The One Big Beautiful Bill Act brings sweeping tax changes

By J. Gregory Hamm, J.D., CPA

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. The Boyer & Ritter team will provide further updates as new regulations and clarifications are released and is available to answer any questions.

About the Author

Gregg has over 20 years of experience in public accounting and directs our Tax Services Group. With over 20 years of experience in public accounting, Gregg provides tax and consulting services across a range of industries. Contact Gregg at 717-761-7210 or ghamm@cpabr.com