The One Big Beautiful Bill Act, signed into law on July 4, 2025, enacts a wide range of changes to federal tax law affecting individuals, businesses, international taxation, nonprofit organizations, and clean energy incentives. This summary provides a clear overview of the Act’s key tax provisions.
Individual Tax Provisions
Income Tax Brackets and Rates The Act makes permanent the individual tax brackets and rates introduced in the 2017 tax reform, including a top marginal rate of 37 percent. Starting in 2026, the lower tax brackets (10 percent, 12 percent, and 22 percent) will be adjusted annually for inflation.
Standard Deduction The standard deduction is permanently increased to $15,750 for single filers and $31,500 for married couples filing jointly. This amount will also be adjusted each year for inflation beginning in 2025.
Limitation on Itemized Deductions Beginning in 2026, the total value of itemized deductions will be capped so that their tax benefit cannot exceed 35 percent of a taxpayer’s income.
Deduction for State and Local Taxes The cap on the deduction for state and local taxes is increased from $10,000 to $40,000 for the years 2025 through 2029. This cap will increase by one percent each year and will phase out for individuals with incomes over $500,000, or $250,000 for married individuals filing separately. The ability of business entities such as partnerships and S corporations to deduct these taxes at the business level remains unchanged.
Deduction for Tip and Overtime Income A new deduction is available for workers in traditionally tipped industries and for overtime pay. Workers may deduct up to $25,000 in tip income annually through 2028. A separate deduction of up to $12,500 (or $25,000 for married couples filing jointly) is available for overtime pay. Both deductions begin to phase out for individuals with income above $150,000 ($300,000 for joint filers).
Deduction for Car Loan Interest Through 2028, taxpayers may deduct up to $10,000 of interest paid on loans for vehicles that were assembled in the United States. This deduction phases out for individuals with incomes over $100,000 ($200,000 for joint filers).
Mortgage Interest Deduction The $750,000 limit on the amount of acquisition mortgage debt eligible for the interest deduction is made permanent. For married individuals filing separately, the limit is $375,000.
Child Tax Credit Beginning in 2025, the child tax credit is permanently increased from $2,000 to $2,200 per child. Each child must have a valid Social Security number to qualify.
Additional Deduction for Seniors Individuals age 65 and older may take an additional deduction of $6,000 through 2028. Married couples may claim $12,000 if both spouses qualify. The deduction phases out for individuals with income above $75,000 ($150,000 for joint filers).
Estate, Gift, and Generation-Skipping Transfer Taxes Beginning in 2026, the exemption for estate, gift, and generation-skipping transfer taxes is permanently set at $15 million per individual, with annual inflation adjustments.
Exclusion for Gains on Qualified Small Business Stock For stock issued after July 4, 2025, the exclusion on gains from the sale of qualified small business stock increases from $10 million to $15 million. The eligibility threshold for businesses issuing such stock also increases from $50 million to $75 million in gross assets. The required holding period for full tax benefits is shortened from five years to three years, with partial benefits available for holding periods between three and five years.
Business Tax Provisions
Deduction for Pass-Through Business Income The 20 percent deduction for qualified business income earned through sole proprietorships, partnerships, and similar entities is made permanent.
Bonus Depreciation The ability to immediately deduct 100 percent of the cost of certain business property is made permanent for assets placed in service before January 1, 2031.
Immediate Deduction for Research and Development Costs Businesses may immediately deduct domestic research and development costs beginning in 2025. Businesses with less than $31 million in revenue may apply this change retroactively to costs incurred after December 31, 2021.
Expanded Interest Expense Deduction The limitation on business interest expense is eased by removing depreciation, amortization, and depletion from the calculation of taxable income for purposes of the interest deduction cap.
Deduction for Sound Recording Production Costs Artists and producers may now deduct up to $150,000 per year of qualified sound recording production costs, provided the production begins before January 1, 2026.
International Tax Provisions
Revised Rules for Foreign Corporate Income The existing system for taxing foreign low-taxed intangible income is renamed and simplified. The Act removes the 10 percent return on foreign tangible assets and reduces the available deduction from 50 percent to 40 percent, increasing the effective tax rate to 12.6 percent starting in 2026.
Restoration of Pre-2017 Ownership Rules The law reinstates previous rules that prevent U.S. entities from being treated as owning shares in foreign companies indirectly through foreign affiliates. This eliminates certain types of forced inclusion of foreign income under prior law.
New Anti-Avoidance Ownership Rule A new rule treats U.S. taxpayers as owning stock in foreign corporations under certain indirect ownership structures. This is intended to prevent corporate restructuring that avoids U.S. taxation and expands the reach of rules governing foreign income inclusion.
Subpart F Income Inclusion Timing Starting in 2026, U.S. taxpayers who own at least 10 percent of a foreign corporation must include their share of the corporation’s income if they owned the stock at any time during the year.
Modified Foreign Income Deduction The deduction for foreign-derived intangible income is renamed “foreign-derived deduction-eligible income,” with the deduction percentage reduced from 37.5 percent to 33.34 percent. The resulting effective tax rate increases to 14 percent.
Provisions for Nonprofit and Educational Institutions
Excise Tax on High Executive Compensation The 21 percent excise tax on compensation over $1 million now applies to all current and former employees of large nonprofit organizations, not just the five highest-paid individuals.
Excise Tax on College Endowments Private colleges and universities are now subject to a tiered tax on their investment income based on endowment size per student. This applies to schools with at least 3,000 tuition-paying students, where most students are in the United States.
Opportunity Zones and Community Investment
Opportunity Zone Program Extension and Reform The existing program to incentivize investment in low-income areas remains in effect through 2026. A new version begins in 2027, featuring narrower eligibility criteria and enhanced incentives for rural communities. The benefit for holding investments five years is capped at a 10 percent gain exclusion. The prior 7-year 5 percent benefit is discontinued.
Permanent Extension of New Markets Tax Credit The New Markets Tax Credit program is permanently extended, and unused credits may be carried forward for five years.
Clean Energy and Manufacturing Tax Provisions
Wind and Solar Energy Credits To qualify for investment or production tax credits, wind and solar projects must either begin construction within 12 months of the Act’s enactment or be placed into service by the end of 2027.
Elimination of Residential Energy Credits The residential clean energy credit and the energy-efficient home improvement credit are eliminated for expenditures made or property placed in service after December 31, 2025.
Termination of Electric Vehicle Incentives Federal tax credits for new and used electric vehicles, as well as commercial electric vehicles, end on September 30, 2025.
Charging Station Credit Expiration The tax credit for alternative fuel vehicle refueling property will expire on June 30, 2026.
Restrictions on Use of Foreign Inputs in Clean Energy Projects Companies receiving material assistance from foreign entities considered adversarial to the United States may be disqualified from certain clean energy tax benefits. Specific restrictions vary depending on the credit.
Wind Component Manufacturing Credit Ends The tax credit for manufacturing wind energy components will terminate after 2027.
Transferability of Tax Credits Maintained Businesses may continue to transfer or sell certain tax credits, a provision originally introduced in the 2022 climate legislation.
Adjusted Domestic Content Requirements Domestic content requirements for energy facilities and storage technologies are revised but remain in place.
Clean Hydrogen Credit Terminated The credit for production of clean hydrogen will expire at the end of 2025.