On July 4, 2025, President Trump signed into law the massive spending and tax package known as the “One Big Beautiful Bill Act” (OBBBA).
The OBBBA makes tax provisions from the 2017 Tax Cuts and Jobs Act permanent, in some cases with certain adjustments. The OBBBA also includes new tax provisions for individuals and businesses, and rolls back certain tax incentives adopted in the 2022 Inflation Reduction Act.
Below we summarize key business and individual tax provisions included in the OBBBA. Please note: This summary is based on a preliminary review of the bill, a lengthy and complex piece of legislation. This information will be updated as we continue to review the legislation and as new details emerge.
SALT Cap Temporarily Increased
The deduction cap for state and local taxes is increased to $40,000 for 2025 for taxpayers making less than $500,000 and will increase by 1% for each of the years 2026 through 2029 before reverting back to $10,000 in 2030. For taxpayers with modified adjusted gross income over $500,000, the $40,000 cap is phased downward (but not below $10,000) for years 2025 through 2029. No specific provisions regarding the application of pass-through entity tax were included in the bill.
New Deductions for Tip Income and Overtime Pay for Tax Years 2025 through 2028
The OBBBA provides new temporary deductions for tips and overtime pay. The new deduction for tip income is available to individuals regardless of whether or not they itemize their deductions, and applies to tips received from customers for services in industries where tips are customary. The deduction is limited to $25,000, with a phase-out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). Those in a “specified service trade or business” are excluded — for example, those in the fields of health, law, accounting, actuarial services, performing arts, consulting, athletics, banking, financial and brokerage services, and farming cannot take advantage of the deduction.
Additionally, the FICA tip credit for employers is now expanded to include those in the beauty services and food and beverage industries.
The new deduction for overtime pay is also available to individuals regardless of whether or not they itemize their deductions. The deduction is limited to $12,500 of qualified overtime income ($25,000 for joint filers), with a phase-out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
Expansion of Business Expensing
The OBBBA permanently restores 100% bonus depreciation for certain qualified property acquired after January 19, 2025 (includes depreciable property with a recovery period of 20 years or less and qualified improvement property). The bill permanently restores the immediate expensing of domestic research or experimental expenditures for amounts paid or incurred beginning January 1, 2025, with an election to amortize certain expenditures over not less than 60 months. The Section 179 annual expense limit is increased to $2.5M, reduced by expenditures for §179 property that exceed $4M.
Other Major Highlights: What Tax Provisions are Included?
- Makes permanent current individual income tax rates and brackets (with a top income tax rate of 37%), with inflation adjustments for the 10%, 12% and 22% brackets.
- The standard deduction is permanently increased — it will be $15,750 for single taxpayers ($31,500 for joint filers) beginning in 2025.
- Miscellaneous itemized deductions are now permanently eliminated (i.e., unreimbursed employee expenses, tax preparation fees, etc.), with a new exception for certain unreimbursed educator expenses.
- Personal exemptions are permanently eliminated. Seniors (ages 65 and older) are allowed a deduction of $6,000 for years 2025 through 2028, to be phased out if modified adjusted gross income exceeds $75,000 ($150,000 for joint filers).
- Certain mortgage insurance premiums will now qualify as acquisition indebtedness for purposes of the mortgage interest deduction.
- The casualty loss deduction is permanently limited, with a new exception for state-declared disasters.
- The calculation for limitation of the business interest deduction is now permanent.
- The 199A business income deduction is permanently extended, now with increased phase-in for income limits beginning in 2026, and a $400 (adjusted for inflation) minimum deduction for those taxpayers with a minimum of $1,000 of qualifying income from certain trades or businesses. The deduction limit phase-in range for specified service trades or businesses and other taxpayers subject to the wage and investment limitation is expanded to $150,000 for joint filers and $75,000 for single filers.
- Noncorporate taxpayer’s limitation on excess business losses is permanently extended, with the income threshold for determining an excess business loss now adjusted for inflation.
- Provides for a new temporary car loan interest deduction up to $10,000 for vehicles the final assembly of which occurs in the United States.
- Dependent care assistant program flex-spending account limits are increased to $7,500.
- The child tax credit is increased to $2,200, with annual adjustments for inflation.
- Alternative minimum tax (AMT) exemption is increased permanently to $1,000,000 for joint filers ($500,000 for single filers), indexed for inflation, and adjusts the phaseout exemption amount from 25% to 50% after 2025.
- Beginning in 2026, taxpayers who do not itemize deductions are allowed a charitable contribution deduction of up to $1,000 ($2,000 for joint filers). For taxpayers who itemize deductions, charitable deductions are allowed in excess of 0.5% of the taxpayer’s contribution base (adjusted gross income, without taking into account any charitable gifts).
- Revises the §1202 small business stock exclusion to allow a partial exclusion of 50% of gain from the sale of qualified small business stock issued after the date of enactment that is held for at least three years; 75% exclusion if held for at least four years; and a 100% exclusion if held for at least five years. The gross asset limitation to qualify is increased to $75M, and the per-taxpayer gain exclusion cap is increased to $15M.
- Permanently extends Opportunity Zone tax benefits. Qualified Opportunity Zones will now be redesignated every 10 years beginning in 2026. Deferred gain on investments made after January 1, 2027, will be recognized on the earlier of five years or disposition of the investment. A 10% basis increase is allowed if held for five years. No tax is imposed on investment gains if the qualified investment is held for at least 10 years and up to 30 years.
- Estate tax exemptions are increased to $15 million ($30 million for joint filers).
- International tax updates include changes to rules applicable to controlled foreign corporations, the foreign tax credit and the global intangible low-taxed income (GILTI) regime, and certain changes in rates and deduction percentages, beginning in 2026.
While tax reform can create uncertainties, it can also present opportunities, and provisions of the OBBBA will affect taxpayers differently. For more information about the impact of these tax changes on you or your business, please contact your regular Lathrop GPM attorney, or the authors of this update.