Summary of the One Big Beautiful Bill’s Tax Provisions
President Donald Trump signed the "One Big Beautiful Bill Act" into law on July 4, 2025, which includes significant tax provisions impacting individuals and businesses. This bill largely makes many of the tax cuts permanent from his 2017 term and introduces new measures.
Here's an analysis of the key tax provisions:
Individual Tax Provisions
Permanent Tax Cuts and Standard Deduction: The bill makes the individual tax rates enacted in 2017 permanent and increases the standard deduction to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly, with annual inflation adjustments. This also permanently eliminates personal exemptions, except for a temporary $6,000 deduction for taxpayers 65 years of age and older (phasing out at higher incomes) until the end of 2028.
State and Local Tax (SALT) Deduction Cap Increase: The cap on the SALT deduction is temporarily raised from $10,000 to $40,000 for five years, reverting to $10,000 after that. This amount will also be adjusted annually for inflation.
New Deductions for Tips and Overtime: The bill introduces new temporary tax deductions for qualified tipped income (up to $25,000 annually) and eligible overtime pay (up to $12,500 for single filers, $25,000 for joint filers). Both deductions are effective from 2025 through 2028 and phase out for higher-income earners. Deduction phases out at a 10% rate when adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers.
Child Tax Credit: The maximum Child Tax Credit is increased from $2,000 to $2,200 per child and indexed to inflation. However, the refundable portion of the credit is not increased, limiting the benefit for low-income households.
Auto Loan Interest Deduction: Buyers of cars assembled in the U.S. can deduct up to $10,000 per year in auto loan interest for purchases made between 2025 and 2028. This deduction phases out for higher earners at a 10% rate when adjusted gross income exceeds $100,000 for single filers and $200,000 for joint filers.
Higher Education Endowment Tax: The bill significantly increases the federal excise tax on endowment income for wealthy private universities. The tax rate on endowment investment income for institutions with more than $2 million in endowment assets per student rises from 1.4% to 8%.
Charitable Contributions: Establishes a permanent above-line deduction for charitable contributions. Taxpayers benefit whether or not they itemize deductions. The amount is $1,000 for single filers and $2,000 for joint filers. Itemized deductions for charitable contributions are not subject to .5% floor.
Mortgage Interest: The home mortgage interest amount is limited to $750,000 of principal (indebtedness).
Itemized Deductions Limit: Taxpayers in the highest income tax bracket are limited to itemized deductions of no more than 35 cents on the dollar instead of the highest tax rate of 37 cents on the dollar.
Business Tax Provisions
Qualified Business Income (QBI) Deduction: The 20% QBI deduction for owners of pass-through entities is made permanent.
Bonus Depreciation: The 100% bonus depreciation for qualified new and used assets is permanently extended for property acquired after January 19, 2025.
Section 179 Expensing: The Section 179 expensing limit is increased to $2.5 million, with the phase-out threshold rising to $4.0 million for 2025, subject to annual inflation adjustments.
Domestic Research & Development (R&D) Expenses: Businesses are now permanently allowed to immediately deduct domestic R&D expenses, retroactive to 2022 for eligible small businesses. Larger businesses can deduct these expenses over one or two years. Small businesses are defined as having gross receipts of $31 million or less.
Business Interest Limitation: The bill modifies the calculation of adjusted taxable income for the 30% business interest limitation, excluding depreciation, amortization, or depletion, effective for tax years beginning after December 31, 2024.
Estate Tax Exemption: The Estate Tax Exemption is permanently increased to $15,000,000 for gifts made after December 31, 2025, and will be indexed for inflation after 2026.
Clean Energy Tax Credits: The bill rolls back or phases out several clean energy tax credits established under former President Biden's Inflation Reduction Act, including those for electric vehicles and home energy upgrades.
Economic Impact
The Tax Foundation estimates that economic output will expand by 1.2 percent due to the tax impact of the bill resulting in an increase to American incomes. The increase in deficits (even assuming solid economic growth) may cause a rise in the debt to GDP ratio. This increase in budget deficits will counteract the growth in the economy such that incomes will increase by a smaller .9 percent.
Gene M. Bowman, Tax Attorney, Huntsville, Alabama
