On Friday, President Donald Trump signed the One Big Beautiful Bill (OBBB) Act into law. Congress passed the sweeping legislation by a narrow margin. The law extends several expiring provisions from the 2017 Tax Cuts and Jobs Act (TCJA), introduces new tax incentives for individuals and businesses, and eliminates many clean energy credits.

Permanent Changes to Individual Income Tax

The OBBB Act locks in the TCJA-era tax brackets and standard deduction amounts, with inflation adjustments beginning in 2025. Lawmakers also raise the state and local tax (SALT) deduction cap to $40,000 through 2029. By preserving workarounds such as pass-through entity taxes (PTETs), they ensure certain taxpayers can continue benefiting even beyond the cap.

Family-Friendly Provisions and New Deductions

Families receive expanded support through a child tax credit that increases to $2,200 per child in 2025 and adjusts annually for inflation. Lawmakers also make the $1,400 refundable portion of the credit permanent. The bill makes the 20% qualified business income (QBI) deduction permanent and raises the phase-in thresholds to help more families and small business owners qualify.

To support working-class individuals, the bill allows temporary deductions for tips and overtime pay. From 2025 through 2028, workers can deduct up to $25,000 in tip income and up to $12,500 in overtime pay, or $25,000 for joint filers. Taxpayers who own personal-use vehicles assembled in the U.S. can also deduct up to $10,000 annually in car loan interest under a new, time-limited provision.

Other Personal Tax Updates

The bill revises mortgage interest deduction rules, updates ABLE accounts, and continues to exclude forgiven student loan balances from taxable income. Lawmakers introduce a refundable adoption credit of up to $5,000 and increase the child and dependent care tax credit to cover 50% of eligible expenses. They also create new “Trump Accounts” to help families save for minors with tax advantages.

Business Incentives and Expansions

Businesses benefit significantly from the OBBB Act. The law permanently extends bonus depreciation and increases the Section 179 expensing limit to $2.5 million. Starting in 2025, companies can fully deduct domestic research and development (R&D) costs and apply deductions retroactively to some previous years. Lawmakers reinstate the EBITDA limitation under Section 163(j) and expand credits for paid family leave, childcare, and advanced manufacturing initiatives.

Investors in qualified small business stock can now exclude 100% of capital gains if they hold the stock for at least five years. The bill also makes the Opportunity Zones program and the New Markets Tax Credit permanent, encouraging long-term economic investment in underserved areas. Sellers of farmland can now pay capital gains taxes over four years if they sell to a qualified farmer.

Rollback of Clean Energy Incentives

Lawmakers scale back numerous clean energy tax benefits. They schedule the expiration of credits for clean vehicles, energy-efficient buildings, and alternative fuels by 2026 or earlier. The bill also adds new restrictions that limit eligibility for these credits when foreign entities are involved or when imported fuels are used.

International Tax Reforms

The bill renames GILTI and FDII as “net CFC tested income” and “foreign-derived deduction eligible income,” respectively. It reduces the available deduction rates and eliminates the deemed tangible income return calculation. The Base Erosion and Anti-Abuse Tax (BEAT) rate rises slightly to 10.5%, and lawmakers return Form 1099-K reporting thresholds to $20,000 and 200 transactions per year.

Compliance and Administrative Changes

To increase accountability, the bill adds new due diligence requirements for Employee Retention Credit (ERC) promoters and raises penalties for those who fail to comply. It introduces a 1% remittance transfer tax and increases the reporting thresholds for certain financial transactions. Lawmakers also strengthen Social Security number requirements for education credits, adjust rules for farmland installment sales, and improve safeguards for taxpayer data privacy.

Plan Ahead for 2025 and Beyond

The One Big Beautiful Bill reshapes the tax landscape in broad and meaningful ways. Individuals and businesses should start preparing now to take full advantage of the new provisions and ensure compliance with the updated rules.

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