OBBBA opens a new era in tax policy

The One Big Beautiful Bill Act, signed into law by President Trump on July 4, is one of the most significant tax reforms since the Tax Cuts and Jobs Act of 2017. At over 1,100 pages, the OBBBA permanently extends several TCJA provisions while introducing new deductions, credits and limitations. Beyond tax, it also addresses spending priorities, border enforcement and energy policy.

The Congressional Budget Office estimates the OBBBA will increase the federal deficit by $3.4 trillion over 10 years, largely due to projected revenue losses of $4.5 trillion from tax cuts. Some of this shortfall is expected to be offset by spending reductions and tariff revenues, though fiscal sustainability remains debated.

The Tax Foundation projects positive macroeconomic effects, including a 1.2% increase in GDP, creation of approximately 938,000 jobs, and 4% higher wages in the long run. Critics, however, have raised concerns over the bill’s equity, particularly citing reduced federal support for programs like Medicaid and SNAP.

Impact on individual taxes

Permanent extension of TCJA individual cuts: The OBBBA permanently locks in the TCJA’s lower tax brackets. The 12% bracket will not revert to 15%, and the top rate remains at 37% instead of rising back to 39.6%. Capital gains rates remain unchanged.

Standard deduction and personal exemptions: The standard deduction is permanently extended at $15,750 for single filers and $31,500 for joint filers in 2025, indexed for inflation. A temporary supplemental increase applies through 2028. The personal exemption remains repealed.

Child tax credit: The credit increases to $2,200 per child and is indexed for inflation. It phases out above $200,000 for single filers and $400,000 for joint filers. At least one parent must hold a valid Social Security number.

Enhanced senior deduction: Between 2025 and 2028, taxpayers aged 65+ with income below $75,000 (single) or $150,000 (joint) can claim an additional deduction of $6,000 or $12,000 respectively.

No tax on tips and overtime: A temporary above-the-line deduction excludes up to $25,000 in tips and $12,500 in overtime pay for single filers (or $25,000 for joint filers) from taxable income. This benefit is available through 2028 and phases out above $150,000 (single) or $300,000 (joint). FICA taxes still apply.

Auto loan interest deduction: A new deduction allows up to $10,000 in auto loan interest on U.S.-assembled vehicles, valid from 2025 to 2028, phasing out above $100,000 (single) or $200,000 (joint).

SALT deduction cap: The cap is raised to $40,000 for 2025 to 2029, with income-based phase-downs. Unless extended, it reverts to $10,000 in 2030.

Estate tax exemption and other provisions: The estate tax exemption increases to $15 million per individual and $30 million for couples beginning in 2026, with future inflation adjustments. The law also makes permanent the repeal of miscellaneous itemized deductions (such as moving expenses, except for military personnel and bicycle reimbursements). The Affordable Care Act mandate penalty remains $0.

Impact on business taxes

Bonus depreciation and Section 179: 100% bonus depreciation is permanently restored for qualified property placed in service after Jan. 19, 2025. Section 179 expensing has been expanded with a $2.5 million limit and a phase-out starting at $4 million.

R&D expensing: Immediate expensing, reinstated for domestic R&D costs through 2029. Foreign R&D remains amortized.

Qualified Business Income deduction: The Section 199A deduction is made permanent at 20% (earlier proposals to raise it to 23% did not pass).

Opportunity Zone enhancements

• Extended through 2033;
• Basis increases: 10% after five years, 30% for rural projects;
• Up to $10,000 of ordinary income can be deferred; and,
• Tighter compliance and reporting rules introduced.

International and corporate adjustments:

• FDII and GILTI deduction phasedowns repealed;
• Base Erosion Minimum Tax increases frozen;
• Business interest deduction continues under EBITDA standard through 202;
• New 100% depreciation for qualified domestic production property (e.g., manufacturing, refining);
• Gross receipts threshold for small manufacturers raised to $80 million.
• Sports franchise amortization curtailed; and,
• Excess business loss limits made permanent, with indexed thresholds of $313,000 (single) and $626,000 (joint) in 2025.

Clean energy rollbacks
The OBBBA scales back many of the Inflation Reduction Act’s clean energy incentives:

• The $7,500 EV credit ends on Sept. 30, 2025;
• Residential and commercial energy credits eliminated;
• Hydrogen, nuclear, carbon sequestration and advanced manufacturing credits phased out; and,
• Transferability of clean fuel production credits ends after 2027.

What it means for tax professionals

The OBBBA demands significant strategic adjustments:

• Estate and QBI planning: Permanent provisions call for revisiting trusts, flow-through structures and high-net-worth estate strategies.
• Capital investments: Businesses should act quickly to leverage bonus depreciation and Section 179 expensing.
• High-income taxpayers: SALT relief is temporary; modeling is needed for long-term planning.
• Compliance: Enhanced Opportunity Zone reporting raises administrative requirements.

The OBBBA is a sweeping legislative reform that reshapes the U.S. tax system. While it cements lower rates and strengthens business incentives, it also raises deficit concerns and rolls back clean energy credits. For tax professionals, the law creates both opportunities and challenges. The key to navigating OBBBA lies in proactive planning, timely compliance, and strategic guidance tailored to each client’s needs.