The One Big Beautiful Bill Act

On July 4th, the President signed the One Big Beautiful Bill Act into law, introducing several important tax changes that could impact you. The summary below highlights the key provisions to consider as you plan for potential opportunities and challenges with your tax situation. More information will become known as the Treasury Department is able to issue guidance. We are here to support you, so don’t hesitate to reach out with any questions or concerns.

Provisions for Individuals

Tax Rates

• The bill makes the 2017 Tax Cuts and Jobs Act (TCJA) tax rates permanent.

Standard Deduction

• TCJA’s increased standard deduction is made permanent.

• For tax years after 2024:

  1. Single: $15,750

  2. Head of Household: $23,625

  3. Married Filing Jointly: $31,500

• Figures are indexed for inflation.

SALT Cap

• Temporarily raises the State and Local Tax (SALT) deduction cap to $40,000 (from $10,000); adjusted for inflation through 2029 and increasing by 1% each year through 2029; reverts to $10,000 in 2030.

• Deduction phases down for taxpayers with modified adjusted gross income (MAGI) over $500,000 for 2025; inflation-adjusted through 2029. The SALT deduction will be reduced by 30% of excess MAGI, but cannot go below $10,000.

Personal Exemptions & Senior Deduction

• Personal exemption remains at $0.

• Seniors (65+) get a temporary $6,000 deduction for 2025-2028, phased out above $75,000 MAGI ($150,000 for joint filers).

BatesCarter Insight: This personal exemption could be designed to fulfill former President Trump’s commitment to eliminate taxes on Social Security benefits—a change not permitted under reconciliation rules. Notably, the legislation does not alter payroll taxes that fund Social Security.

Child Tax Credit

• Increases nonrefundable portion to $2,200 per child (indexed for inflation), starting 2025.

• Makes permanent the $1,700 refundable credit (also indexed).

• Maintains income phaseout thresholds of $200,000 ($400,000 for joint filers) and $500 nonrefundable credit per dependent that is not a qualifying child.

QBI Deduction (Sec. 199A)

• Makes the 20% Qualified Business Income (QBI) deduction permanent.

• Expands phase-in ranges:

  1. Non-joint returns: $75,000 (up from $50,000)

  2. Joint returns: $150,000 (up from $100,000)

• Introduces a minimum $400 deduction (inflation-adjusted) for those with at least $1,000 QBI from one or more active trades or businesses in which they materially participate.

Estate & Gift Tax

• Permanently raises the exemption to $15M (single) / $30M (joint) in 2026, indexed for inflation thereafter.

Alternative Minimum Tax (AMT)

• Permanently adopts increased AMT exemption amounts from TCJA.

• Phaseout threshold returns to 2018 levels ($1,000,000 joint returns/$500,000 others, indexed for inflation).

• The threshold by which the exemption begins to phase out is increased from 25% to 50%.

BatesCarter insight: This will increase the rate at which the exemption amount reaches zero, therefore, more income could be taxed under AMT.

Mortgage Interest Deduction

• Permanently allows a tax deduction for mortgage interest on up to $750,000 of mortgage acquisition debt, but completely excludes interest on home equity loans.

• Allows certain mortgage insurance premiums as qualified residence interest.

Casualty Loss Deductions

• Permanently limits personal casualty losses to those resulting from federally declared disasters, but expands provision to include some state-declared disasters as well.

Miscellaneous Deductions

• Permanently disallows miscellaneous itemized deductions but excludes unreimbursed educator expenses from the 2% of AGI floor on itemized deductions.

BatesCarter insight: Previously, educators could only deduct in 2025 up to $300 of classroom expenses as an above-the-line deduction. Under the new law, educators can claim an itemized deduction for additional expenses above this limit that are incurred for any instructional activity - not just those in the classroom.

Itemized Deductions Limitation

• Removes the Pease limitation and introduces a new formula: deductions reduced by 2/37 of the lesser of itemized deductions or taxable income exceeding the 37% tax rate bracket threshold.

Tip Income

• Temporary deductions of up to $25,000 for eligible tip income for 2025-2028, with MAGI phaseout threshold starting at $150,000 ($300,000 joint filers). Taken as an above-the-line deduction.

• The deduction only applies to employees in jobs where tipping is customary and voluntary. It does not apply to businesses classified as “specified service trades or businesses” under Section 199A. If qualifications are met, self-employed taxpayers can qualify if their tip income exceeds their gross receipts minus deductions.

• The IRS must update withholding tables and issue guidance within 90 days to define which jobs “traditionally and customarily” receive tips and clarify when tips are considered voluntary.

BatesCarter insight: This could impact our business clients as companies will face new reporting requirements. Additionally, whether employees can deduct tip income may depend on employer policies—such as mandatory tipping, service charges, or other payments not directly determined by customers.

Overtime Income

• Temporary above-the-line deduction for qualified overtime compensation up to $12,500 ($25,000 joint filers) for 2025-2028, with MAGI phaseouts starting at $150,000 ($300,000 joint filers). The deduction is only available if reported separately on employee’s W2 or nonemployee’s Form 1099-NEC.

• Qualified overtime compensation is overtime paid to an individual required under the Fair Labor Standards Act of 1938 (FLSA) that is in excess of the regular rate under the FLSA at which the individual is employed.

Car Loan Interest:

• For 2025-2008, individual deduction allowed up to $10,000/year for personal use passenger car interest paid on car purchased with post-2024 loan; MAGI phaseout begins at $100,000 ($200,000 for joint filers).

• Final assembly of passenger vehicle must occur in the United States and original use of the vehicle must commence with the taxpayer.

BatesCarter insight: Auto loan financing companies will face additional reporting requirements and be required to furnish specific information on loans.

Other Deductions and Credits

• Dependent Care Assistance: Exclusion increased to $7,500, starting 2026.

• Child & Dependent Care Credit: Credit rate permanently increased to 50% (phased down above $15,000 AGI), starting 2026.

• Wagering Losses: Deductions limited to 90% of losses, only up to gains.

• ABLE Accounts: Makes increased contribution limits and saver’s credit eligibility permanent; saver’s credit rises to $2,100.

• Student Loans: Permanently excludes forgiven debt for death/disability; SSN required on tax return for exclusion.

• Adoption Credit: Up to $5,000 refundable, inflation-adjusted.

• Bicycle Commuting: Reimbursements now taxable.

• Moving Expenses: Deduction eliminated except for military/intelligence community.

Trump Accounts

• Creates tax-deferred traditional IRAs for minors (“Trump accounts”), with $5,000 annual limit (inflation-adjusted after 2027). Contributions not allowed until after July 4, 2026.

• Pilot program: $1,000 tax credit used to fund accounts for children born 2025-2028.

Other Education and Charitable Provisions

• 529 Plans: Expanded eligible expenses to include elementary or secondary school and qualified postsecondary credentialing expenses.

• Scholarship Credit: Beginning 2026, $1,700 credit for donations to scholarship-granting organizations. Scholarship amounts received by a taxpayer or dependent are excluded from gross income.

• Charitable Deduction: Non-itemizers can deduct up to $1,000 ($2,000 joint filers). For itemizers the deductions subject to a 0.5% floor.

Clean Energy Incentives

• Multiple clean energy credits and deductions (e.g., for electric vehicles, energy-efficient property) are set to expire between 2025–2028.

Business Provisions

Bonus Depreciation

• Permanently extends 100% bonus depreciation for certain property acquired/placed in service after Jan. 19, 2025.

• Creates a new elective 100% bonus depreciation for qualified production property. Qualified production property is nonresidential real property used in manufacturing of tangible personal property or in agricultural production, chemical production or refining. The election is available if construction on the property begins after January 19, 2025, and before January 1, 2029, and the property is placed in service by the end of 2030.

BatesCarter insight: Businesses with mixed-use buildings (e.g., combining production and office space) will likely need to analyze and allocate costs between qualifying and non-qualifying uses to claim the deduction properly.

Sec. 179 Expensing

• Expensing limit rises to $2.5M (phase out starts over $4M assets).

R&D Expenses

• Immediate deduction for domestic R&D after 2024; foreign R&D still amortized over 15 years.

• Small businesses (average gross receipts ≤ $31M) can apply changes retroactively to 2022; accelerated deductions for 2022–2024 R&D allowed if elected over a 1 or 2 year period.

• Reinstates the reduction of research costs by any research credit allowed, effective for tax years beginning after 2024.

Business Interest Limitation

• Reinstates EBITDA-based calculation to determine interest deduction limitations for years after 2024.

Other Business Incentives

• Makes paid family and medical leave credit permanent.

• Provides percentage-of-completion accounting exception for residential construction contracts. No AMT adjustment is required for residential construction contracts. Effective for contracts entered into in tax years beginning after July 4, 2025.

• Increases advanced manufacturing investment credit to 35% (from 25%) for property placed in service after 2025.

• Increases employer-provided child care credit (up to max credit of $600,000 for eligible small businesses).

• Increases exclusion on qualified small business stock gains to a tiered gain exclusion for stock acquired post-enactment. (50% exclusion held for 3 years, 75% exclusion held for 4 years, 100% exclusion held for 5 years or more)

• Makes limitation on excess business losses permanent.

• Treats spaceports like airports for bond rules.

• Makes opportunity zones (with modifications)and new markets tax credit permanent.

International Provisions

• Foreign Tax Credit: Adjusted allocation rules, especially for GILTI category.

• Deemed Paid Credit: Raised from 80% to 90% for Subpart F.

• GILTI & FDII: Renamed and recalculated; effective rate set at 14%.

• BEAT: Rate increased to 10.5%.

Administrative & Miscellaneous

• Form 1099-K: Threshold restored to $20,000 and 200 transactions.

• Form 1099: Reporting threshold increased to $2,000 (indexed).

• Farmland Sales: New provision where Income tax on sale of farmland to qualified farmers may be paid over four years.

• Remittance Transfers: 1% excise tax imposed on sender of cash, money orders, etc. sent abroad.

• ERC Enforcement: IRS barred from processing claims filed after January 31, 2024; status of limitation on ERC claims extended to 6 years; new due diligence and penalty requirements for promoters.

• Firearms: Transfer tax is reduced.

• SSN Requirements: Needed for education credits.