On July 4, 2025, H.R.1, also known as the “One Big Beautiful Bill” was signed into law. This budget reconciliation bill permanently extends the 2017 Tax Cuts and Jobs Act (TCJA) provisions and introduces new tax incentives for 2025 and beyond. Below are the key tax changes and TCJA extensions. Please see the enclosed handouts below prepared by the AICPA for additional changes.
1. Tax Brackets
The bill makes permanent the individual income tax rates established by the 2017 Tax Cuts and Jobs Act (TCJA). These rates remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. For 2025, the 37% bracket applies to taxable income above $626,350 for single filers and $751,600 for married couples filing jointly.
2. Standard Deduction
The TCJA’s doubled standard deduction is made permanent and increased for 2025. The new amounts are:
- Single filers: $15,750 (up from $15,000 in 2024)
- Married couples filing jointly: $31,500 (up from $30,000)
- Heads of household: $23,625 (up from $22,500)
These amounts will continue to adjust for inflation annually. For those over 65 or blind, an additional standard deduction of $2,000 (single) or $1,600 (joint) applies.
3. State and Local Tax (SALT) Deduction Limitation
The SALT deduction cap, previously set at $10,000 under the TCJA, has been raised to $40,000 starting in 2025. This cap applies to itemized deductions for state and local property, income, or sales taxes. The $40,000 limit will increase by 1% annually through 2029, after which it reverts to $10,000 in 2030. However, for high earners with modified adjusted gross income (MAGI) above $500,000 ($250,000 for single filers), the deduction phases out at a rate of 30% for every dollar over the threshold, down to a minimum of $10,000.
4. Qualified Business Income (QBI) Deduction
The QBI deduction, introduced under the 2017 Tax Cuts and Jobs Act (TCJA), allows eligible taxpayers to deduct a portion of their qualified business income from pass-through entities (e.g., sole proprietorships, partnerships, S corporations, LLCs). H.R. 1 extends this deduction:
- Deduction Rate Maintained: The QBI deduction remains at 20% of QBI, consistent with current law, for tax years beginning after December 31, 2024.
- Permanent Extension: The QBI deduction, previously set to expire after 2025, is now permanent, ensuring long-term tax planning stability.
- Eligibility and Limitations:
- Applies to qualified business income from domestic businesses, including income from sole proprietorships, rentals, farming, or pass-through entities.
- For taxpayers with taxable income above $223,590 (single) or $447,180 (joint) in 2025, phase-ins apply for specified service trades or businesses (SSTBs, e.g., law, accounting, consulting), and limitations based on W-2 wages or capital investment may reduce the deduction.
- The deduction is capped at 50% of W-2 wages or 25% of wages plus 2.5% of unadjusted basis of qualified property for high-income taxpayers.
5. Itemized Deduction Limitation
The TCJA eliminated the Pease limitation on itemized deductions, and H.R. 1 introduces a new limitation for high earners. For taxpayers in the 37% tax bracket (taxable income above $626,350 single/$751,600 joint), itemized deductions are reduced by 2/37 of the lesser of:
- The amount of the itemized deductions (e.g., mortgage interest, charitable contributions)
- The amount of the taxpayer’s taxable income that exceeds the start of 37% tax rate bracket
6. Child Tax Credit
The Child Tax Credit has been enhanced for 2025, offering increased support for families with qualifying children. Key details include:
- Increased Credit Amount: The nonrefundable Child Tax Credit rises to $2,200 per qualifying child (up from $2,000 in 2024). This credit applies to children under 17 who meet IRS dependency requirements.
- Income Phaseouts: The credit begins to phase out for modified adjusted gross income (MAGI) above $200,000 for single filers and $400,000 for married couples filing jointly, reducing by $50 for every $1,000 above the threshold.
- Inflation Adjustments: Both the credit and refundable amounts will be indexed for inflation annually.
7. Above-the-Line Charitable Deduction
The bill reinstates and modifies the above-the-line charitable deduction, making it easier for taxpayers to benefit from charitable giving without itemizing deductions. Key details include:
- Deduction Amount: Taxpayers can deduct up to $1,000 for single filers or $2,000 for married couples filing jointly for cash contributions to qualifying charitable organizations (as defined under IRC Section 170(c)). Donations to donor-advised funds, supporting organizations, or private foundations do not qualify.
- Availability: This deduction is available to all taxpayers, whether you take the standard deduction or itemize, making it a valuable option for the approximately 90% of taxpayers who do not itemize.
- Temporary Provision: The deduction is effective for 2025 through 2028 and will not be indexed for inflation.
- Limitations: Contributions must be made in cash (not property) to IRS-approved public charities (e.g. IRC Section 501(c)(3) entities).
8. Section 179 Deduction Limit Increase
The Section 179 deduction allows businesses to deduct the full purchase price of qualifying equipment, vehicles, machinery, and software placed in service during the tax year, rather than depreciating over time. H.R. 1 increases the deduction limit for 2025, making it more valuable for small and mid-sized businesses:
- Maximum Deduction: The deduction cap is raised to $2,500,000 (up from $1,250,000 in 2024) for qualifying property placed in service after December 31, 2024.
- Eligible Property: Includes new and used equipment, off-the-shelf software, certain vehicles (e.g., heavy SUVs over 6,000 lbs. GVWR, up to $31,300), and qualified improvement property (e.g., nonresidential roofs, HVAC, fire alarms, security systems).
- Limitations: The deduction cannot exceed your business’s taxable income, but any disallowed amount can be carried over to 2026. Note that some states may not fully conform to federal limits, so state-specific rules will apply.
9. Bonus Depreciation
Bonus depreciation allows businesses to deduct a percentage of the cost of qualifying assets (new or used equipment, software, and certain real property) in the year they are placed in service, with the remainder depreciated over time. H.R. 1 reinstates and enhances this provision:
- 100% Deduction Restored: For qualified property acquired and placed in service after January 19, 2025, businesses can deduct 100% of the cost in the first year, making this provision permanent. This reverses the prior phase-down to 40% for 2025.
- Transitional Rule: For property acquired before January 19, 2025, but placed in service in a tax year ending after that date, taxpayers can elect to use the reduced percentages (e.g., 40% for 2025).
- No Income Limit: Unlike Section 179, bonus depreciation can create a net loss, making it valuable for businesses with significant capital investments.
- Application: IRS rules require applying Section 179 first, followed by bonus depreciation. This combination can maximize deductions, especially for purchases exceeding the Section 179 threshold.
10. Gift and Estate Tax Exemption
- What Was the Exemption Before?
- Under the Tax Cuts and Jobs Act (TCJA) of 2017, the federal estate, gift, and generation-skipping transfer (GST) tax exemption was temporarily doubled. For 2025, the exemption was set at $13.99 million per individual (approximately $27.98 million for married couples), adjusted for inflation. However, these increased exemptions were scheduled to sunset on January 1, 2026, reverting to approximately $7 million per individual (inflation-adjusted from 2011 levels).
- What Is the Exemption Now?
- Under H.R.1, effective January 1, 2026, permanently increases the federal estate, gift, and GST tax exemption to:
- $15 million per individual
- $30 million for married couples
These amounts will be adjusted annually for inflation, providing long-term certainty for estate planning. Unlike the TCJA, the OBBBA exemptions have no expiration date, eliminating the need for rushed gifting strategies before a potential sunset. For those who have already utilized their 2025 exemption, an additional $1.01 million per individual will become available in 2026.
11. Energy Credits Repealed
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, repealed or modified several energy-related tax credits established under the Inflation Reduction Act (IRA). Below is a summary of the energy credits affected:
- Terminated after 9/30/2025
- Previously-owned Clean Vehicle Credit-25E
- New Clean Vehicle Credit-30D
- Repealed for EV’s acquired after 9/30/2025. This eliminates the $7,500 tax credit for new electric vehicles.
- Commercial Clean Vehicle Credit-45W
- Sustainable Aviation Fuel Credit-6426(k)
- Terminated after 12/31/2025
- Energy-efficient Home Improvement Credit-25C
- Residential Clean Energy Credit-25D
- This means the 30% tax credit for solar installations (and other qualifying clean energy systems) is no longer available for residential installations after that date, unless the expenses were incurred before the repeal took effect.
- Terminated after 6/30/2026
- Alternative Fuel Vehicle Refueling Credit-30C
- Energy-efficient Commercial Building Deduction-179D
- New Energy-efficient Home Credit-45L
- Clean Hydrogen Production Credit terminated after 1/1/2028-45V
Important Note: The tax provisions in the One Big Beautiful Bill Act (H.R. 1), effective for 2025, may significantly impact your tax situation depending on your income, deductions, business activities, and other factors. We strongly recommend consulting with your Nathan Wechsler tax advisor to evaluate how these changes apply to your individual circumstances for 2025 and beyond.
Please see the following handouts prepared by the AICPA, which outline key changes and planning considerations related to the final legislation:
