Through much toiling in both chambers of The U.S. House and U.S. Senate, The “One Big, Beautiful Bill Act” has been signed by President Trump on a memorable 4th of July, 2025.
The bill extends many of the expiring provisions from the Tax Cuts and Jobs Act (TCJA). The bill also addresses other tax priorities set forth by the Trump administration, which will now include for qualifying taxpayers, income tax deductions on certain tips and overtime pay.
The bill also modifies some of the TCJA’s provisions on the taxation of corporations’ foreign income and eliminates many of the clean energy tax incentives from the Inflation Reduction Act bill previously passed.
Below is a summary of the salient tax provisions in the bill.
Provisions for Individual Tax Planning:
Federal Tax Rates:The bill makes the tax rates enacted in 2017 in the TCJA permanent.
Standard Deduction:The bill makes the TCJA’s increased standard deduction amounts permanent. The standard deduction will be adjusted for inflation each year.
SALT Cap temporary increase through 2029:The bill temporarily increases the limit on the federal deduction for state and local taxes (the SALT cap) to $40,000 (from the current $10,000) and adjusts for inflation at a rate of 1% annually, through 2029. Starting in 2030, it will revert to the current $10,000.
The amount of the deduction available to a taxpayer phases down for taxpayers with modified adjusted gross income (MAGI) over $500,000 (in 2025). The MAGI threshold will be adjusted for inflation through 2029. The phasedown will reduce the taxpayer’s SALT deduction by 30% of the amount the taxpayer’s MAGI exceeded the threshold, but the limit on a taxpayer’s SALT deduction would not go below $10,000.
Personal Exemptions & Senior Deduction through 2028:Personal exemptions deduction permanently set at zero. However, it provides a temporary $6,000 deduction through 2028 for individual taxpayers who are age 65 or older. This senior deduction begins to phase out when a taxpayer’s MAGI exceeds $75,000 ($150,000 in the case of a joint return).
Child Tax Credit:The bill increases the amount of the nonrefundable child tax credit to $2,200 per child beginning in 2025 and indexes the credit amount for inflation. The bill also makes permanent the $1,400 refundable child tax credit, adjusted for inflation. In addition, it makes permanent the increased income phaseout threshold amounts of $200,000 ($400,000 in the case of a joint return), as well as the $500 nonrefundable credit for each dependent of the taxpayer other than a qualifying child.
Opportunity Zones (Capital gain deferral):The bill makes opportunity zones permanent but with several changes, including narrowing the definition of “low-income community.” The changes would generally take effect January 1, 2027.
Alternative Minimum Tax (AMT) Exemptions:The bill permanently extends the TCJA’s increased individual alternative minimum tax (AMT) exemption amounts and reverts the exemption phaseout thresholds to their 2018 levels of $500,000 ($1 million in the case of a joint return), indexed for inflation.
Mortgage Interest Deduction:The bill permanently extends the TCJA’s provision limiting the Sec. 163 qualified residence interest deduction to the first $750,000 in home mortgage acquisition debt. It also makes permanent the exclusion of interest on home-equity indebtedness from the definition of qualified residence interest. The bill also treats certain mortgage insurance premiums on acquisition indebtedness as qualified residence interest.
Casualty Loss Deductions:Under the bill, the TCJA’s provision limiting the itemized deduction for personal casualty losses to losses resulting from federally declared disasters becomes permanent, but the bill expands the provision to include certain state-declared disasters.
Miscellaneous Itemized Deductions:The bill makes permanent the TCJA’s suspension of the Sec. 67(g) deduction for miscellaneous itemized deductions but removes unreimbursed employee expenses for eligible educators from the list of miscellaneous itemized deductions.
Itemized Deductions Limitation:The bill permanently removes the Sec. 68 overall limitation on itemized deductions (known as the Pease limitation) and replaces it with a new overall limitation on the tax benefit of itemized deductions. The amount of itemized deductions otherwise allowable would be reduced by 2/37 of the lesser of (1) the amount of the itemized deductions or (2) the amount of the taxpayer’s taxable income that exceeds the start of the 37% tax rate bracket.
Moving Expense Deduction:The bill permanently eliminates the deduction for moving expenses, except for members of the armed forces and certain members of the intelligence community.
ABLE Accounts:The bill makes permanent the TJCA’s increased limitation on contributions to ABLE accounts. The credit amount increases from $2,000 to $2,100.
Student Loan Debt Discharge:The bill makes permanent the provision excluding from gross income student loans that are discharged on account of death or disability. The bill also requires the inclusion of the taxpayer’s Social Security number (SSN) on the income tax return when a student loan is discharged.
No Tax On Tips through 2028:The bill provides a temporary deduction of up to $25,000 for qualified tips received by an individual in an occupation that customarily and regularly receives tips. The deduction would be an above-the-line deduction and, therefore, available for taxpayers who claim the standard deduction or itemize deductions. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 in the case of a joint return).
No Tax On Overtime through 2028:The bill provides a temporary above-the-line deduction of up to $12,500 ($25,000 in the case of a joint return) for qualified overtime compensation received by an individual during a given tax year. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 in the case of a joint return).
Vehicle Loan Interest through 2028:The bill excludes qualified passenger vehicle loan interest from the definition of personal interest in Sec. 163(h). Qualified passenger vehicle loan interest is defined as interest paid or accrued during the tax year on indebtedness incurred by the taxpayer after Dec. 31, 2024, for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle for personal use. Among other restrictions, applicable passenger vehicles must have had their final assembly in the United States.
The exclusion is capped at $10,000 per year and will phase out for taxpayers with MAGI in excess of $100,000 ($200,000 for married taxpayers filing jointly).
Dependent Care Assistance Programs:The maximum annual amount excludable from income under a Sec. 129 dependent care assistance program increases to $7,500.
Child & Dependent Care Credit:The bill permanently increases the amount of the child and dependent care tax credit from 35% to 50% of qualifying expenses. The credit rate does phase down depending on adjusted gross income (AGI).
Trump Savings Accounts:Under the bill, Trump accounts will be IRAs (not Roth IRAs) for the exclusive benefit of individuals under 18. Contributions can only be made in calendar years before the beneficiary turns 18 and distributions can only be made starting in the calendar year the beneficiary turns 18. Trump accounts will have to be designated as such when they are set up, and the bill does not allow Trump account contributions until 12 months after the date of enactment of the bill. Contributions (other than qualified rollover contributions) will be capped at $5,000 a year (adjusted for inflation after 2027).
The bill creates a new Sec. 128 that allows for employer contributions to Trump accounts. These contributions will not be included in the employee’s income.
A new Sec. 6434 creates a Trump accounts contribution pilot program that provides a $1,000 tax credit for opening a Trump account for a child born between January 1, 2025, and December 31, 2028.
Charitable Contribution Deduction:The bill creates a charitable contribution deduction for taxpayers who do not elect to itemize, allowing nonitemizers to claim a deduction of up to $1,000 for single filers or $2,000 for married taxpayers filing jointly for certain charitable contributions. For itemizers, the bill imposes a 0.5% floor on the charitable contribution deduction: The amount of an individual’s charitable contributions for a tax year is reduced by 0.5% of the taxpayer’s contribution base for the tax year. For corporations, the floor will be 1% of the corporation’s taxable income, and the charitable contribution deduction cannot exceed the current 10%-of-taxable-income limit.
Provisions for Business Owner Tax Planning:
QBI Deduction:The bill makes the Sec. 199A qualified business income (QBI) deduction permanent and keeps the deduction rate at 20%. The bill expands the Sec. 199A deduction limit phase-in range for SSTBs and other entities subject to the wage and investment limitation by increasing the $50,000 amount for non-joint returns to $75,000 and the $100,000 amount for joint returns to $150,000.
Bonus Depreciation:The bill permanently extends the Sec. 168 additional first-year (bonus) depreciation deduction. The allowance is increased to 100% for property acquired and placed in service on or after Jan. 19, 2025.
Sec. 179 Expensing:The bill increases the maximum amount a taxpayer may expense under Sec. 179 to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million.
Research-and-Development (R&D) Expenses:The bill allows taxpayers to immediately deduct domestic research or experimental expenditures conducted within the United States, paid or incurred in tax years beginning after Dec. 31, 2024.
Limitation on Business Interest:The bill reinstates the EBITDA limitation under Sec. 163(j) for tax years beginning after Dec. 31, 2024. Therefore, for purposes of the Sec. 163(j) interest deduction limitation for these years, adjusted taxable income would be computed without regard to the deduction for depreciation, amortization, or depletion.
Paid Family & Medical Leave Credit:Under the bill, Sec. 45S is amended to make the employer credit for paid family and medical leave permanent.
Employer-Provided Child Care Credit:The bill increases the amount of qualified child care expenses factored in for Sec. 45F employer-provided child care credit from 25% to 40%. The maximum amount of the credit increases from $150,000 to $500,000 ($600,000 for eligible small businesses) and will be adjusted for inflation.
Form 1099 Reporting Threshold:The bill increases the information-reporting threshold for certain payments to persons engaged in a trade or business and payments of remuneration for services to $2,000 in a calendar year (previously $600), with the threshold amount to be indexed annually for inflation in calendar years after 2026.
Qualified Small Business Stock:The bill increases the Sec. 1202 exclusion for gain from qualified small business stock. For qualified small business stock acquired after the date of enactment of the bill and held for at least four years, the percentage of gain excluded from gross income will rise from 50% to 75%. If it is held for five years or more, the exclusion percentage will go up to 100%.
Provisions For Estate Tax Planning:
Federal Estate and Gift Tax Exemption Amounts:The bill amends Sec. 2010 to permanently increase the estate tax exemption and lifetime gift tax exemption amounts to $15 million for single filers ($30 million for married filing jointly) in 2026 and index the exemption amount for inflation each year after that.
Other Bill Provisions:
Clean Energy Incentives: The bill terminates many clean energy tax incentives, including: Sec. 25E previously owned clean vehicle credit, Sec. 30D clean vehicle credit, Sec. 45W qualified commercial clean vehicle credit (these all terminate after Sept. 30, 2025);
Additionally, Sec. 30C alternative fuel vehicle refueling credit (terminates after June 30, 2026); and Sec. 25C energy-efficient home improvement credit (terminates after Dec. 31, 2025); The Sec. 45Y clean electricity production credit is terminated for wind and solar facilities placed in service after Dec. 31, 2027.
BEAT:The bill increases the base-erosion & anti-abuse tax (BEAT) rate from 10% to 10.5%.
Firearms Transfer Tax:The bill reduces the Sec. 5811 transfer tax on certain firearms.
Farmland Sales:The bill adds a new Sec. 1062 that allows income tax resulting from the sale of farmland to a qualified farmer to be paid in four annual installments.
Summarized by Director, Financial Planning: Scott Perkins, MSTax, MBA, CFP®
Source: https://www.congress.gov/bill/119th-congress/house-bill/1/text
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