July 2025 – H.R. 1 – One Big Beautiful Bill Act
LEGISLATION UPDATED: H.R. 1 TAX IMPACT
OVERVIEW
– On July 4th, 2025, the tax legislation known as The One Big Beautiful Bill Act (H.R.1) was officially signed into law. We will refer to this legislation from now on as “the new law”.
– The new law includes several changes that impact both individuals and businesses from a tax perspective.
– We have reviewed the tax provisions within the new law, and we are now reaching out with a summary its impact areas on the tax landscape moving forward.
AREAS OF IMPACT – BUSINESSES
– Qualified Business Income deduction (199A Deduction): this deduction was set to expire in 2026 – the new law made this 20% qualified business income deduction permanent.
– Pass-through entity tax (PTET) SALT deduction: previously, the individual state and local tax (SALT) itemized deduction was capped at $10,000, generating use of the PTE Election workaround where business entities paid individual income taxes at the entity level to avoid the SALT deduction cap. The new law increased the SALT limitation from $10,000 to $40,000 at the individual level. Based on this, fewer taxpayers will likely need to utilize the PTE election starting with tax year 2025. Please note: The $40,000 cap is subject to phase outs for jointly filing taxpayers with modified adjusted gross income over $500,000. Additionally, this cap will revert back to $10,000 in 2030.
– Excess business loss limitations: previously, this provision limited pass-through business losses through 2028, making carryforward losses subject to NOL rules. The new law made these limitations and carryforward loss treatment permanent.
– Employee retention credit: previously, employers had until 4/15/25 to file ERC claims for tax year 2021. The new law prohibits payout of 3rd and 4th quarter ERC claims for 2021 that were made later than 1/1/2025 and increases enforcement for fraudulent claims.
– Employer provided child care credit: previously, employers who operated daycare facilities for their employees could take a non-refundable tax credit of 25% of qualified expenses, up to $150,000 for offering this benefit to their employees. The new law increases the credit to 40% (50% for small businesses) of qualified childcare expenses and a maximum credit of $500,000 ($600,000 for small businesses).
– Form 1099 information reporting: previously, the reporting threshold was $600. Under the new law, the 1099 reporting threshold is $2,000. This new threshold will also be indexed for inflation starting after 2026.
– Form 1099-K: under the new law, reporting for the 1099-K reverts back to previous rules where reporting is required if transactions exceed $20,000 and the aggregate number of transactions exceeds 200.
– Paid family and medical leave credit: previously, this credit for employers who provided paid family and medical leave to employees was set to expire after 2025. Under the new law, this credit has been permanently extended and enhanced; the credit can now be claimed for premiums paid for insurance policies providing paid and family leave for employees, and employers can elect to claim credit based on wages or premiums paid.
– Research & experimental (R&E) expenses: businesses were previously required to amortize their R&E costs over time, typically five years for domestic costs and fifteen years for foreign costs. The new law allows immediate expensing of domestic R&E costs incurred after 1/1/2025, and also adds a provision for small businesses to use this treatment retroactively through amended returns all the way back to 2022. It also allows acceleration of any remaining R&E amortization. Please note, foreign R&E costs still need to be amortized over 15 years.
– Bonus Depreciation: previously, bonus depreciation was on a phase-out schedule, decreasing 20% each year. The new law permanently reinstated 100% bonus depreciation for qualified property acquired and placed in service on or after January 19th, 2025.
– Qualified production property “Manufacturing Property”: this is an entirely new provision; certain portions of commercial manufacturing property is now eligible for bonus depreciation. To qualify, the property needs to be nonresidential real property, used as an integral part of the manufacturing business, needs to have been placed in service in the U.S. prior to 1/1/2031, and construction must have commenced between the dates of 1/19/2025 and 1/1/2029. The property needs to be new/original to the taxpayer claiming this depreciation.
– Section 179 limits: the new law increased section 179 limits from $1,160,000 to $2,500,000. The phase-out threshold was also raised from $2,890,000 to $4,000,000.
– Business interest expense (Sec 163j): effective 2025 with no expiration, the new law restores the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) calculation for the business interest expense limit, which is more favorable than the previous limitation calculation based on EBIT (Earnings Before Interest and Taxes).
– Tip Credit: previously only available to the food and beverage industries, the tip credit is now available to the beauty industry as well starting with 2025. The tip credit is a tax credit for FICA paid by employers on tips.
– FDII and GILTI: Beginning in 2026, the deduction percentage is reduced to 33.34% for foreign-derived intangible income (FDII) and 40% for global intangible low-taxed income (GILTI).
– BEAT: The base-erosion and anti-abuse tax (BEAT) rate is increased from 10% to 10.5%.
– Opportunity Zones: Opportunity zones provisions are made permanent, but with several changes, including narrowing the definition of “low-income community.” The changes will generally take effect in 2027.
– Charitable donations for corporations: previously, charitable deductions were capped at 10% of taxable income. The new law placed a 1% floor on corporate charitable donations/deductions and kept the existing 10% ceiling. This means that only charitable contributions above 1% of taxable income are deductible, up to the 10% ceiling.
– Clean energy and IRS credits: Several clean energy credits from the Inflation Reduction Act (IRA) are now terminated with the new law.
AREAS OF IMPACT – INDIVIDUALS
– Individual Income Tax Rates: The new law generally makes the tax rates enacted in 2017 in the Tax Cuts and Jobs Act (TCJA) permanent. An additional year of inflation adjustment is added for determining the dollar amounts at which the 12% rate bracket ends and the 22% rate bracket begins. The seven tax brackets are as follows: 10%, 12%, 22%, 24%, 32%, 35% and 37% for tax years after 2025.
– Standard deduction: Effective for 2025, the amounts are as follows (all indexed for inflation):
- Single & Married Filing Separately: $15,750
- Head of Household: $23,625
- Married Filing Jointly: $31,500
– Personal exemptions: the new law permanently eliminates personal exemptions.
– Child Tax Credit (CTC): The nonrefundable child tax credit increases to $2,200 per child (up from $2,000) beginning in 2025, and the credit amount is indexed for inflation.
– Other Dependent Credit: previously, this credit was set to expire after 2025. The new law makes this credit permanent at $500 per qualifying dependent. Dependents who qualify for this credit are typically older children and elderly parents – individuals who would not qualify for the child tax credit.
– Estate & gift tax exemption: The increased exemption is made permanent and raised to $15 million per individual ($30 million for married couples) in 2026, indexed for inflation.
– Home mortgage interest: The new law permanently extends the TCJA’s mortgage interest limitation of $750,000 in acquisition debt. It also makes permanent the exclusion of interest on home-equity indebtedness from the definition of qualified residence interest, but please note that debt from home improvements is still considered home acquisition debt and interest on this is still deductible.
– Home mortgage insurance premiums: The bill also treats certain mortgage insurance premiums on acquisition indebtedness as qualified residence interest, effective for tax years beginning after December 31, 2025.
– Casualty loss deduction for personal casualties: previously, personal casualty losses could only be taken in federally-declared disaster areas. This limitation on personal casualty loss deductions is made permanent, however a provision is added to include state-declared disasters.
– Miscellaneous itemized deductions: the new law permanently terminates these deductions.
– Pease Limitation (phase out for itemized deductions in the 37% tax bracket): previously suspended with the Tax Cuts & Jobs Act and set to be reinstated in 2026, the new law permanently repeals the Pease limitation phase out. Itemized deductions for taxpayers in the 37% tax bracket will still be subject to a phase out, but it will be a much simpler calculation designed to allow more itemized deductions and fewer dollars subject to phase-outs.
– Moving expenses: the new law terminates this deduction for everyone other than those in the Armed Forces.
– Wagering losses: previously, wagering/gambling losses were only deductible to the extent of winnings. The new law makes this limitation permanent, and also further limits losses to 90% of the total losses to the extent of winnings.
– Charitable deduction for non-itemizers (cash only): this bill will allow individuals to take certain charitable deductions up to $2,000 (MFJ) even if they are not itemizing, effective starting with tax year 2026.
– No tax on tips and overtime: For 2025–2028, above-the-line deductions are created for qualified tips (in certain occupations) and for overtime premium pay, subject to income and occupation limitations. This deduction is limited to $25,000 for tips and $12,500 for overtime per taxpayer, and the IRS will publish a list of the accepted occupations.
– Enhanced deduction for seniors: For 2025–2028, a $6,000 deduction is available for seniors (age 65+) with income below $75,000 ($150,000 for joint filers).
– No tax on car loan interest: effective 2025-2028, the new law allows deductions of up to $10,000 in car loan interest, subject to phase outs. This will be an above-the-line deduction, meaning it will be available to taxpayers regardless of whether they itemize. Note – this must be for a US-assembled vehicle with the vehicle serving as security for the loan.
– Adoption Credits: the new law made up to $5,000 of adoption credits refundable.
– 529 plan qualified expenses: the new law expanded the definition of qualified expenses to include elementary, secondary, post-secondary credentialing, and home school expenses.
– Creation of Money Account for Growth Advancement (MAGA): this is a new type of tax-preferred savings account that can be set up for children under 18. Treated as a Traditional IRA, it is proposed that the funds in this account can be used for higher education or first-time home buying, and the US government would deposit $1,000 into each account for eligible children born between 2025 and 2028. Please note that the final version of the law that passed stated that further refinements to this would need to be established before finalized/executed, so this is still in process and in the development phase.
– SALT deduction cap: The state and local tax (SALT) deduction cap is increased to $40,000 per household (previously $10,000) and would be phased out for taxpayers with modified adjusted gross income (MAGI) over $500,000. This will be adjusted for inflation. In 2030, the deduction will revert to $10,000.
OTHER CONSIDERATIONS
As outlined above, the new law includes a variety of tax changes affecting both individuals and businesses. We hope this summary serves as a helpful starting point in identifying any potential implications for you personally. If you have questions about how any of the provisions may apply to you or your business, please don’t hesitate to contact us and we will be happy to take a closer look at your specific situation.