The One Big Beautiful Bill Act

Dear Valued Clients and Colleagues,

On Thursday, July 3rd, 2025, Congress passed H.R.1, the “One Big Beautiful Bill Act” (OBBBA), and just one day later, on July 4th, President Trump signed it into law. The signed bill accomplishes the goal of making permanent or extending many provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which were set to expire at the end of this year, while also introducing some new provisions and modifications.

This sweeping legislation brings significant changes that could impact taxes and financial planning. In this newsletter, we highlight some of the key provisions to consider as you plan ahead.

Individual Tax Provisions

Individual Income Tax Rates and Brackets: The bill permanently extends the TCJA rates and continues indexing all brackets for inflation beyond 2025. It also adds an extra year of inflation adjustment to the 10% and 12% brackets before the 22% rate takes effect.

Standard Deduction: Permanently increases the standard deduction, effective January 1, 2025, to $15,750 for single filers and married individuals filing separately, $23,625 for heads of household, and $31,500 for married couples filing jointly—all indexed for inflation.

SALT Deduction Cap: The State and Local Tax (SALT) deduction cap is retroactively increased to $40,000 for 2025 and $40,400 for 2026, with 1% annual increases through 2029. Beginning in 2030, the cap reverts to $10,000. The deduction phases out for individuals with a Modified Adjusted Gross Income (MAGI) of over $500,000 in 2025 and $505,000 in 2026, with similar 1% increases thereafter, but it cannot be reduced below $10,000. Pass-through entities would not be subject to the SALT limitation.

Charitable Deduction with Standard Deduction: For taxpayers taking the standard deduction, the bill establishes a permanent charitable contribution deduction of $1,000 for single filers and $2,000 for married couples filing jointly, applicable to certain charitable donations and effective beginning in 2026

Charitable Deduction with Itemized Deductions: The bill limits the itemized charitable deduction by allowing it only for contributions that exceed 0.5% of the taxpayer’s contribution base (Adjusted Gross Income).

Mortgage Interest Deduction: The bill permanently maintains the TCJA’s cap on the mortgage interest deduction, limiting it to the first $750,000 of home acquisition debt. It also permanently excludes interest on home-equity loans from being considered qualified residence interest. In addition, the bill allows certain mortgage insurance premiums on acquisition debt to be treated as qualified residence interest.

2% Miscellaneous Itemized Deductions: The bill now permanently disallows 2% miscellaneous itemized deductions under which the TCJA initially suspended. Similarly, casualty and theft losses are also permanently disallowed, except for federally declared disaster areas. However, the bill broadens the rule to also cover certain disasters declared at the state level.

Enhanced Deduction for Seniors: The Senate bill permanently sets the personal exemption deduction to zero but temporarily allows a $6,000 deduction under Section 151 for individuals age 65 or older, phasing out above $75,000 ($150,000 married filing joint). Effective 2025–2028.

Car Loan Interest Deduction: For 2025–2028, interest on loans for applicable passenger vehicles used for personal purposes is excluded from the definition of nondeductible personal interest. To qualify, the loan must be incurred after December 31, 2024, be secured by a first lien, and the vehicle must undergo final assembly in the U.S. Deduction is capped at $10,000 per year and phases out for modified AGI over $100,000 ($200,000 for joint filers). This deduction is available even if you don’t itemize your deductions and instead take the standard deduction.

529 Plan Accounts: The definition of “qualified expenses” for 529 reimbursement has expanded: non-tuition expenses for elementary, secondary, religious and private school expenses are now allowed, as are expenses for acquiring and maintaining professional credentials. Beginning in 2026, a 529 account can also be used to pay up to $20,000 of elementary or secondary tuition (up from $10,000 currently).

Child Tax Credit: Permanently increases the Child Tax Credit by $2,200 per child ($1,700 refundable and indexed for inflation). Makes permanent the higher phaseout thresholds of $200,000 ($400,000 for joint filers) and retains the $500 non-refundable credit for other dependents. Only one spouse must provide a valid SSN.

Other Deductions and Credits: The bill enhances several family-related tax benefits. It makes up to $5,000 of the Sec. 23 adoption credit refundable, with the amount indexed for inflation. It also increases the annual exclusion for employer-provided dependent care assistance from $5,000 to $7,500. Additionally, the bill permanently raises the maximum child and dependent care tax credit rate from 35% to 50% of qualifying expenses. This rate gradually phases down for taxpayers with AGI over $15,000, first reducing to 35%, then further decreasing—though not below 20%—for those with AGI exceeding $75,000 ($150,000 for joint filers).

Alternative Minimum Tax Exemption: The bill permanently extends the higher individual AMT exemption amounts introduced by the TCJA and resets the phaseout thresholds to their 2018 levels—$500,000 for single filers and $1 million for joint filers—adjusted annually for inflation. However, unlike the version approved by the Senate Finance Committee, the bill increases the phaseout rate from 25% to 50% of the amount by which a taxpayer’s alternative minimum taxable income exceeds the threshold.

No Federal Tax on Tips and Overtime: For 2025-2028, the bill allows a deduction for tip compensation up to $25,000 per individual in occupations where tipping is customary. These occupations are scheduled to be defined by the IRS within the next 90 days. For overtime, the bill limits the benefit to $12,500 for single filers and $25,000 for joint filers. Both deductions begin phasing out when the modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). The deductions applies only to the additional pay received above the standard rate and must be reported on the employees W-2. It will als be subject to employment taxes.

Estate and Gift Tax Exemption: The increased exemption is made permanent and raised to $15 million per individual ($30 million for married couples) in 2026, indexed for inflation.

Business Tax Provisions

QBI Deduction: The bill permanently extends the 20% Sec. 199A qualified business income (QBI) deduction and rejects the House proposal to raise the rate to 23%. It also expands the phase-in range for the deduction limitation on specified service trades or businesses (SSTBs) and other entities, increasing the threshold amounts from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers.

Pass-Through Entity Tax SALT Deduction: The final bill increases the SALT deduction cap to $40,000 but does not limit passthrough entity tax (PTET) workarounds. The House version proposed denying SSTBs the ability to deduct state and local income taxes via PTETs, aiming to restrict SALT cap avoidance. The Senate Finance Committee’s version allowed PTET deductions but capped them at the unused portion of the SALT deduction plus the greater of $40,000 or 50% of the PTET allocation. Ultimately, the adopted bill omits these restrictions.

Bonus Depreciation: The bill permanently extends the Sec. 168 bonus depreciation deduction and increases the allowance to 100% for property acquired and placed in service, or for specified plants planted or grafted, on or after January 19, 2025.

Sec. 179 Expensing: The bill raises the Sec. 179 expensing limit to $2.5 million, with the deduction phased out once the cost of qualifying property exceeds $4 million. Amounts indexed for inflation starting 2026.

Qualified Production Property “Manufacturing Property:” The bill permits a 100% first-year depreciation deduction for “qualified production property,” which generally includes nonresidential real estate used in manufacturing.

R&D Expenditures: The bill allows taxpayers to immediately deduct domestic research or experimental expenses incurred after December 31, 2024, while research conducted outside the U.S. must continue to be capitalized and amortized over 15 years under Sec. 174. Small business taxpayers with average annual gross receipts of $31 million or less can generally apply this change retroactively to tax years beginning after December 31, 2021. Additionally, all taxpayers who made domestic research or experimental expenditures between January 1, 2022, and December 31, 2024, may elect to accelerate the remaining deductions for those expenses over a one- or two-year period.

Business Interest Deduction: The bill reinstates the EBITDA-based limitation on interest deductions under Sec. 163(j) for tax years after December 31, 2024, meaning adjusted taxable income will exclude depreciation, amortization, and depletion deductions. It also expands the definition of “motor vehicle” to permit deducting interest on floor plan financing for certain trailers and campers.

Other Provisions

Form 1099 Threshold Reporting: The bill raises the reporting threshold for certain business payments and service remunerations from $600 to $2,000 per year, or over 200 transactions with the threshold indexed annually for inflation starting after 2026.

Clean Energy and IRS Credits: The bill would terminate or phase out several clean energy credits from the Inflation Reduction Act (IRA). Some of the included terminations and phase outs are the Energy Efficient Home Credit, Energy Efficient Home Improvement Credit, and the Clean Vehicle Credit.

How You Can Prepare

With the recent changes in tax laws, now is the perfect time to review your tax strategy and plan ahead. Our firm is here to help you navigate these updates, identify new opportunities, and minimize your tax liability. Whether it’s optimizing deductions, understanding credit changes, or planning for future investments, we’ll work with you to create a personalized tax plan that fits your goals.

GRIFFING & COMPANY, P.C.

(281) 491-8866 Fax (281) 491-8998

info@griffing.com

www.griffing.com