On July 4, 2025, President Trump signed H.R. 1—referred to as the One Big Beautiful Bill Act (OBBBA). The OBBBA extends and makes permanent certain provisions in the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire in 2025 and adds new tax measures. The following is a brief summary of some of the changes enacted by the OBBBA.1
Individuals
1. Extension of TCJA Tax Brackets
The OBBBA permanently extends the tax brackets implemented by the TCJA, cementing both the lower tax rates (highest marginal rate of 37%) and the expanded tax brackets applicable to the rates, with inflation adjustments to the brackets continuing to apply.
2. State and Local Tax (SALT) Deduction Limitation
With the $10,000 deduction cap set to expire for taxable years beginning after December 31, 2025, the OBBBA permanently extends the deduction cap. However, for tax years 2025 through 2029, the cap is raised to $40,000 (with 1% increases each year). The expanded cap for individual taxpayers with modified adjusted gross income (AGI) over $500,000 phases down to $10,000 by 30% of the excess of modified AGI over $500,000.
Notably, the OBBBA does not alter state-level workarounds, such as entity-level taxes paid by pass-through businesses (e.g., partnerships or S corporations) on behalf of their owners. These workarounds, adopted by states like California, New York, and Wisconsin (among others), allow owners to deduct state taxes as business expenses, bypassing the SALT deduction cap.
3. Mortgage Interest Deduction
The OBBBA permanently caps the mortgage interest deduction at $750,000 of principal for acquisition debt, preventing the limit from reverting to $1 million as scheduled in 2026 under the TCJA. This applies to interest on loans for primary and secondary residences.
4. Other Deduction Limitations
The OBBBA permanently maintains the elevated standard deductions introduced by the TCJA, setting them at $15,750 for individual filers and $31,500 for joint filers in 2025. These amounts will be adjusted annually for inflation.
The OBBBA permanently extends the miscellaneous itemized deduction prohibition.
The OBBBA introduces a new requirement for charitable deductions, establishing a floor of 0.5% of AGI that taxpayers must exceed to claim deductions for charitable contributions. The bill otherwise retains the 60% AGI limit for cash contributions to public charities from the TCJA.
5. No Tax on Tips or Overtime
The OBBBA provides for a deduction for up to $25,000 for qualified tips. Qualified tips only apply to tips received in occupations that regularly received tips before December 31, 2024. The deduction phases out, starting with income over $150,000 for single taxpayers, and completely phases out for a single taxpayer making over $400,000. The deduction is available for both itemizers and non-itemizers.
A similar deduction applies for up to $12,500 in qualified overtime compensation, subject to the same phase out for tips. The deduction only applies to overtime compensation that meets the definition under Section 7 of the Fair Labor Standards Act of 1938 (generally items subject to mandatory overtime pay). The deduction is available for both itemizers and non-itemizers.
Business Entities
1. Qualified Small Business Stock
The OBBBA includes significant expansions of the benefit for investments in qualified small business stock. Previously a required holding period of five years, the OBBBA provides a 50% benefit for stock held three years and a 75% benefit for stock held four years. The OBBBA further expands the per taxpayer exemption to the greater of $15 million (indexed to inflation) or 10 times a taxpayer's "basis" in the stock. Finally, the gross asset test limitation is increased from $50 million to $75 million, again indexed to inflation. The expanded benefits apply only to stock issued on or after July 5, 2025.
2. Qualified Business Income Deduction
The deduction for "qualified business income" pursuant to Section 199A, which allowed a deduction of up to 20% on the net income of certain sole proprietorships, partnerships, S corporations, trusts, and estates was made permanent by the OBBBA. It was set to expire after 2025 under the TJCA. The OBBBA also (i) raised the taxable income limitation phase-in thresholds from $50,000 to $75,000 for individuals and from $100,000 to $150,000 for joint returns, and (ii) provided an inflation-adjusted minimum deduction of $400 for taxpayers whose aggregate qualified business income from all active qualified trades or businesses is at least $1,000 for the taxable year.
3. Research and Development Expense
The OBBBA eliminates the TCJA requirement to amortize domestic research and development (R&D) expenses over five years. Effective for tax years beginning after December 31, 2024, businesses can fully deduct 100% of qualifying domestic R&D expenditures in the year incurred.
For small businesses—defined as those with average annual gross receipts of $31 million or less over the prior three years—this change applies retroactively to tax years beginning after December 31, 2021. These businesses may amend their 2022-2024 tax returns to claim immediate deductions for previously amortized R&D costs, potentially securing refunds.
Larger businesses, with average annual gross receipts exceeding $31 million, can accelerate the deduction of any remaining unamortized domestic R&D costs from 2022-2024. Starting in 2025, these businesses may deduct such costs over one or two years, at their discretion, rather than the original five-year schedule.
4. Bonus Depreciation Made Permanent
One hundred percent bonus depreciation for qualified property acquired and placed into services after January 19, 2025, is made permanent under the OBBBA. This change eliminates the phase-down previously scheduled under the TCJA.
5. Employee Retention Credits
The OBBBA retroactively extends the statute of limitations for IRS review and audit of Employee Retention Credit (ERC) claims under the CARES Act for 2020 and the first two quarters of 2021, which had largely expired prior to the OBBBA. The new statute of limitations is extended to six years from the latest of: (i) the filing date of the original payroll tax return, (ii) the date the payroll tax return is deemed filed under Section 6501(b)(2), or (iii) the date a claim for credit or refund related to the ERC is submitted. This extension could allow IRS audits of certain ERC claims as late as 2030, providing the IRS additional time to verify compliance and recover improper credits. For example, a business filing a 2020 payroll tax return on April 15, 2021, or claiming an ERC refund in 2023, could face IRS scrutiny until at least 2029. Additionally, the OBBBA amends Section 6676 to impose a 20% penalty on erroneous ERC refunds.
Energy / Tax Credits
With respect to solar and wind projects, the OBBBA amended the investment tax credit (ITC) and production tax credit to significantly accelerate the phaseouts for those types of projects. The OBBBA made a number of other changes related to renewable energy and energy transition tax credits, including changing the domestic content manufactured product threshold for the ITC, amending the Section 45X manufacturing production tax credit, and adding fuel cells as ITC-eligible property.
Fund Formation
1. Investment Fund Effects
With respect to investment funds, it is perhaps more notable what remains unchanged. The OBBBA did not change the current favorable taxation of carried interest, management fee waivers, long-term capital gains or the pass-through entity tax deduction for investment funds and their sponsors. In addition, it expanded many tax provisions that could benefit the investment fund industry in general.
2. Expansion and Modification of Opportunity Zones Incentive
The opportunity zones program has been extended indefinitely. The changes to the program include: rolling 10-year census tract designations, new criteria for designation of the zones, changes to the deferral periods and basis calculations for investors, a new 30-year investment period rule, and enhanced reporting requirements.
International
1. No Revenge Tax
The OBBBA does not include the previously proposed Section 899 to retaliate against foreign countries which have imposed certain "unfair" foreign taxes.
2. Downward Attribution of Stock Ownership Limited
The TCJA repealed Section 958(b)(4) which prevented "downward attribution" of stock owned by a foreign person to a U.S. person. The TCJA repealed Section 958(b)(4) to address certain tax planning strategies, but had impacted many more companies. Effective for tax years of foreign corporations beginning after December 31, 2025, the OBBBA restores Section 958(b)(4), which generally prohibits downward attribution from a foreign person for purposes of determining controlled foreign corporation (CFC) and U.S. shareholder status, except in applying new Section 951B. Turning Section 958(b)(4) back on avoids the unintentional creation of CFCs and unnecessary CFC filing requirements in non-abusive situations that were never the intended target of the TCJA's repeal of Section 958(b)(4).
3. New Section 951B
The OBBBA creates Section 951B, which extends application of the CFC inclusion rules to "foreign controlled U.S. shareholders" of "foreign controlled CFCs." Section 951B allows downward attribution from a foreign person to a U.S. person in limited cases involving foreign-controlled U.S. shareholders. These rules apply to tax years of foreign corporations beginning after December 31, 2025.
4. Look-Through Rule for Related CFCs
The OBBBA makes permanent the "look-through rule" for related CFCs set forth in section 954(c)(6). The look-through rule exempts dividends, interest, rents, and royalties paid by a CFC to related CFCs for purposes of calculating subpart F income if certain conditions are met.
5. Modifications Relating to GILTI (now "NCTI") and FDII (now "FDDEI") Rules
The OBBBA modifies and renames "global intangible low-taxed income" (GILTI) to "net CFC tested income" (NCTI) and "foreign-derived intangible income" (FDII) to "foreign-derived deduction eligible income" (FDDEI). The OBBBA decreases certain deductions, eliminates the reduction for net deemed tangible return for qualified business asset investment (QBAI), and increases the allowed foreign tax credit for NCTI inclusions. As a result, a foreign tax of 14% or higher generally eliminates the U.S. tax on NCTI. Similarly, the OBBBA reduces certain deductions and repeals QBAI for purposes of calculating FDDEI, effectively applying a 14% rate to qualifying FDDEI. The GILTI and FDII amendments are applicable to taxable years beginning after December 31, 2025.
6. Subpart F and GILTI (now NCTI) Income Inclusion for Certain U.S. Shareholders
Under current law, only U.S. shareholders who own stock in a foreign corporation on the last day of a year in which such corporation is a CFC are required to include in gross income subpart F income and tested income under GILTI (now NCTI). Effective for the tax years of foreign corporations beginning after December 31, 2025, the OBBBA provides that if a foreign corporation is a CFC at any time during its tax year, each U.S. shareholder that owns stock in that corporation during such tax year is required to include in gross income such shareholder's pro rata share of the corporation's subpart F income for the CFC year.
7. Change in Base Erosion Minimum Tax (BEAT) Rate
Under current law, for taxable years beginning after December 31, 2025, the BEAT rate was scheduled to increase to 12.5%. The OBBBA permanently sets the BEAT rate at 10.5% and retains the taxpayer-favorable treatment of allowing all allowable tax credits for taxable years beginning after December 31, 2025.
Tax-Exempt Organizations
Significant changes for tax-exempt organization under the OBBBA include changing the endowment tax on private colleges and universities from a flat 1.4% excise tax rate to a tiered rate system using a formula based on the number of students at the school and the size of the school's endowment. The bill also expands the excise tax on compensation paid by certain tax-exempt organizations from the top five most highly compensated employees to all employees with compensation over $1 million. Certain changes to the charitable deduction rules will also affect individuals and corporations who make charitable contributions.
Estate Planning
1. Federal Gift, Estate and GST Tax Exemption
The exemption against federal gift, estate and generation-skipping transfer taxes is permanently increased to $15 million per individual, effective January 1, 2026. The exemption amount is subject to an annual inflation adjustment. Previously, the TCJA had increased the exemption amount from $5 million to $10 million per individual, subject to an annual inflation adjustment. However, the increase under the TCJA was set to expire at the end of 2025. The exemption will remain at $13.99 million for the remainder of 2025.
A Trump Account is a new form of an individual retirement account established for the benefit of a minor U.S. citizen whose parents have Social Security Numbers. Up to $5,000/year can be deposited in the beneficiary's Trump Account until the year the beneficiary turns 18. Employers can deposit up to $2,500 into a Trump Account for the benefit of an employee or the dependent of an employee, and such deposits will be excluded from the employee's gross income. Additionally, each U.S. citizen born in 2025-2028 will receive a one-time $1,000 contribution from the U.S. Treasury to their Trump Account, which will not count against that year's $5,000/year annual deposit limit. No withdraws are allowed until the beneficiary turns 18.
Other Changes
1. HDHP Telehealth Safe Harbor
The OBBBA makes permanent a safe harbor allowing high deductible health plan members access to telehealth services on a pre-deductible basis without ruining a member's eligibility to contribute to a health savings account (HSA). The OBBBA also adds a new pre-deductible HSA safe harbor for direct primary care arrangements meeting certain requirements and increases the contribution limits for dependent care assistance programs.
2. Excise Tax on Remittance Transfers
Newly created by the OBBBA is a 1% tax paid by the sender on remittance transfers. Remittance transfer is defined under Section 919(g) of the Electronic Fund Transfer Act as an electronic transfer of more than $15, sent by persons in the United States to persons or companies in foreign countries. The tax only applies to transfers for which the sender provides cash, a money order, a cashier's check or any other similar instrument, and exempts payments funded through accounts of a specified financial institution or funded with a debit card or a credit card which is issued in the United States.
Footnote
1. Unless otherwise noted, all section references are to the Internal Revenue Code of 1986, as amended.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
