehicle credit
Clean energy production credit
Clean electricity investment credit
Bottom line:
As with any major tax legislation, many implementation details remain unclear. The IRS and Treasury Department are expected to issue guidance to clarify procedures and compliance requirements.
