By MichaelSilver
The United States Senate passed the 2025 Tax Act, which would become the final version of what is referred to as One Big Beautiful Bill (OBBB) on July 1, 2025. The House of Representatives passed the legislation without any changes on July 3, 2025. President Trump signed it into law on July 4, 2025.
The OBBB is a comprehensive tax and spending package that includes significant tax provisions impacting a variety of taxpayers. Tax provisions include an expanded SALT deduction for individuals, retroactive business deductions, permanent extensions of 2017 Tax Cuts and Jobs Act provisions, new deductions, international tax provisions, and more. A summary of key changes is as follows.
REVISED SALT DEDUCTION CAP INTRODUCED THROUGH 2029
The 2017 Tax Cuts and Jobs Act (TCJA) ushered in a $10,000 cap on the itemized deduction for state and local taxes claimed by individual taxpayers. This has been one of the most talked-about provisions during negotiations and has changed several times throughout the various drafts. The final legislation raises the cap to $40,000 for 2025 with small increases each year through 2029. The cap reverts to $10,000 in 2030. However, the increased cap is subject to an income phase-out for taxpayers whose modified adjusted gross income exceeds $500,000. Thus, taxpayers subject to the income phase-out may still have a $10,000 cap from 2025 through 2029 when their modified adjusted gross income exceeds the phase-out threshold (approximately $600,000).
PASS-THROUGH ENTITY TAX DEDUCTIONS REMAIN FULLY INTACT
Previous versions of the legislation included new limitations on the deductibility of pass-through entity taxes (PTET). These limitations were eventually removed from the legislation. The final legislation does not include new limitations on PTET deductibility.
RETROACTIVE BUSINESS TAX DEDUCTIONS OFFER IMMEDIATE RELIEF FOR 2025 AND BEYOND
The OBBB delivers several important business deductions with retroactive effective dates that provide immediate tax benefits. This includes the following:
- 100% bonus depreciation: Reinstated for qualified property acquired after January 19, 2025, or with construction started after January 19, 2025.
- Domestic research and experimental expenditures: Reinstates full deduction of domestic research expenses paid or incurred in taxable years beginning after 2024. Allows for accelerated deduction of amounts capitalized in 2022 through 2024. Certain small business taxpayers can elect to amend prior year returns to deduct capitalized amounts; otherwise, all taxpayers can elect to deduct the prior year capitalized amounts in 2025 or over a two-year period covering 2025 and 2026.
- 163(j) interest expense limitation: Provides that “adjusted taxable income” is computed without taking into account depreciation, amortization, or depletion for taxable years beginning after 2024.
- Section 179 deductions: Increases the maximum amounts for property placed in service in taxable years beginning after 2024.
- Excess business loss limitation (Section 461(l)): Makes the limitation permanent. However, the final legislation does not change the character of carryforward losses. Thus, disallowed excess business losses will continue converting to a net operating loss (NOL) in the carryover year.
- Qualified production property: A new 100% deduction for certain real property classified as “qualified production property.” This includes the portion of nonresidential real property located within the U.S., the construction of which begins after January 19, 2025, and before January 1, 2029, that is originally used by the taxpayer as an integral part of a qualified production activity (such as the manufacturing of tangible personal property). This is a detailed and complex provision that will require a review of specific facts to determine eligibility. The final version of the legislation clarifies that property rented by a lessee from a lessor is not eligible for this new 100% deduction.
The deduction for domestic research expenditures and modifications to the interest expense limitation were temporary through 2029 in previous versions of the legislation. The final legislation makes these provisions permanent.
OTHER TCJA PROVISIONS PERMANENTLY EXTENDED
The TCJA contained many temporary provisions that were scheduled to expire at the end of 2025. The following are among the most notable provisions being extended and made permanent:
- Section 199A business deduction against certain pass-through income: The deduction rate remains 20%, and the taxable income threshold that phases in limitations is increased to $75,000 ($150,000 on joint returns). There is also a new minimum deduction of $400 associated with active qualified business income of at least $1,000.
- Estate and gift tax exemption: Set at $15 million per taxpayer for 2026 and adjusted for inflation annually thereafter.
- Highest marginal rate for individuals: Remains at 37%.
- Increased standard deduction amounts: Further enhanced.
- Increased alternative minimum tax exemption amounts: Retained with modifications to the phaseout calculation.
- Child tax credit: Increased to $2,200 for each qualifying child and adjusted annually for inflation.
- Deductible mortgage interest: Limited to the first $750,000 in home mortgage acquisition indebtedness, and eligible mortgage insurance premiums will be deductible again starting in 2026.
- Personal casualty loss deductions: Must be attributable to a federally declared disaster. Deductions will also be allowed beginning in 2026 for disasters declared by state governors. And “qualified disaster” treatment is extended to disasters occurring up to 30 days after OBBB’s enactment date.
- Miscellaneous itemized deductions: Nondeductible.
- Limitation on itemized deductions: There is a new overall limitation on itemized deductions imposed on taxpayers with taxable income in the 37% rate bracket. The limitation is designed to allow itemized deductions at no more than a 35% benefit.
NEW DEDUCTIONS ENACTED BUT SUBJECT TO LIMITATIONS
The OBBB includes several provisions for new deductions. The following deductions are temporary and only available for tax years beginning in 2025 through 2028:
- No tax on tips: A deduction of up to $25,000 is allowed for certain qualified cash tips received in certain occupations. The deduction starts to phase out when modified adjusted gross income exceeds $150,000 ($300,000 on a joint return) and is subject to specific reporting requirements imposed on the employer.
- No tax on overtime: A deduction of up to $12,500 ($25,000 on a joint return) for qualified overtime compensation. The deduction starts to phase out when modified adjusted gross income exceeds $150,000 ($300,000 on a joint return). Employers must report qualified overtime compensation separately on W-2s.
- Temporary senior deduction: A $6,000 deduction, per spouse, for taxpayers age 65 and older. The deduction starts to phase out when modified adjusted gross income exceeds $75,000 ($150,000 on a joint return).
- No tax on car loan interest: A deduction of up to $10,000 for interest on new loans used to purchase a new passenger vehicle for personal use. Among several requirements, the final assembly of the passenger vehicle must occur within the United States. The deduction starts to phase out when modified adjusted gross income exceeds $100,000 ($200,000 on a joint return). New information reporting requirements are imposed on those receiving qualifying interest.
RESHAPING THE LANDSCAPE OF INTERNATIONAL TAXATION
Many important tax provisions are included in the OBBB that will impact taxpayers with international activities. A few of the most notable provisions include:
- FDII deduction increase: Increases the foreign-derived intangible income (FDII) deduction to 33.34% for tax years beginning after 2025 (was scheduled to go to 21.875%).
- GILTI deduction increase: Increases the global intangible low-taxed income (GILTI) deduction to 40% for tax years beginning after 2025 (was scheduled to go to 37.5%). Also, “global intangible low-taxed income” is being renamed to “net CFC (controlled foreign corporation) tested income.”
- BEAT rate reduction: Reduces the base erosion and anti-abuse tax (BEAT) rate to 10.5% for tax years beginning after 2025 (was scheduled to increase to 12.5%).
- Pro-rata rules expanded: The pro-rata share inclusion rules are expanded to require U.S. shareholders owning stock in the CFC at any time during the year (rather than on the last day of the year) to pick up their pro-rata share of Subpart F and GILTI inclusions starting in 2026.
- Look-thru rule permanency: The Subpart F look-thru rule for related CFCs provided by Section 954(c)(6)(C) is made permanent.
- Downward attribution limitation restored: The limitation on downward attribution of stock ownership in applying constructive ownership rules is restored for tax years beginning after 2025.
WHAT ELSE IS IN THE OBBB?
With over 100 tax provisions, the OBBB is a significant piece of tax reform legislation, full of details and nuance, and will take some time to unpack. However, some of the more talked-about tax provisions with varying degrees of applicability include:
- Trump Accounts: A new tax-deferred savings vehicle that allows nondeductible contributions of up to $5,000 per year for the benefit of a child under the age of 18. Distributions are not allowed until the child reaches the age of 18 and are taxable to the extent of the deferred earnings. Accounts for children born after 2024 and before 2029 can receive an initial contribution of $1,000 from the government. These accounts are subject to a variety of restrictions and complexities. Thus, careful study will be needed before funding a new Trump account, and contributions to Trump accounts cannot be made until July 2026. Employers will also need to explore potential tax benefits to funding Trump accounts, up to $2,500, for the benefit of an employee or a dependent of an employee.
- Termination and modification of green energy tax credits: There is a wide range of Inflation Reduction Act clean energy credits being modified, terminated, or phased out on an accelerated schedule. Individuals and businesses alike must assess OBBB’s impact on any planned clean energy investments.
- Federal credit for contributions to scholarship-granting organizations: A new credit of up to $1,700 for qualified charitable contributions to a scholarship-granting organization that uses the contribution to fund scholarships. This credit doesn’t begin until 2027.
- Charitable contribution deductions: A new 1% floor on charitable contributions made by corporations and a new 0.5% floor on itemized charitable contributions made by individuals. The new floors apply to taxable years beginning after 2025. Also, an above-the-line deduction of up to $1,000 ($2,000 if a joint return) will be available to taxpayers claiming the standard deduction for charitable contributions beginning in 2026.
- Expansion of Section 1202 exclusion: The five-year holding requirement is expanded for stock issued after OBBB’s enactment date to allow a 50% exclusion of gain from qualified stock held at least three years, a 75% exclusion if held at least four years, and retains the 100% exclusion if held five years or more. The lifetime exclusion limit is increased from $10 million to $15 million, and the gross asset limit for an issuing corporation is increased from $50 million to $75 million.
- Employee Retention Credit claims: No refunds will be allowed for claims relating to Q3 or Q4 of 2021 if the refund claim was filed after January 31, 2024.
- QOZs and more: Permanent extensions and various enhancements of opportunity zones, low-income housing tax credits, and new markets tax credits.
- Child-related programs: Enhancements of employer-provided childcare credit, adoption credit, and the dependent care assistance program.
NAVIGATING THE OBBB: NEXT STEPS
MichaelSilver’s tax professionals are actively analyzing the extensive provisions of OBBB and assessing their potential implications for individuals and businesses alike. Given the scope and complexity of the legislation, we anticipate sharing additional insights and detailed guidance in the coming weeks. In the meantime, please contact your MichaelSilver advisor at 847-982-0333 to discuss how these changes may affect your specific situation.