2025 Tax Reform: Final Tax Provisions of “The One, Big, Beautiful Bill Act”
Posted on July 08, 2025
The “One Big Beautiful Bill Act” (the Bill) was signed into law on July 4, 2025, and implements sweeping and permanent changes to the U.S. tax code, including extending many of the expiring provisions of the 2017 Tax Cuts & Jobs Act (TCJA). Below is a focused summary of select tax-related provisions in the final law.
Individual Tax Provisions
Below are select highlights of the individual tax provisions included in the Bill:
Top Marginal Income Tax Rate
Permanently extends the 2017 TCJA income tax rates and thresholds for individuals, estates, and trusts, with the highest tax rate being 37%. The Bill also adds an additional year of inflation adjustment to some lower brackets. This provision applies to taxable years beginning after Dec. 31, 2025.
Standard Deduction
Permanently increased, starting in 2025 at $31,500 for joint filers, $23,625 for head of household, and $15,750 for all other filers, inflation adjusted thereafter. This provision applies to taxable years beginning after Dec. 31, 2024.
Senior Deduction
Temporarily adds a senior deduction of $6,000 for each taxpayer 65 years or older for both itemizers and non-itemizers that phases out when modified adjusted gross income (MAGI) exceeds $75,000, available from 2025 through 2028.
Mortgage Interest Deduction
The $750,000 cap on acquisition indebtedness and exclusion of home equity loan interest is now permanent. However, the Bill also includes mortgage insurance premiums in the definition of acquisition indebtedness. This provision applies to taxable years beginning after Dec. 31, 2025.
Itemized Deductions
Miscellaneous itemized deductions remain eliminated. Additionally, a new limitation applies to taxpayers with taxable income above the threshold for the 37% tax bracket (e.g., $751,600 for joint filers in 2025; thresholds are indexed for inflation). For these taxpayers, total itemized deductions are reduced by 2/37 of the lesser of: (1) the taxpayer’s total itemized deductions, or (2) the amount of taxable income exceeding the 37% bracket threshold. This provision applies to taxable years beginning after Dec. 31, 2025.
Charitable deduction limitation for individuals who itemize
In addition to the itemized deduction limit just mentioned, the Bill also creates a 0.5 percent floor on itemized deductions for charitable contributions. This provision applies to taxable years beginning after Dec. 31, 2025.
Estate & Gift Tax
Effective for taxable years beginning after Dec. 31, 2025, the estate and gift exemption is set at $15 million for individuals and $30 million for couples and will begin being indexed for inflation again starting in 2027[1].
Child Tax Credit
Increased to $2,200 per child starting in 2025 and permanently indexing the credit amount for inflation. This provision applies to taxable years beginning after Dec. 31, 2024.
SALT Deduction
Temporarily increases the cap on the itemized deduction for state and local taxes (SALT) to $40,000 for 2025 and increase the cap by 1 percent from that level through 2029, subject to a phaseout for taxpayers with incomes above $500,000, then reduce the cap to a flat $10,000 thereafter. Beginning in 2030, the cap would revert to $10,000 for all taxpayers.
Pass-Through Entity Tax Regimes (PTET)
There were no changes or new limitations to the pass-through entity tax (PTET) regimes, i.e., existing PTET/SALT workarounds remain fully available to taxpayers.
Qualified Opportunity Zones
The Bill would establish a permanent QOZ policy, creating a rolling 10-year QOZ designation beginning in 2027. Note, any deferred capital gains from the initial QOZ program will still be recognized and taxed in 2026 as originally scheduled.
Energy Credits
The Bill terminates a large number of clean energy tax incentives:
- The clean vehicle credits for both previously owned and new vehicles (Sections 25E and 30D) will end for vehicles purchased after September 30, 2025.
- The energy-efficient home improvement credit (Section 25C) and the residential clean energy credit (Section 25D) will both expire for qualifying improvements or expenditures made after December 31, 2025. This means that homeowners must complete eligible projects by the end of 2025 to claim these credits.
Casualty Loss Deductions
The requirement that personal casualty loss deductions exceed 10% of adjusted gross income (AGI) for taxpayers to benefit from deductions is now waived for qualified disasters that occurred between December 2019 until July 4th, 2025 (‘‘the date of the enactment of this Act”). The Bill also expands the provision to include certain state-declared disasters, and that particular provision applies to taxable years beginning after Dec. 31, 2025.
Trump Accounts
The Bill creates a new tax-deferred savings account, “Trump Accounts,” providing every baby who is a U.S. citizen born between 2025 and before 2029 with a $1,000 federally funded investment account.
Car Loan Interest Deduction
Allows deduction for up to $10,000 of interest on new car loans (2025–2028); will phase out for taxpayers with MAGI more than $100,000 ($200,000 for married taxpayers filing jointly) and the car must be a US assembled passenger vehicle with the vehicle serving as security for the loan.
Cash Tips and Overtime Deductions
Temporary deduction (up to $25,000) for qualifying tips for workers tax years for 2025–2028. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 in the case of a joint return). The Bill also includes provisions allowing for certain deductions for overtime compensation; a temporary above-the-line deduction of up to $12,500 ($25,000 in the case of a joint return) with similar phaseouts to the deduction for tips provision. Note, claiming these deductions will be challenging due to strict eligibility requirements, the income phaseouts mentioned above, and complex documentation and reporting rules.
529 Qualifying Expenses Expansion
The Bill increases the annual limit for 529 account distributions for K-12 expenses from $10,000 to $20,000. The Bill also expands eligible uses to include additional costs associated with enrollment or attendance at elementary and secondary schools. It also permits qualified withdrawals for a wider array of qualified higher education expenses, such as those related to obtaining recognized postsecondary credentials. This provision applies to taxable years beginning after Dec. 31, 2025.
Dependent Care Assistance Programs
Increases the maximum annual amount excludable from income for dependent care assistance programs from $5,000 to $7,500. This provision applies to taxable years beginning after Dec. 31, 2025.
Contributions to Scholarship-Granting Organizations
Individuals who make a cash donation to a scholarship granting organization are allowed a credit matching their donation. The credit is subject to an annual per taxpayer cap of $1,700 and is reduced by any amount allowed as a credit on any state tax return. The credit is available in tax years ending after December 31, 2026.
There is no provision in the Bill affecting carried interest.
Provisions Affecting Businesses
QBI/Section 199A Deduction
The 20% qualified business income (QBI) deduction for pass-through entities (including law firms and partnerships) is made permanent. The Bill increases the QBI phase-in threshold for single filers from $50,000 to $75,000 and for joint filers from $100,000 to $150,000, with inflation adjustments applying after 2026. This change is taxpayer favorable because it allows more business owners to qualify for the full deduction and phases out the benefit more gradually as income rises, reducing the risk of losing the deduction due to modest increases in income.
Bonus Depreciation
The Bill permanently extends 100% bonus depreciation for property acquired and placed in service after January 19, 2025.
Section 179 Expensing
The Bill increases the Section 179 expensing limit from $1 million to $2.5 million, with the phase-out threshold raised to $4 million. These amounts will be adjusted for inflation for tax years beginning after 2025.
Research & Development (R&D) Expenses
The Bill allows immediate deduction of domestic R&D expenditures for tax years beginning after December 31, 2024. Expenditures for research conducted outside the U.S. must still be capitalized and amortized over 15 years. Small businesses (average annual gross receipts of $31 million or less) may apply this retroactively to tax years after 2021. All taxpayers may elect to accelerate deductions for domestic R&D made after 2021 and before 2025 over one or two years.
Excess Business Losses
The Bill permanently extends the limitation on excess business losses for noncorporate taxpayers.
Qualified Small Business Stock (QSBS)/Section 1202
The Bill changes the required holding period for gain exclusion from qualifying C-Corporation QSBS acquired after enactment (July 4, 2025) to allow 50% exclusion for stock held at least three years, 75% exclusion if held four years or more, and 100% exclusion if held five years or more. The Bill also increases the per-issuer limitation for QSBS acquired after July 4, 2025, specifically the per-issuer limitation on the amount of eligible gain is increased from $10M to $15M (or 10 times the taxpayer’s aggregate adjusted basis in the QSBS sold during the tax year). The Bill also increases the small business $50 million aggregate gross asset limit/test to $75 million and provides for an inflation adjustment to the $75 million limit moving forward.
Conclusion
These select tax provisions represent the core of the 2025 reform contained in the Bill, with many extensions of prior TCJA provisions as well as changes for individuals and businesses, and several notable departures from the original House proposed legislation. If you have questions about how these proposed changes may impact your individual or business tax situation, please contact your Topel Forman tax adviser.
[1] The estate and gift tax exemption for 2025 is $13,990,000 per individual (or $27,980,000 for a married couple).
