The One Big Beautiful Bill Becomes Law: A Detailed Tax Breakdown for 2025 and Beyond

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBB) into law, enacting one of the most comprehensive tax packages since the Tax Cuts and Jobs Act of 2017. The legislation introduces permanent structural reforms to individual income taxation, provides enhanced deductions and credits for businesses, and redefines the international and clean energy taxation landscape. This detailed overview is organized to align with the bill's structure. 

Individual Provisions

1. Permanent Tax Rates and Inflation Adjustments

What changed: The seven-bracket rate system enacted under the Tax Cuts and Jobs Act (TCJA)—10%, 12%, 22%, 24%, 32%, 35%, and 37%—is made permanent. Additionally, the 10% and 12% brackets will receive one extra year of inflation indexing before consolidation. 

Why it matters: The permanence of the rate structure removes uncertainty for individuals and families planning long-term financial strategies. It ensures that lower- and middle-income earners continue to benefit from favorable tax brackets, and allows for more accurate forecasting. 

To plan: Taxpayers should review multi-year projections to coordinate retirement income strategies, Roth conversions, and capital gains harvesting in light of known future rates. Financial advisors may wish to incorporate these assumptions into updated financial plans.

2. Standard Deduction and Temporary Additional Deduction for Senior Taxpayers

What changed: The elevated standard deduction introduced in 2017 is locked in permanently, beginning at $15,750 for single filers and $31,500 for joint filers in 2025 (indexed). A temporary $6,000 additional deduction—the "senior bonus"—is available from 2025 to 2028 for taxpayers age 65 and older, phasing out at $75,000 (single) or $150,000 (joint) MAGI. 

Why it matters: A permanent standard deduction and the new senior deduction significantly reduce taxable income for retirees and low- to middle-income earners. It also simplifies filing for those not benefiting from itemized deductions. 

To plan: Seniors should consider how distributions from IRAs, pensions, and Social Security affect their MAGI. Timing income across tax years may help preserve eligibility for the senior bonus. Coordinating the deduction with Qualified Charitable Distributions (QCDs) may further optimize tax outcomes.

3. Section 24 Child Tax Credit

What changed: The credit increases to $2,200 per qualifying child in 2025, with $1,400 refundable. The credit is indexed to inflation and retains existing phaseout thresholds. Only one spouse must now provide a valid Social Security number (SSN) for joint returns. 

Why it matters: This change provides larger direct financial support for families with children while simplifying eligibility requirements, especially for mixed-status households. 

To plan: Families should ensure dependents meet age, residency, and relationship tests. Confirm accurate SSNs are reported for the child and at least one parent. Tax planning to manage AGI could preserve eligibility for families near the income phaseout.

4. Child and Dependent Care Credit

What changed: The maximum credit is expanded to 50% of qualifying care expenses, subject to a sliding scale based on adjusted gross income. The top benefit is available to households earning up to $15,000, with a phase-down thereafter. 

Why it matters: This supports working families with young children or dependents requiring care. It aims to offset the rising costs of daycare, eldercare, and after-school programs. 

To plan: Taxpayers should retain detailed records of care expenses, including provider names, taxpayer identification numbers, and payment documentation. Households near the AGI phaseout should consider adjusting withholdings or deferrals to preserve eligibility.

5. Estate and Gift Tax Exemption

What changed: Beginning in 2026, the lifetime estate and gift tax exemption increases to $15 million per individual ($30 million per couple), indexed annually for inflation. 

Why it matters: This adjustment extends the ability to transfer significant wealth without incurring federal estate or gift tax liability. It supports both intergenerational giving and business succession planning. 

To plan: High-net-worth individuals should revisit estate plans, trust structures, and gifting strategies. Now may be an opportune time to use spousal lifetime access trusts (SLATs), grantor-retained annuity trusts (GRATs), or other advanced planning vehicles.

6. Above-the-Line Deduction for Service and Hourly Wage Income

What changed: A new above-the-line deduction allows individuals to deduct up to $25,000 in tips and $12,500 in overtime compensation for tax years 2025 through 2028. The deduction phases out at $150,000 (single) or $300,000 (joint) MAGI. 

Why it matters: This provision offers targeted relief to workers in the service and hourly labor sectors, who may otherwise be unable to access significant deductions due to reliance on the standard deduction. 

To plan: Workers should document reported tips and verify accuracy on W-2s or 1099s. Employers should offer educational resources on payroll transparency. Taxpayers approaching income thresholds may benefit from timing compensation or using pre-tax benefit elections to reduce MAGI.

7. Section 163 Interest Deduction for Personal-Use Vehicles

What changed: Taxpayers may deduct up to $10,000 in interest paid on loans for personal-use vehicles assembled in the United States. The deduction applies for purchases between 2025 and 2028 and is subject to income-based phaseouts. 

Why it matters: This novel deduction provides tax relief for middle-income Americans financing automobile purchases while encouraging domestic manufacturing. 

To plan: Confirm eligibility by verifying the VIN and assembly location before purchasing a vehicle. Retain the loan and purchase documentation. Taxpayers nearing the MAGI cap should consider timing the vehicle acquisition to preserve the deduction.

8. Charitable Contribution Rules

What changed: Non-itemizing taxpayers may now deduct up to $1,000 (single) or $2,000 (joint) in charitable donations annually. A new floor requires deductions exceeding 0.5% of AGI for itemizers to qualify. Corporations must now exceed a 1% AGI floor. 

Why it matters: The expansion to non-itemizers encourages broader philanthropic participation. The new AGI floors aim to limit nominal deductions while promoting meaningful giving. 

To plan: Consider bunching donations into a single year to exceed the AGI floor or utilizing donor-advised funds. Maintain contemporaneous receipts and written acknowledgments for all contributions over $250.

9. SALT Deduction Cap

What changed: The cap on the deduction for state and local taxes (SALT) is temporarily raised to $40,000 from 2025 through 2029, indexed for inflation. A phase-down applies above $500,000 in MAGI. Pass-through entity tax (PTET) workarounds remain available. 

Why it matters: This change restores a larger deduction for residents of high-tax states while retaining an upper-income limitation. It provides relief to many households affected by the prior $10,000 cap. 

To plan: Taxpayers in high-tax jurisdictions should coordinate with their accountants to assess the interplay between the federal SALT cap, PTET elections, and state-level planning strategies.

10. Section 199A Qualified Business Income Deduction (QBI)

What changed: Section 199A is made permanent, preserving the 20% deduction for qualified pass-through income. The phase-in thresholds for specified service trades or businesses (SSTBs) increase to $150,000 (joint) and $75,000 (single). A $400 minimum deduction is now available for eligible companies with at least $1,000 in QBI. 

Why it matters: This ensures continued tax benefits for small business owners, independent contractors, and professionals in eligible trades. 

To plan: Evaluate entity choice and compensation structure to optimize QBI benefits. SSTBs should monitor income relative to phase-in thresholds and explore retirement contributions or income deferral strategies.

11. Repeal of Section 68 Itemized Deduction Limitation and Introduction of Uniform Cap for High-Income Taxpayers

What changed: The One Big Beautiful Bill permanently repeals the Pease limitation, which previously reduced itemized deductions for high-income taxpayers by 3 percent of income above certain thresholds. In its place, the new law limits the tax benefit of itemized deductions to $0.35 per dollar deducted for taxpayers in the top income bracket, effective beginning in 2026. This simplified cap applies to all itemized deductions, including SALT, mortgage interest, and charitable contributions. 

Why it matters: By capping the value of deductions instead of phasing them out, the new rule provides clarity and predictability. While the limitation still affects high earners, it avoids the complexity and stealth tax effect of the former Pease formula. 

To plan: Taxpayers near the top marginal bracket should work with advisors to evaluate the real after-tax value of their deductions under the new cap. Strategic adjustments may include timing of deductions, use of donor-advised funds, or reallocating between deductible and nondeductible outflows.

12. Section 530A Tax-Preferred Savings Accounts for Minors

What changed: New tax-advantaged savings vehicles, dubbed “Trump Accounts,” are created for minors. Contributions are tax-deferred, with a $1,000 federal match provided annually between 2025 and 2028. Withdrawal restrictions apply until age 18 unless used for qualified educational or health expenses. 

Why it matters: These accounts are designed to foster savings among children and young adults, particularly in low- to middle-income families. The federal match creates an incentive for early financial literacy and participation. 

To plan: Parents and guardians should consider contributing annually to maximize the federal match. Monitor compliance with withdrawal rules to avoid penalties. Financial institutions may begin offering specialized custodial account structures to facilitate participation. 

Business & Nonprofit Provisions

1. Bonus Depreciation

What changed: The bill reinstates and makes permanent 100% bonus depreciation for qualified property placed in service after January 19, 2025. It also expands the definition of bonus-eligible assets to include qualified production property such as tooling and molds used in manufacturing. 

Why it matters: Bonus depreciation allows businesses to deduct the full cost of qualifying assets in the year placed in service, rather than depreciating them over time. This improves cash flow and incentivizes immediate reinvestment in productive equipment. 

To plan: Businesses anticipating significant capital expenditures should schedule purchases on or after the effective date. Careful documentation of in-service dates and asset classification will be essential. Firms should coordinate depreciation strategy with broader financing plans to optimize tax efficiency.

2. Section 179 Expensing

What changed: The maximum expensing limit under Section 179 increases to $2.5 million, with a phaseout threshold starting at $4 million. Moving forward, these amounts will be indexed for inflation. 

Why it matters: Section 179 is a critical tool for small and midsize businesses to write off the full cost of specific tangible personal property and off-the-shelf software. The limit increase ensures broader applicability and reduces the chance of hitting the phaseout cap. 

To plan: Businesses should evaluate their expected equipment and software investments and model out Section 179 usage against available bonus depreciation. Planning purchases within the qualifying year and below the phaseout range will ensure full deductibility.

3. R&D Expensing (Section 174)

What changed: The bill restores the ability to immediately expense domestic research and experimental (R&E) expenditures beginning in 2025. Small businesses may also apply this treatment retroactively for tax years 2022 through 2024. Foreign research must still be amortized over 15 years. 

Why it matters: This eliminates the burdensome amortization rule imposed in 2022, allowing companies to better match R&D expenses with revenue. It also supports innovation and reduces compliance costs. 

To plan: Companies should properly separate domestic and foreign R&D expenditures in their accounting systems. Amending prior returns for retroactive application could yield refunds or tax savings. Advisors should review eligibility carefully before proceeding with amended filings.

4. Interest Deduction Limitation (Section 163(j))

What changed: The limitation on business interest expense deductibility permanently reverts to an EBITDA-based formula rather than EBIT. This change allows depreciation and amortization to be added back when calculating the 30% cap. 

Why it matters: EBITDA-based calculations allow businesses to deduct more interest expense, particularly in capital-intensive sectors. This supports expansion and financing flexibility. 

To plan: Companies with significant debt or planned leverage should recalculate interest deductions using the new formula. Modeling should include anticipated changes in EBITDA and asset purchases.

5. Employer-Provided Childcare Credit

What changed: The credit for employer-provided childcare services increases from 25% to 40% of qualified expenses, with an expanded limit of $500,000 in fees ($600,000 for businesses with fewer than 50 employees). 

Why it matters: This provision incentivizes businesses to support employees through direct child care services, aiding workforce participation and retention. 

To plan: Employers should assess the viability of offering on-site childcare or contracting with third-party providers. Those already offering support should ensure costs are properly documented and eligible under IRS guidelines.

6. Qualified Small Business Stock (QSBS)

What changed: The bill modifies Section 1202 to retain the 100% exclusion for gains on Qualified Small Business Stock but introduces tiered exclusions for shorter holding periods. Taxpayers now qualify for a 50% exclusion after three years, 75% after four years, and 100% after five years. The gross assets threshold for a business to qualify as a "small business" is also raised to $75 million. 

Why it matters: Qualified Small Business Stock offers a powerful tax incentive for investors and founders in early-stage companies by excluding capital gains on the sale of eligible stock. The tiered approach provides earlier partial relief while preserving the maximum benefit for long-term holders. The raised asset threshold expands eligibility to a broader range of growing businesses. 

To plan: Founders and investors should review stock issuance documentation to ensure it meets the statutory requirements at the time of issuance. Holding period tracking should be carefully maintained to determine which exclusion level applies. Businesses nearing the gross assets threshold should consult with tax advisors before purchasing new capital or significant assets.

7. Unrelated Business Income Tax (UBIT) Modernization

What changed: The Senate-approved version of the One Big Beautiful Bill (OBBB) treats expenses for qualified transportation fringe benefits incurred by tax-exempt organizations as unrelated business taxable income (UBTI), effectively codifying the prior disallowance under the Tax Cuts and Jobs Act (TCJA). A specific exception is provided for church organizations. This change is effective for amounts paid or incurred after December 31, 2025 

Why it matters: Although the provision doesn’t overhaul the broader UBIT framework, it reintroduces the inclusion of certain fringe benefit expenses as UBTI. This reimposes compliance requirements that some organizations may have set aside after the TCJA provision expired. Organizations previously exempt from UBIT for transportation benefits will need to revisit their reporting practices. 

To plan: Tax-exempt organizations should assess whether they provide qualified transportation fringe benefits (e.g., transit passes, parking) and determine the potential tax impact starting in 2026. Church organizations are explicitly exempt, but others may need to resume UBTI reporting and consider cost or benefit changes. Consultation with a nonprofit tax advisor is advised to ensure compliance and evaluate options. 

Clean Energy Credit Changes

1. Termination of Federal Clean Energy Credits

What changed: The OBBB terminates or phases out a wide range of clean energy credits introduced under the Inflation Reduction Act (IRA). Key provisions include: 

• EV and clean vehicle credits (Sec. 30D and 25E) sunset after September 30, 2025 

• Residential energy credits (Sec. 25C and 25D) end December 31, 2025 

• Commercial energy efficiency deduction (Sec. 179D) ends for projects begun after June 30, 2026 

• Hydrogen, sustainable aviation fuel, and clean electricity credits phase out by 2027 or 2028 

Why it matters: The rollback of federal support significantly alters the economics of green investments, especially for developers and individual homeowners. Many taxpayers will need to accelerate projects to benefit. 

To plan: Taxpayers considering solar, EV, or energy-efficient improvements should complete purchases or construction before expiration deadlines. Businesses should model ROI scenarios without the credits and investigate whether state-level incentives may supplement the loss. 

International Provisions

1. Reform and Rebranding of GILTI and FDII

What changed: GILTI is renamed "Net CFC Tested Income," and FDII becomes "Foreign-Derived Deduction Eligible Income." The deduction rates are reduced to 40% (GILTI) and 33.34% (FDII), raising effective U.S. tax rates on foreign earnings. 

Why it matters: These changes increase the U.S. tax burden on multinational companies’ foreign earnings. The renaming aims to reflect a more neutral tax base, but the lower deductions translate into higher tax obligations. 

To plan: Multinational firms should reevaluate their international structures, IP location strategies, and tax credit optimization. Forecasting and compliance systems must also be updated to accommodate the new definitions and rates.

2. Base Erosion and Anti-Abuse Tax (BEAT)

What changed: The BEAT rate is locked in at 10.5%, preventing a scheduled increase to 12.5%. However, the bill eliminates certain exceptions and broadens the base, making the tax applicable to a broader range of payments. 

Why it matters: While the rate is lower than initially planned, the broadened application increases exposure, especially for U.S. subsidiaries of foreign multinationals and businesses making large cross-border payments. 

To plan: Companies should analyze payment flows to foreign affiliates and third parties to identify BEAT exposure. Legal structures and transfer pricing arrangements may need revisited to mitigate risk.

3. Qualified Opportunity Zones: Permanence and Reforms

What changed: Qualified Opportunity Zones (QOZs) become a permanent fixture of the tax code, with new rules allowing rolling 10-year designations starting in 2027 and enhanced reporting requirements. 

Why it matters: Permanency increases the utility of QOZs as long-term investment vehicles. However, enhanced compliance may limit speculative use or loosely governed structures. 

To plan: Investors and fund managers should monitor the release of updated zone maps and qualification criteria. Real estate and private equity funds should align acquisition timelines and reporting processes with the new framework. 

Strategic Considerations and Outlook 

The One Big Beautiful Bill Act marks a significant shift in tax policy, blending long-term certainty with targeted relief. By locking in lower individual tax rates and extending business incentives, the law enables taxpayers to plan more confidently. Key changes, such as enhanced deductions, revised international rules, and phased credit terminations, make 2025 a critical year for proactive tax planning. Individuals and businesses should engage early with advisors to ensure timely action and long-term benefit.