Quarterly Newsletter
Fall, 2025
Tax & Financial Planning
One Big Beautiful Bill Act (OBBBA)
On July 4, 2025, President Trump signed into law the sweeping tax reform and spending reconciliation bill known as the One Big Beautiful Bill Act (“OBBBA”). This is the long-awaited follow-up to the Tax Cut and Jobs Act (“TCJA”) passed in 2017. While the TCJA was sweeping in its changes, many important provisions were temporary. The OBBBA makes permanent many of the temporary provisions of the TCJA but does retain the temporary nature of some provisions.
Following is a summary of the most significant provisions of that bill with emphasis on individual and small business taxation.
Individual Income Tax Provisions
Following are the personal income tax changes and provisions in the bill. In many instances there are different rules and computations for married individuals filing jointly (“MFJ”), married individuals filing separately (“MFS”), and all other filers. Furthermore, there are limits and provisions based on adjusted gross income (“AGI”) or modified adjusted gross income (“MAGI” – AGI with several add-backs to income).
- Tax Rates and Brackets – TCJA tax rates and brackets are made permanent (these more taxpayer-friendly provisions were scheduled to expire January 1, 2026)
- Alternate Minimum Tax – The OBBBA makes permanent the TCJA AMT exemption amount but reverts the exemption phase-out thresholds to the 2018 levels of $1 million (MFJ) and $500K (other filers) in 2026 and indexes the amount for inflation thereafter. Furthermore, the AMT exemption phase-out increases from 25% to 50%, resulting in faster use of exemption. The reversion of the exemption amount and change to the phase-out threshold will likely subject some additional high-net-worth taxpayers to AMT in 2026
- Pease Limitation – The TCJA repeal of the Pease Limitation (which phased out itemized deductions based on AGI) is made permanent, but a new overall limit on itemized deductions effectively caps the benefit of deductions to 35% for taxpayers in the highest bracket
- Charitable Contributions – the charitable contribution deduction is reduced by .5% of AGI starting in 2026. However, effective for 2026 forward, there are deduction for non-itemizers (i.e., above-the-line) in the amounts of $2,000 (MFJ) and $1,000 (other filers). Given the .5% reduction in the benefit after 2025, it is generally advantageous for itemizers to accelerate charitable contributions into 2025
- Overtime Pay – workers entitled to minimum wage and overtime pay as part of the Fair Labor Standards Act can exclude up to $12,500 ($25,000 in the case of MFJ) from adjusted gross income for the years 2025 to 2028. The deduction amount is reduced (phases out) for taxpayers with MAGI over $150,000 (single filers) or $300,000 (joint filers).
- State and Local Tax Deduction (“SALT”) – the SALT overall deduction limit is increased from $10,000 to $20,000; the deduction phases down for taxpayers with MAGI exceeding $250,000 (MFS) and $500,000 (other filers), but not below current limits. The phase-down threshold increases 1% annually through 2029, but then reverts to $10,000 for 2030 forward.
- Standard Deduction/Personal Exemption – the OBBBA makes permanent the TCJA larger standard deductions, but permanently eliminates personal exemptions
- Enhanced Senior Citizen Deduction – Taxpayers who have attained age 65 in tax years 2025 to 2028 receive an additional $6,000 deduction. However, the deduction is phased out at levels of MAGI greater than $150,000 (MFJ) and $75,000 (other filers)
- Child Tax Credit (“CTC”) – OBBBA permanently increases the CTC to $2,200 starting with tax year 2025, and inflation-indexes it for years after 2025. However, the credit continues to phase out for taxpayers with AGI of greater than $400,000/$200,000 (MFJ/other filers), and the phase-outs are not indexed for inflation.
- Trump Child Accounts - Under OBBBA, a new tax-favored account similar to a nondeductible IRA is created for U.S. Citizens under age 18. The federal government will contribute $1,000 to such account for every U.S. Citizen born during 2025 through 2028. Additionally, contributions of up to $5,000 (inflation adjusted) per year can be made from birth through age 17, with no distributions allowed until age 18. Distributions can be taken under the normal traditional IRA rules with limited pre-59 distributions allowed for qualified college expenses and first-time home purchases. Contributions are returned tax-free but income will be taxed at ordinary rates with penalties for nonqualified distributions.
- Mortgage Interest Deduction – The OBBBA makes permanent the $750,000 ($375,000 MFS) limit on qualified mortgage interest and the elimination of home equity interest
- Deductible Car Loan Interest – for the first time in many years, certain interest on car loans will be deductible, as an above-the-line item. Up to $10,000 can be deducted on
Business Income Tax Provisions
Following are the business income tax changes and provisions in the bill.
- Full Expensing of Qualified Property – The TCJA allowed for generous immediate expensing of depreciable business property, but it was phasing down by 20% each year after 2022 and was scheduled to be 40% in 2024. The OBBBA revives and permanently extends 100% immediate expensing for property placed in service after January 19, 2025. Qualified property is tangible personal property with a life of 20 years or less.
- Full Expensing of “Qualified Production Property” – The OBBBA adds new section 168(n), which allows for immediate 100% expensing of certain new factories, improvements to existing factories and certain other structures. This is a dramatic expansive of generous depreciation allowances as it extends 100% expensing to real property used in production and manufacturing.
- Increase in Section 179 Expensing – The OBBBA increases the maximum amount a taxpayer may expense under Section 179 to $2.5 million and increases the phase-out threshold amount to $4 million.
- Qualified Business Income Deduction (“QBI”) – The Act makes the 20% QBI deduction permanent and also provides for a minimum deduction of $400 for those taxpayers with at least $1,000 of QBI
- Domestic Research Expenses – The OBBBA suspends capitalization under Section 174 for domestic research expenses and adds new Section 174A to provide for optional expensing or elective capitalization and recovery of domestic research expenses over not less than 60 months or 10 years under Section 59(e)
- Qualified Small Business Stock (“QSBS”) Benefits – the Act introduces several changes to Section 1202 that broaden the availability of QSBS benefits for individuals and for corporations. Under current law QSBS must be held for more than five years to obtain the gain exclusion. The Act reduces the requirement to three year and introduces a tiered benefit structure:
- Three years: 50% exclusion
- Four years: 75% exclusion
- Five years: 100% exclusion
Estate Tax Provisions
- Estate Tax Exemption – The OBSBA permanently increases the gift & estate tax exemptions to $15 million beginning in 2026, with inflation increases annually thereafter.
We are happy to address any questions you may have about the above strategies. Feel free to contact us by telephone or email.