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September 24, 2025
Overview of the One Big Beautiful Bill (OBBB)
Congress passed, and the President signed into law, new legislation known as the One Big Beautiful Bill (OBBB) in July 2025. The legislation is broad and makes many changes at the federal level -- government operations, agencies, social programs, and of course, taxes.
In respect to taxes, the legislation extends tax provisions that were set to expire over the next 1-3 years, makes some provisions permanent, implements new provisions and eliminates others.
Before we get into the details, here are some of the key highlights for 2025:
Corporate & Business
- Corporate tax rates remain 21%
- Qualified business income deduction (QBID) is made permanent at 20% with certain changes
- Allows 100% expensing of research & experimental costs (retroactive to 2022)
- Bonus depreciation made permanent at 100% deduction for assets purchased and placed in service on or after January 20, 2025
- Increases Section 179 expensing of acquired assets to $2,500,000 and increases the phaseout threshold to $4,000,000
Individuals
- Individual tax rates remain the same
- Standard deductions made permanent at the increased amount
- Personal exemptions permanently repealed
- Child tax credit increased to $2,200 per eligible child
- Seniors aged 65+ are eligible for an additional $6,000 deduction
- Social security income continues to be taxable
- State and Local Tax (SALT) deduction increased to $40,000
- Tip income may be exempt from federal income tax; up to $25,000
- Overtime pay may be exempt from federal income tax; up to $12,500 ($25,000 if MFJ)
- Auto loan interest may be deductible on new U.S. assembled vehicles; up to $10,000
- Electric Vehicle (EV) credits are eliminated after September 30, 2025
- Solar & home energy credits are eliminated after December 31, 2025
With any tax legislation, the Treasury Department and Internal Revenue Service must review the law, explain the law, and issue rules and regulations regarding it. Due to the process, there will be some uncertainty as to the law's implementation for 1-2 years, maybe longer.
The IRS will also have to update computer systems, redesign forms and update instructions. These changes may lead to delays when filing your 2025 taxes in 2026.
Depending upon how you look at it, there are good things or bad things in the law. One thing is for sure, there is a lot of misinformation and misunderstanding about what the law does and does not do. Hopefully, this document will provide clarification.
Standard Deduction Amounts
With the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, standard deduction amounts increased substantially and were scheduled to revert to the 2017 amounts (adjusted for inflation) after 2025. The OBBB makes the increased amounts permanent.
The standard deductions for 2025 are listed in the following table --
| Filing Status | Deduction |
|---|---|
| Married Filing Jointly (MFJ) | $31,500 |
| Married Filing Separately (MFS) | $15,750 |
| Single | $15750 |
| Head of Household (HOH) | $23,625 |
The OBBB increased the SALT deduction to a maximum of $40,000. Due to this increased deduction, many people will benefit from claiming Itemized Deductions. More about Itemized Deductions later.
$40,000 SALT Limit
The 2017 TCJA limited the amount of state and local taxes deductible on Schedule A of an individual's 1040 return to $10,000. Due to this change, many taxpayers were no longer able to file Schedule A -- some taxpayers experienced tax increases while some experienced tax decreases.
The OBBB increases the SALT deduction limit to $40,000.
While the max deduction is $40,000, $30,000 of the amount is subject to being phased out based upon income. The phaseout begins when Modified Adjusted Gross Income (MAGI) exceeds $500,000 ($250,000 if MFS). The increased SALT deduction is fully eliminated when MAGI is greater than $600,000 ($300,000 MFS).
Due to the higher SALT limit, many taxpayers may find it beneficial to claim Itemized Deductions in 2025. If you are one of those taxpayers, you should document your Schedule A deductions such as charitable donations, real estate taxes, ad valorem taxes, and medical deductions.
NOTE: The increased SALT deduction is temporary and will revert to $10,000 beginning with the 2030 tax year.
$6,000 Senior Deduction
Under the OBBB, seniors 65 or older may claim a new $6,000 deduction when filing their 2025 tax return. Each taxpayer aged 65 or older may claim the deduction and as such, the maximum deduction is $12,000 when both spouses are 65 or older.
This deduction is subject to phaseout based upon income. The phaseout is 6% of Modified Adjusted Gross Income exceeding $75,000 ($150,000 in the case of a joint return). As such, the deduction is $0 when MAGI is over $175,000 ($250,000 on a joint return).
The Senior Deduction is an additional deduction. Accordingly, seniors get the Senior Deduction and the better of Itemized Deduction or Standard Deduction.
NOTE: The Senior Deduction is temporary and is scheduled to disappear after 2028. The deduction is not indexed for inflation. The Senior Deduction cannot be claimed on a married filing separately (MFS) return.
No Tax on Tips
The OBBB implements changes to the taxation of tip income and there has been a lot of misinformation about the change. It has been advertised as "No Tax on Tips"; however, it's a deduction based upon tip income and limited by total income and filing status.
Beginning with 2025, up to $25,000 of eligible tips can be deducted when calculating taxable income. Tip income greater than $25,000 remains taxable for income tax purposes.
The tip deduction is subject to being phased out based upon overall income. The phaseout begins when Modified Adjusted Gross Income exceeds $150,000 ($300,000 if MFJ). The phaseout is $100 for every $1,000 of income over the $150,000/$300,000 threshold. As such, the deduction is $0 when MAGI is greater than $350,000 ($550,000 if MFJ)
There are several things to know-
- All tip income remains taxable for Social Security/Medicare and Self-Employment purposes
- The tip deduction cannot be claimed on a Married Filing Separately (MFS) return
- The tip deduction is available only to certain professions/jobs (see listing)
- The $25,000 deduction is per return.
NOTE: The tip income deduction is temporary and is scheduled to disappear after 2028.
No Tax on Overtime
The OBBB implements changes to the taxation of overtime pay and there has been a lot of misinformation about this tax provision. It has been advertised as “No Tax on Overtime”; however, it is a deduction based upon overtime pay, total income and filing status.
Another bit of confusion is the meaning of "overtime pay". For the deduction, overtime pay is the extra hourly rate paid when working more than 40 hours per week. Typically, the Fair Labor Standards Act requires time and a half for each hour worked over 40 hours per week. Overtime pay is the ½ portion of “time and a half”.
For instance, if the regular hourly rate is $20, the overtime rate would be $30, and overtime pay would be $10 per hour.
Beginning with 2025, up to $12,500 of overtime pay ($25,000 on a joint return) can be deducted when calculating taxable income. Any overtime income greater than the deductible amount remains taxable for income tax purposes.
Like many other provisions, the deductible amount is subject to phaseout based upon overall income. The phaseout is $100 for every $1,000 of Modified Adjusted Gross Income exceeding $150,000 ($300,000 if MFJ). As such, the deduction is $0 when MAGI is greater than $275,000 ($550,000 joint return)
There are several things to know-
- Overtime pay remains taxable for Social Security & Medicare purposes
- The overtime deduction cannot be claimed on a Married Filing Separately (MFS) return
- Employers will need to track and report the amount of eligible overtime pay for each employee
- The $12,500/$25,000 deduction is per return, not per taxpayer.
Note: The overtime income deduction is temporary and is scheduled to disappear after 2028.
No Tax on Car Loan Interest
Interest paid on vehicle loans has typically been non-deductible on individual returns. This has been the case since at least 1986.
Under the OBBB, up to $10,000 of automobile loan interest may be deductible on an individual return; however, certain rules and conditions must be met.
Here are the rules:
- The original car loan must have been signed after December 31, 2024. As such, only vehicles purchased in 2025 and later are eligible
- The vehicle loan must be on a new vehicle (used vehicles do not count)
- The vehicle must be used as collateral for the loan and there must be a first lien on the vehicle
- The vehicle must be for personal, non-commercial use
- The vehicle must be a car, minivan, van, sport utility vehicle, pickup truck or motorcycle
- The vehicle must have a gross vehicle weight rating of less than 14,000 pounds
- The vehicle must have had final assembly within the United States (foreign assembled vehicle do not qualify)
The vehicle interest deduction is subject to phaseout based upon income and filing status. See the following table for information --
| Filing Status | Income Range | Deduction |
|---|---|---|
| MFJ | Income less than $200,000 | Up to $10,000 |
| Income over $200,000 and under $250,000 | Phaseout range | |
| Income over $250,000 | $0 | |
| All Others | Income less than $100,000 | Up to $10,000 |
| Income over $100,000 and under $150,000 | Phaseout range | |
| Income over $150,000 | $0 |
Note: The car loan interest deduction is temporary and is scheduled to disappear after 2028.
Electric Vehicle Credits Terminated
Under the Inflation Reduction Act (IRA) of 2022, buyers have been eligible for tax credits on the purchase of certain new and used electric vehicles -- new vehicles are eligible for up to $7,500 and used vehicles are eligible for up to $4,000.
OBBB terminates the EV credit for vehicles purchased after September 30, 2025.
While buyers must sign a binding agreement to purchase and make a downpayment by September 30th, a recent Treasury ruling states that buyers can take delivery after September 30th and still receive the credit.
If you are planning to purchase an electric vehicle and want the EV credit, time is running out.
Note: EV credits go away after September 30, 2025.
Home Energy Credits Terminated
There have been several programs under which homeowners could receive tax credits for making energy improvements to their homes. Examples of these programs include switching to electric heat pumps, electric ranges, heat pump water heaters, solar panels, and more.
The OBBB terminates these credits after December 31, 2025.
If you have been planning to make energy improvements to your home and want to receive tax credits, time is running out. Improvements must be completed and placed in service by December 31, 2025.
Note: Home energy credits go away after December 31, 2025.
Bonus Depreciation
Businesses are allowed to depreciate fixed assets purchased and placed into service. Over the last 10-20 years, “bonus” depreciation has regularly been allowed on certain assets. The bonus depreciation rate would typically be set at 100% in one year and then be reduced by 20% in each following year. For 2025, the rate was scheduled to be 40%.
OBBB restores bonus depreciation to 100% and makes it permanent.
Fixed assets eligible for bonus depreciation are generally furniture, equipment, computers and other assets with a depreciable life of 7 years or less.
Note: 100% bonus depreciation is available for assets purchased and placed into service on or after January 20, 2025.
Increased Section 179 Asset Expensing Limit
Under section 179 of the tax code, businesses may expense certain fixed assets instead of claiming depreciation (bonus or regular). Section 179 has a maximum annual limit that is subject to phaseout based upon total assets placed into service.
The OBBB dramatically increases the amount of assets that can be expensed under section 179. The new limit is $2,500,000 (up from $1,250,000) and the phaseout threshold is $4,000,000.
Child and Dependent Tax Credit
The OBBB increases the child tax credit to $2,200 from $2,000 per child. The maximum refundable amount is $1,700.
The OBBB did not adjust the other dependent credit; it remains $500.
Tax Planning
The items presented above are just some of the changes beginning with 2025. If you have questions about your specific tax situation, we are available to discuss them with you.
There are tax code changes that will begin with the 2026 tax year. If you have questions or concerns about the 2026 changes, we can discuss them with you.
The 2025 and 2026 changes may provide tax planning opportunities for individuals and businesses. Timing is important when performing tax planning. Typically, actions must be taken in 2025 to receive a 2025 tax benefit.
If you are interested in maximizing your tax savings, we are available to review your tax situation and provide options that could benefit you in 2025 and 2026.
Call us at (678) 919-1250 or send us a message using the Contact form.