Subscribe now

The final version of the OBBA extends the expiring individual and corporate tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA), provides new temporary tax provisions that Trump promised during the campaign, makes changes to business and international taxes, and reduces energy tax credits.

Key provisions in the OBBA include:

Individual Tax Provisions

• Makes TCJA rates permanent: The OBBA makes the TCJA rate and bracket changes permanent. The rate reductions were scheduled to expire at the end of 2025.

• Maintains limits on itemized deductions: The law maintains the limits on itemized deductions for high earners.

• Increases standard deduction: The law permanently increases the standard deduction by $750 to $15,750 for individuals, by $1,125 to $23,625 for heads of household, and by $1,500 to $31,500 for joint filers, all beginning in 2025. Amounts are then indexed for inflation.

• Eliminates personal exemption: The law makes permanent the personal exemption elimination enacted by the TCJA.

• Increases SALT deduction limit for five years: The law increases the limit on state and local tax deductions (SALT) from $10,000 to $40,000 for taxpayers earning up to $500,000. After five years, the limit returns to $10,000.

• Pass-Through Entity Tax (PTET) deduction: The OBBA did not include any changes to the PTET deduction.

• Increases and makes permanent the child tax credit: The law permanently increases the child tax credit by $200 to $2,200 per child, with the refundable portion remaining at $1,700.

• Temporarily makes overtime pay deductible: The law allows a deduction of up to $12,500 for overtime pay for taxpayers with incomes of less than $150,000 for tax years 2025 through 2028. Base pay would remain taxable.

• Temporarily makes tips deductible: The OBBA allows a deduction for tipped wages of up to $25,000 per taxpayer for tax years 2025 through 2028. An income phase out begins at $150,000. This applies to taxpayers in customarily tipped industries.

• Increases standard deduction for seniors: The law increases the standard deduction for seniors by $6,000 subject to an income limitation for tax years 2025 through 2028. An income phase out begins at $75,000.

• Temporarily makes auto loan interest deductible: The law makes the interest from auto loans fully deductible for tax years 2025 through 2028 for autos with final assembly in the United States. The deduction would be limited to $10,000 with an income phase out beginning at $75,000.

• Repeals individual energy credits: The law repeals energy tax credits for individuals, including the electric vehicle tax credit and the residential energy efficiency credits in the Inflation Reduction Act (IRA).

• Increases passthrough deduction: The law permanently extends the Section 199A passthrough deduction at 20%. It also increases the phase-in range for the limit to $75,000 for individuals and $150,000 for joint filers. There is a new $400 deduction for taxpayers with qualifying income of at least $1,000.

• Permanently extends alternative minimum tax thresholds: The law extends the TCJA exemption and phaseout threshold for the alternative minimum tax (AMT). The phaseout is set at $1 million in 2026 and adjusted for inflation thereafter with a phase out rate of 50%.

Estate Tax Provisions

• Increases estate tax exemption: The OBBA increases the estate tax exemption to $15 million beginning in 2026 and make it adjusted for inflation for subsequent years.

Business Tax Provisions

• Permanently allows immediate R&E expensing: The law permanently allows business taxpayers to fully expense Section 174 domestic research and experimental (R&E) expenditures in 2025 or later. This reverses the requirement to capitalize and amortize them over five years.

• Increases small business expensing: The law increases the Section 179 Small Business Expensing Cap from $1.25 million to $2.5 million per year. It also increases the phase-out threshold from $3.1 million to $4 million.

• Allows bonus depreciation permanently: The law permanently allows 100% bonus depreciation for short-lived investments in 2025 or later. Bonus depreciation has been subject to a phase-down since 2022.

• Reinstates EBITDA interest deduction limit: The bill would restore EBITDA-based limitation on business interest deductions under Section 163(j) for 2025 and later.

• Reduces corporate charitable deduction: The law allows deductions for corporate charitable contributions only to the extent that contributions exceed 1% of a corporation’s taxable income. This begins in 2026.

• Increases 1099-MISC reporting threshold for payments: The law increases the reporting threshold for Form 1099-MISC from $600 to $2,000 for payments in 2025 and after. The law also increases the threshold for Form 1099-K at $20,000 and 200 transactions.

• New Bonus Depreciation for Qualified Production Property: The law implements a new Section 168(n), which allows an elective 100% depreciation deduction for qualified production property (QPP) acquired between January 20, 2025 and the end of 2028 and placed in service by the end of 2030.

• Expands Qualified Small Business Stock (QSBS): The law expands Section 1202 QSBS stock acquired after July 4, 2025 through a tiered system of requirements to hold the stock.

Energy Tax Credits

• Phases out major clean energy tax credits: The law phases out clean energy tax credits.

International Tax Provisions

• Permanently increases GILTI deduction: The law increases the global intangible low taxed income (GILTI) deduction to 40%, replacing the scheduled post-2025 reduction to 37.5%. The law also modifies the GILTI calculation.

• Increases FDII deduction: The law increases the foreign-derived intangible income (FDII) deduction to 33.34%, replacing the scheduled post-2025 reduction to 21.875%. The bill would also rename the FDII “foreign-derived deduction eligible income” (FDDEI). The law also modifies the FDII calculation.

• Increases BEAT rate: The law also increases the base erosion and anti-abuse tax (BEAT) rate from the current 10% to 10.5%, avoiding the scheduled increase to 12.5% after 2025. It also makes permanent the treatment of research and other credits in calculating BEAT.

• New 1% tax on remittances: The law imposes a new 1% excise tax on certain remittance transfers, effective January 1, 2026.

Read more

Subscribe now

Like the House bill, the Senate version extends the expiring tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA), makes changes to corporate and international taxes, and reduces…

Read more

Subscribe now

The House passed the bill by a vote of 215-214-1, with Republicans Thomas Massie of Kentucky and Warren Davidson of Ohio voting with Democrats against the bill. Andy Harris of Maryland, the leader of the House Freedom Caucus, voted present. Andrew Garbarino of New York and David Schweikert of Arizona missed the vote but support the bill. The bill now goes to the Senate, which is expected to make further changes. Key provisions in the House bill include:

Individual Tax Provisions

• Make TCJA rates permanent: The bill would make the TCJA rate and bracket changes permanent.

• Maintain limits on itemized deductions: The bill proposes to maintain the limits on itemized deductions for high earners.

• Increase standard deduction: The bill would increase the standard deduction by $1,000 to $16,000 for individuals, by $1,500 to $24,000 for head of household filers, and by $2,000 to $32,000 for joint filers through the end of 2028.

• Eliminate personal exemption: The bill would make permanent the personal exemption elimination enacted by the TCJA.

• Increase SALT deduction limit: The bill would increase the limit on state and local tax deductions (SALT) from the current $10,000 to $40,000 for incomes up to $500,000. The cap is reduced to $10,000 at a 30% rate for taxpayers with incomes of more than $500,000. The thresholds for the cap and income will increase 1% each year over 10 years.

• Revise Pass-Through Entity Tax (PTET) deduction: The bill would eliminate the PTET deduction for Specified Service Trades or Businesses (SSTBs), which include such professions as law, accounting, and medicine. Qualified trades or businesses would still be allowed to use the PTET as a workaround of the federal SALT $10,000 cap.

• Increase the child tax credit: The bill would increase the child tax credit by $500 to $2,500 per child for 2025 through 2028. The maximum credit would be inflation adjusted after 2028, making the credit permanent.

• Temporarily make overtime pay deductible: The bill would allow a full deduction for overtime pay for taxpayers with incomes of less than $160,000. Base pay would remain taxable. This would be available from 2025 through 2028 and exclude highly compensated employees and certain tips.

• Temporarily make tips deductible: The bill would allow a full deduction for tipped wages for incomes of less than $160,000 for tax years 2025 through 2028. This would apply to individuals in customarily tipped industries.

• Temporarily increase standard deduction for seniors: The bill would increase the standard deduction for seniors by $4,000 to $19,000 for tax years 2025 through 2028. The deduction would phase out according to income.

• Temporarily make auto loan interest deductible: The bill would make the interest from auto loans fully deductible for tax years 2025 through 2028 for autos with final assembly in the United States. The deduction would be limited to $10,000 and would phase out according to income.

• Repeal individual energy credits: The bill would repeal energy tax credits for individuals, including the electric vehicle tax credit and the residential energy efficiency credits in the Inflation Reduction Act (IRA).

• Alternative minimum tax: The bill would extend the TCJA exemptions for the alternative minimum tax (AMT).

• Increase passthrough deduction: The bill would increase the Section 199A passthrough deduction for qualified business income (QBI) from 20% to 23%.

Estate Tax Provisions

• Increase estate tax exemption: The bill would increase the estate tax exemption to $15 million beginning in 2026 and make it adjusted for inflation for subsequent years.

Business Tax Provisions

• Temporarily allow immediate R&D expensing: The bill would allow business taxpayers to fully expense Section 174 domestic research and development (R&D) costs in the year they occur for tax years 2025 through 2029.

• Increases small business expensing: The bill would increase the Section 179 Small Business Expensing Cap from $1.25 million to $2.5 million per year. The bill also increases the phase-out threshold from $2.5 million to $4 million.

• Temporarily allow bonus depreciation: The bill will allow 100% bonus depreciation for short-lived investments from 2025 through 2029.

• Temporarily reinstate EBITDA interest deduction limit: The bill would restore EBITDA-based limitation on business interest deductions under Section 163(j) from 2025 through 2029.

• Temporarily allow 100% expensing of qualifying non-residential structures: The bill would allow 100% expensing of qualifying non-residential structures in manufacturing, extraction, and agriculture sectors, with certain begin construction and placed in service requirements. This would apply from 2025 to 2028.

• Reduces corporate charitable deduction: The bill would allow a corporate deduction for charitable contributions only to the extent that contributions exceed 1% of a corporation’s taxable income.

• Increase 1099-MISC reporting threshold for payments: The House bill would repeal the $600 reporting threshold for Form 1099-K, reverting to the previous threshold of $20,000 and 200 transactions. The bill would also increase the 1099-MISC reporting threshold for payments to an independent contractor or subcontractor from $600 to $2,000.

Energy Tax Credits

• Repeal major clean energy tax credits: The bill repeals and phases out clean energy tax credits. This includes various production tax credits and investment tax credits for clean electricity, nuclear electricity, and hydrogen.

International Tax Provisions

• Permanently increase GILTI deduction: The bill would increase the global intangible low taxed income (GILTI) deduction to 49.2% after 2025. This replaces the scheduled post-2025 reduction to 37.5%.

• Increase FDII deduction: The bill would increase the foreign-derived intangible income (FDII) deduction to 36.5%. This replaces the scheduled post-2025 reduction to 21.875%.

• Decrease BEAT rate: It would also increase the base erosion and anti-abuse tax (BEAT) rate from the current 10% to 10.1%, avoiding the 12.5% scheduled to take effect in 2026.

• Implement retaliatory measures against “unfair taxes”: The bill would implement Section 899, which allows the government to impose retaliatory taxes up to 20% against countries, individuals, and entities of countries that have enacted any “unfair foreign tax.” This would be effective January 1, 2026.

Read more

Read more

Read more