Signed into law on July 4, 2025, The One Big Beautiful Bill (OBBB) is a comprehensive piece of legislation covering a wide scope of topics. While the bill covers issues such as military spending and energy independence, a substantial portion of the bill’s impact lies in the tax code. As such, it is important to understand the tax implications of this bill and how you can plan accordingly.
Business Tax Provisions
For those who own and/or run their own businesses, the tax reforms within the OBBB may be advantageous. In many cases, businesses can strategically plan purchases and take larger deductions during the year of purchase. Below are some examples of tax reforms that present businesses with the opportunity to reduce tax liability.
Research and Experimental Expenditures: Full expense of R&E cost is restored, reversing the 5-year amortization requirement from the 2017 TCJA (Tax Cuts and Jobs Act).
Interest Expense Limitation: Starting 1/1/25, the bill permanently restores the EBITDA add back for all future years. This effectively increases deductible interest capacity.
Bonus Depreciation: 100% bonus depreciation allowance is now permanent, with no scheduled phase out.
Depreciation for Qualified Production Property (QPP): Accelerated depreciation schedules are introduced for domestic manufacturing equipment and allow 100% depreciation on QPP.
Section 199A (QBI Deductions) Utilizing the Itemized Deduction: The 20% deduction for pass-through business income is made permanent.
PTET Deductions: Clarifies and expands deductibility of Pass-Through Entity Taxes (PTET) at the federal level, which fully allows pass through entities to deduct state and local taxes.
Individual Tax Provisions
For individual taxpayers, the OBBB contains many changes which will have a direct impact on tax returns. Notably, the Tax Cuts and Jobs Act (TCJA) had temporary provisions for individual taxpayers which have been made permanent as a result of the OBBB. While some of these reforms can serve to reduce individual tax liability, other changes have eliminated opportunities to take higher deductions on your tax return. The following changes illustrate some of the most prominent provisions that individuals should make themselves aware of.
Individual Income Tax Rates: The lower tax brackets from the TCJA are made permanent, including the top rate of 37%.
Dependent Care Assistance Program: Increases the annual contribution limit for dependent care assistance programs from $5,000 to $7,500 for single or married filing jointly.
Standard Deduction: The increased standard deduction is made permanent and indexed for inflation.
Charitable Contributions for Taxpayers Utilizing the Standard Deduction: Allows non-itemizers to take a $1,000 deduction for single taxpayers and $2,000 for married and filing jointly.
Charitable Contributions for Taxpayers Utilizing the Itemized Deduction: A 0.5% AGI floor is established for charitable contribution deductions, meaning that only the donations exceeding 0.5% of their AGI will be deductible.
State and Local Tax Limitation for Individuals (SALT): The $10,000 SALT cap is raised to $40,000 starting in 2025.
Itemized Deduction Limitation: The Pease Limitation is permanently repealed.
Miscellaneous Itemized Deduction: Elimination of miscellaneous itemized deductions are made permanent.
Alternative Minimum Tax (AMT): AMT exemption amounts are increased and indexed permanently.
Excess Business Loss Limitation: The excess business loss limitation of $313,000 has become permanent for the tax year beginning on 12/31/25.
Estate and Gift Tax Exemption Amount: For 2025, the estate and gift tax exemption are $13,990,000. Starting on January 1, 2026, the exemption will be $15,000,000 and indexed for inflation in subsequent years.
Qualified Opportunity Zones (QOZ): Narrows the scope of census tracts that are eligible to be nominated as QOZs and provides increased tax benefits for investments in rural areas. QOZs also have new reporting requirements.
Clean Energy Tax Provisions
The passing of the OBBB has also seen major changes relating to clean energy projects. Some of the most notable changes relate to clean energy credits, some of which are phased out (or completely eliminated). However, the bill has also presented new opportunities to limit tax liability via the extension/introduction of new clean energy credits. Below is a brief overview of credits that will be eliminated, phased out, or introduced (as well as changes in deduction limits):
Termination of Previously Owned Clean Vehicle Credit: Ends the credit for used EVs purchased after 2025.
Termination of Clean Vehicle Credit: Phases out the $7,500 new EV credit by 2027.
Commercial Vehicle Credit: Introduces a new credit for electric and hydrogen commercial vehicles.
Alternative First Vehicle Refueling Property Credit: Extended and expanded credit for rural and low-income areas.
Energy Efficient Commercial Buildings Deduction: Increased deduction limits and simplified qualification rules.
Clean Electricity Production Credit: New technology-neutral credit replaces existing wind/solar credits.
Clean Electricity Investment Credit: Offers a 30% credit for investments in qualifying clean energy projects.
This information has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for tax, legal, or accounting advice. If you have any questions about the OBBB, please do not hesitate to contact us at Lear & Pannepacker.