Key Tax Provisions Enacted in the One Big Beautiful Bill Act

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, introducing extensive changes to the U.S. tax code. Most taxpayers want to know how this will affect their corporate and personal returns. While the legislation spans a wide range of policy areas, we wanted to present a brief summary of aspects of the bill that focus on the tax provisions most relevant to corporations and individuals. These changes will mostly affect 2025 and subsequent years:

Corporate and Business Entity Taxation

Research & Development (R&D) Expenses

Domestic research and development expenses, including those related to software and product development, are permanently deductible in the year incurred. In contrast, foreign R&D expenses remain subject to a 15-year amortization period beginning in 2025. To encourage businesses to invest in research and development activities, the IRS is allowing companies to claim credits for qualifying R&D activities. Taxpayers may also elect to claim the credit retroactively for open tax years, which is typically three years. The R&D tax credit is a valuable incentive for businesses that invest in innovation.

Bonus Depreciation Reinstated

The 100 percent bonus depreciation rule returns for qualifying property placed in service on or after January 20, 2025, but sunsets on January 1, 2030. During this window, businesses may fully deduct the cost of eligible machinery, equipment, and other qualifying assets in the year of acquisition rather than depreciating them over their useful lives.

Section 179 Expensing of Depreciation

The annual deduction limit under Section 179 increases from $1 million to $2.5 million, with a phase-out beginning when the cost of qualifying property exceeds $4 million. This expansion applies to assets placed in service after December 31, 2024, allowing small and mid-sized businesses to immediately expense a greater amount of capital purchases.

Qualified Production Property Deduction

A new provision permits immediate 100 percent expensing of qualified production property used in manufacturing, refining, and similar activities provided construction begins between January 19, 2025, and January 19, 2029, and the property is placed in service by January 1, 2031. This change enhances incentives for capital investments in domestic production.

Qualified Business Income (Section 199A) Deduction

The 20 percent deduction for qualified business income from sole proprietorships, partnerships, and S corporations is made permanent. The OBBBA expands the deduction limit phase-in range by increasing the $50,000 amount for non-joint returns to $75,000 and the $100,000 amount for joint returns to $150,000. Furthermore, any taxpayer with at least $1,000 of QBI qualifies for a minimum deduction of $400.

Pass-Through Entity State and Local Tax (SALT) Workarounds

Although there were increases in the limits, there still is a cap on individual state and local tax deductions. Partnerships and S corporations that elect to pay these taxes under a pass-through entity tax (PTET) regime, still have the ability to preserve this workaround, which is very helpful for higher-tax states.

Qualified Small Business Stock (Section 1202) Enhancements

Under Section 1202, the required holding period for qualified small business stock is shortened from five years to three. The maximum exclusion on gains increases from $10 million to $15 million, and the gross-assets test is raised from $50 million to $75 million, broadening the availability of capital-gains relief for investors.

Business Interest and Excess Business Loss Limitations

Beginning in 2026, the business interest expense limitation permanently reverts to 30 percent of EBITDA, replacing the previous EBIT-based test. The excess business loss limitation is also made permanent, with 2025 thresholds set at $626,000 for joint filers and $313,000 for other filers; losses above those amounts are carried forward as net operating losses, subject to an 80 percent income cap.

Executive Compensation Cap

The $1 million cap on deductible executive compensation remains, but it now applies at the controlled-group level, requiring related entities to aggregate compensation for purposes of the Section 162(m) limit.

Family & Medical Leave Credit

The paid family and medical leave credit introduced by the TCJA is extended permanently, allowing employers who offer qualifying leave benefits (other than state-mandated benefits) to offset a portion of wages paid to eligible employees.

Health Savings Account Eligibility

Effective in 2026, the Act tightens eligibility requirements for contributions to health savings accounts, narrowing the circumstances under which taxpayers may claim HSA deductions.

Employee Retention Credit Modifications

All refund claims for the Q3 and Q4 2021 Employee Retention Credit filed after January 31, 2024 are denied, and the IRS’s audit period for ERC claims is extended to a six-year statute of limitations.

Qualified Opportunity Zones

The Qualified Opportunity Zones program is renewed indefinitely, with revised eligibility rules and investor-deferral requirements. The ten-year designation period for zones continues beyond January 1, 2027.

Individual Taxpayers

Extension of TCJA Rates, Brackets & Standard Deduction

The individual tax rates and bracket structure enacted by the 2017 TCJA are made permanent, including an extra year of inflation indexing for the 10 percent, 12 percent, and 22 percent brackets. The tax rates set in 2017 will not change, and remain at 10%, 12%, 22%, 24%, 32%, 35% and cap out at 37%. The top rate on long-term capital gains and certain dividends remains at 20%, plus a 3.8% surtax. For tax year 2025, the standard deduction amounts are set at $15,750 for single filers, $23,625 for head-of-household filers, and $31,500 for married filing jointly.

Personal Exemption Repeal

The repeal of personal exemptions under the TCJA remains in effect indefinitely, with no reinstatement of pre-2017 exemption amounts.

State and Local Tax (SALT) Deduction Cap

The SALT deduction cap rises from $10,000 to $40,000, with annual inflation adjustments through 2029. The cap reverts to $10,000 in 2030. A phase-out begins at $500,000 of Adjusted Gross Income (AGI).

Charitable Contributions

Starting in 2026, non-itemizing taxpayers may claim an above-the-line deduction of up to $1,000 for single filers and $2,000 for joint filers. Itemizing taxpayers must meet a floor of 0.5 percent of AGI. This means that a taxpayer with a $300,000 AGI would get no deduction for the first $1,500 of charitable donations on Schedule A. Also, the increased 60 percent contribution limit for cash-gift is permanently reinstated.

Child Tax Credit (CTC) & Additional Child Tax Credit (ACTC)

For 2025, the child tax credit increases to $2,200 per qualifying child and is indexed annually for inflation, thereafter. The refundable Additional Child Tax Credit is permanently fixed at $1,400, with inflation adjustments. Income phase-out thresholds for the CTC and ACTC are locked at $200,000 AGI for single filers and $400,000 AGI for joint filers.

Senior Deduction for Age 65+

Taxpayers aged 65 and older qualify for an extra standard deduction of up to $6,000 for single filers and $12,000 for joint filers. This “senior deduction” phases out once AGI exceeds $75,000 for singles or $150,000 for joint filers and applies to tax years 2025 through 2028.

Tip and Overtime Income Deductions

From 2025 through 2028, taxpayers earning tips may deduct up to $25,000 of tip income above the line, phasing out at Modified Adjusted Gross Income (MAGI) of $150,000 for singles and $300,000 for joint filers. A parallel above-the-line deduction allows up to $12,500 for overtime compensation for singles and $25,000 for joint filers, subject to the same phase-out thresholds.

Auto-Loan Interest Deduction

Owners of new passenger vehicles assembled in the United States may deduct up to $10,000 of loan interest above the line for tax years 2025 through 2028. The deduction, which phases out at AGI above $100,000 for single filers and $200,000 for joint filers, requires a valid VIN, and excludes campers and RVs.

1099 Reporting Thresholds

Beginning in 2026, the reporting threshold for Forms 1099-NEC and 1099-MISC rises to $2,000, with annual inflation adjustments thereafter. The reporting threshold for Form 1099-K reverts to $20,000 or 200 transactions, effective 2026.

Green-Energy Credit Phase-Out

Thinking about getting an EV and feel incentivized by the Federal tax credit? Don’t hesitate too long, since electric vehicle credits for new and used vehicles will expire on September 30, 2025.  EVs must be placed in service by the end of September 2025, not the end of 2032, as was the law previously.   In addition, residential energy-efficiency credits expire on December 31, 2025.

Estate and Gift Tax Exemptions

Effective in 2026, the unified estate and gift tax exemption increases from $10 million to a permanent $15 million per person, indexed for inflation. This was set to drop to about $7,000,000 in 2026.  The generation-skipping transfer tax exemption rises in parallel.

Supporting You Through Tax Law Changes

At LMC, we stay up to date on the latest legislative and regulatory developments, including the newly passed One Big Beautiful Bill Act. Although the legislation will not benefit everyone, at least there is certainty regarding major tax provisions, which makes it easier for individuals and business owners to make informed decisions. Our goal at LMC is to provide clients with clear, timely, and relevant guidance on changes that may impact their tax position or tax planning strategies.

If you have questions about any of the provisions of the new bill and want to know how they may apply to your situation, please contact your LMC professional.