Breaking Down the One Big Beautiful Bill Act: Key Provisions and Implications
Republicans in Congress have passed H.R. 1, the “One Big Beautiful Bill” (OBBB) Act, which was signed into law by the President on July 4th. The sweeping bill includes a host of tax provisions that impact substantially all categories of taxpayers. Although many provisions are extensions or modifications of the laws enacted in the Tax Cuts and Jobs Act (TCJA) of 2017, there are notable new additions to the tax law as well. While many elements extend or modify measures from the 2017 Tax Cuts and Jobs Act (TCJA)—originally set to expire this year—the OBBB makes much of the Republican tax agenda permanent and includes several notable new provisions.
The key highlights of the OBBB are summarized below. The bill includes limitations and income phase outs for a substantial number of the key individual provisions. Further guidance is anticipated from IRS to assist taxpayers with determining qualification.
Individual Provisions
OBBB Permanently Establishes the Following TCJA Provisions
Individual Tax Brackets
Under the new bill the tax rates enacted by the 2017 TCJA have been made permanent, with the top rate holding firm at 37%.
Standard Deduction
The increased standard deductions enacted by the TCJA were made permanent under the bill. The standard deductions for 2025 will include retroactive adjustments as follows: $31,500 for married filing joint filers, $23,625 for head of households and $15,750 for other filers. These will then be adjusted for inflation for tax years 2026 and beyond.
Personal Exemptions
The temporary repeal of the personal exemption enacted by the TCJA has been made permanent under the OBBA. New in the OBBB, individuals who are 65 years and older can claim an additional deduction (temporarily for tax years 2025 through 2028) of $6,000, subject to income limitations.
Child Tax Credit
The OBBB provides a permanent increase of the child tax credit to $2,200 per child with $1,400 being refundable beginning in 2025 – these credit amounts are indexed for inflation.
Mortgage Interest Deduction
The reduced interest deduction on the first $750,000 ($350,000 for single filers) of home mortgage indebtedness as enacted by the TCJA has been made permanent under the new bill. Under the new bill, certain mortgage insurance premiums treated as qualified residence interest pursuant to Section 163 may also be deductible.
Miscellaneous Itemized Deductions
Miscellaneous itemized deductions have been permanently disallowed, making this temporary suspension as enacted by the TCJA permanent. However, the bill removed unreimbursed employee expenses for eligible educators from the list of miscellaneous itemized deductions.
AMT Exemption
The bill permanently extends the increased Alternative Minimum Tax (AMT) exemption amounts as enacted by the TCJA and reverts the exemption thresholds to pre-TCJA numbers ($1 million for joint filers and $500,000 for all other filers.) The amounts are also indexed for inflation.
Temporary Provisions in the OBBB
State and Local Tax (SALT) Deduction
The bill enacts a temporary increase in the SALT itemized deduction of up to $40,000 for tax year 2025. The cap increases 1% in tax years 2026 through 2029. The deduction is subject to limitations based on income thresholds.
Charitable Contributions
The bill enacts a new “floor” on charitable contributions for taxpayers who itemize their deductions. A deduction for charitable contributions will be limited to the amount in excess of 0.5% of taxable income for itemized filers. Additionally, for taxpayers who do not itemize, a deduction for charitable contributions of up to $1,000 for single filers ($2,000 for joint filers) will be allowed.
Itemized Deductions
The OBBB creates a new limitation on overall itemized deductions starting with tax year 2026. Total itemized deductions, including the SALT deduction, are limited to 2/37ths of the lesser of (1) total itemized deductions or (2) taxable income in excess of the top tax bracket of 37% for that respective tax year.
Tipped Income
The bill provides a new temporary deduction for up to $25,000 of tipped income. This deduction applies to tips received from customers for services in certain specified industries and is subject to income limitations and phase outs.
Overtime Pay
The bill provides a new temporary deduction for up to $12,500 ($25,000 married filing joint) of qualified overtime compensation received and included on a form W-2. The deduction is subject to income limitations and phase outs.
Deductible Auto Loan Interest
A temporary deduction of up to $10,000 of interest paid on indebtedness to acquire qualified passenger vehicles has been included in the bill. Specific criteria related to the type of vehicle and location of final assembly must be met. The deduction is subject to income limitations and phase outs.
Estate Provisions
The OBBB permanently increases the federal estate and gift tax lifetime exemptions to $15 million per individual, or $30 million for married couples. The exemptions are indexed to inflation beginning with the 2027 tax year.
Business Provisions
Research and Experimental (R&E) Expenditures
The ability to immediately expense domestic R&E expenditures has been restored. Qualifying small businesses can claim retroactive relief for R&E expenses incurred between 1/1/2022 and 12/31/2024. All other businesses may deduct the unamortized R&E expenditures previously capitalized in either a one- or two-year year period starting after December 31, 2024.
Business Interest
The bill restores the use of EBITDA for purposes of calculating the allowable business interest deduction. Under the TCJA, section 163(j) limited the deductibility of business interest to earnings before interest and taxes.
Bonus Depreciation
For qualifying property placed in service after 1/19/2025, the bill allows for permanent 100% bonus depreciation. Additionally, the bill provides a 100% special depreciation allowance for qualified production property. The property must meet designated criteria for use and placed in service dates.
199A Deduction
The temporary 199A deduction established in the TCJA has been maintained on a permanent basis at 20%. Limitations on the applicability of the deduction remain.
U.S. Based Multinationals
The bill maintains and modifies provisions from the TCJA that altered the global tax scheme for U.S. based multinationals, including GILTI, FDII, and BEAT. Adjusted calculations and new effective rates will apply as a result of the OBBB. Importantly, the proposed Section 899 tax on “unfair foreign taxes” was omitted from the final bill.
Conclusion
The OBBB is a sweeping package impacting many taxpayers and sectors. As the provisions continue to be analyzed, taxpayers are encouraged to review the highlighted changes to the tax law and begin planning discussions early. Please contact your tax professional or reach out to the GRF Tax Team if you have questions or would like our help analyzing how the newly enacted legislation impacts you or your business.
Contact
If you have questions about the “One Big Beautiful Bill” (OBBB) Act, contact us.
