Understanding the Tax Implications of the One Big Beautiful Bill Act

By: Alexander J. Gase, Esq., LaVonne D. Lawson, Esq., Charles Kramer, J.D. Candidate 2026, & Peng Shao, J.D. Candidate 2026

On July 4, 2025, President Donald Trump signed into law the One Big Beautiful Bill Act (the “OBBBA”), after a number of significant revisions in both chambers of Congress.

Background

The OBBBA was first introduced in the House in May of this year under the budget reconciliation process, which allows certain federal budget legislation to pass the Senate with a simple majority, bypassing the usual 60-vote threshold to overcome any filibuster. In order to do so, such reconciliation bills are limited to provisions involving mandatory spending, revenue, and the federal debt limit. Policy changes deemed extraneous to reconciliation are restricted under the Byrd Rule, which authorizes the Senate Parliamentarian to strike provisions that do not meet reconciliation criteria.

Congress was able to pass the OBBBA following revisions to accommodate the narrow margins in both the House and Senate and to react to emerging changes in the global tax policy landscape. While promoting economic stimulus, this act provides for reduced tax revenue and reduced federal spending, resulting in a projected 10-year increase in the federal deficit. (The Congressional Budget Office projects that this act would add over $3.4 trillion to primary deficits over the next 10 years.)

The One Big Beautiful Bill Act (OBBBA)

While the OBBBA affects federal funding for many areas of government, including defense and healthcare, it also includes numerous tax provisions addressing nearly every sector of the U.S. economy, many of which are outlined below. The Act makes permanent or continues many of the individual and corporate tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) providing future certainty for individuals and businesses relying upon the taxpayer-friendly provisions.

In an aim to stimulate domestic business investment, the OBBBA extends the pass-through deduction for business owners under Section 199A of the Code and temporarily restores immediate expensing of bonus depreciation of short-term investments (e.g., machinery and equipment) and domestic R&E expenses. For individuals, the OBBBA continued lower federal individual income tax rates, provided for a higher standard deduction, and increased the state and local income tax (“SALT”) deduction.

Additional benefits to individuals include a charitable deduction for taxpayers who do not itemize and deductions with respect to tip income, overtime income, and for seniors. Parents can claim an increased child tax credit and can take advantage of enhanced Section 529 plans along with new tax-advantaged children’s savings plans.

With more to come in subsequent client alerts, here are some of the important tax provisions under the OBBBA.

Individual Tax Provisions

Individual Income Tax Rates
  • Makes permanent the rates under the TCJA over seven brackets (indexed for inflation): 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Standard Deduction
  • Permanently increases the standard deduction. The deduction as of 2025 is in the following amounts (and indexed for inflation):
    • Single, Married Filing Separate – $15,750
    • Head of Household – $23,625
    • Married Filing Jointly – $31,500
Personal Exemption
  • The deduction for personal exemptions, suspended under the TCJA, is permanently terminated.
Charitable Deduction for Non-Itemizers
  • Beginning in 2026, taxpayers who do not itemize are allowed a charitable contribution deduction of $1,000 for single filers and $2,000 for married filing jointly filers for certain charitable contributions.
Higher SALT Deduction Cap
  • The state and local tax (SALT) deduction cap is raised from $10,000 to $40,000 through 2029, increasing by 1% annually. The deduction is subject to phase out at modified AGI greater than $500,000 in 2025, also increasing by 1% annually through 2029.
Tax Relief on Tips
  • Provides a deduction of up to $25,000 on qualified tips through 2028 (subject to income limitation).
Tax Relief on Overtime
  • Provides a deduction of up to $12,500 on qualified overtime compensation through 2028 (subject to income limitation).
Enhanced Deduction to Seniors
  • Adds an additional $6,000 bonus deduction for seniors from 2025 – 2028 (subject to income limitation).
Estate and Gift Tax
  • The unified estate and gift tax exclusion is increased, along with the generation-skipping tax exemption, and made permanent. The threshold amount is increased to $15 million as of 2026 (adjusted annually for inflation).
Expanded Child Tax Credit
  • Increases the non-refundable child tax credit to $2,200 in 2025 and indexes that credit for inflation after 2025. The Act makes permanent the refundable child tax credit of $1,400 adjusted for inflation ($1,700 in 2025).
New “Trump Accounts” for Children
  • This new plan allows for an annual nondeductible contribution of up to $5,000 (indexed for inflation), with no withdrawals permitted before age 18. The account is not subject to tax during this period. There is also allowed an annual employer contribution in the amount of $2,500. Under a pilot program, each qualifying child born between 2025 and 2028 receives a $1,000 government-funded contribution.
Auto Loan Interest Deduction
  • Interest deductions for up to $10,000 are allowed with respect to interest on loans for U.S.-assembled vehicles, from 2025 to 2028.
End of Clean Energy and EV Tax Credits
  • Eliminates several clean energy incentives, including tax credits for electric vehicle (EV) purchases (a $7,500 new EV credit and a $4,000 used EV credit) and for energy-efficient home upgrades. The deadline for qualifying EV purchases is September 30, 2025. The deadline for qualifying energy-efficient home upgrades is December 31, 2025.

Business Tax Provisions

Section 199A Deduction
  • Makes permanent the Section 199A pass-through deduction.
Expanded Section 179 Deduction
  • The Section 179 expense limitation increases to $2.5 million, with the phase-out threshold increased to $4 million.
Permanent Full Expensing for Domestic R&E Expenditures
  • Provides for full expensing of domestic research or experimental expenditures, eliminating the current requirement to amortize over five years.
Restoration of 100% Bonus Depreciation
  • Permanently extends and modifies additional first-year depreciation deduction for qualified property. Provides for 100% depreciation deduction for qualified property acquired and placed in service after January 19, 2025. (This reverses the TCJA phaseout, which had dropped immediate depreciation expense to 40% in 2025.)
Accelerated Depreciation for Manufacturing Facilities
  • Bonus depreciation allowed for qualified production property (used in U.S.-based manufacturing, refining, or production), for which construction begins after January 19, 2025 and before January 1, 2029, and is placed in service before January 1, 2031. (Allows for newly constructed as well as certain existing properties.)
Interest Payment Deduction
  • Reinstates the earnings before interest, depreciation and amortization (EBITDA)-based limitation on business net interest deductions from 2025 through 2029.

International Tax Provisions

  • Global intangible low taxed income (GILTI) is renamed as “Net CFC Tested Income” (NCTI).  The effective tax rate on NCTI is permanently set at 12.6%, which was previously set to increase to 13.125% starting in 2026.
  • Foreign-derived intangible income (FDII) is renamed to Foreign-Derived Deduction-Eligible Income (FDDEI). The deduction for FDDEI is permanently set at 33.34%, resulting in an effective tax rate of 14%. This rate was previously scheduled to increase to 16.406% starting in 2026.
  • Permanently sets the base erosion and anti-abuse tax (BEAT) at 10.1%. The BEAT rate was scheduled to increase to 12.5% starting in 2026.

The OBBBA is complex and will impact nearly every taxpayer. Our experienced team at Leech Tishman is prepared to assist you in navigating these significant and meaningful changes to U.S. tax policy.