President Trump signed the One Big Beautiful Bill Act ("OB3") into law on July 4, 2025. This extended and/or made permanent many provisions of the Tax Cuts & Jobs Act of 2017 ("TCJA") and created some new laws and opportunities for taxpayers.
Read on to stay informed of the highlights of some of these changes.
Many provisions of the new law are effective for the 2025 tax year while some begin in 2026. If not otherwise noted, the change begins in tax year 2025.
Additionally, when referencing limits for various filers we may use “single” for brevity, but the same limits apply to head of household and married filing separately.
Business Changes
20% Pass-through Deduction - Permanent
The 20% pass-through deduction for Partnerships and S corporations is now permanent. This allows many businesses to only pay income tax on 80% of their profits.
100% Bonus Depreciation - Permanent
100% bonus depreciation is now permanent and applies to all property acquired and placed into service after 1/19/2025. This allows taxpayers to write off the full cost of many capitalized assets in the year acquired, regardless of whether the assets are new or used, and whether they are paid for in cash or with financing.
R&D Expensing is Back
Domestic research costs can again be expensed in the current year rather than deducted over a 5-year period for all U.S. taxpayers.
Remaining capitalized amounts from 2022 – 2024 can be expensed in 2025 (or 2025 and 2026) for “small business taxpayers” (businesses with average gross receipts of less than $31M over prior 3 years).
Optionally, those small business taxpayers may amend the prior 3 years of returns to take R&D deductions in those periods rather than 2025 and 2026 (guidance is still needed to implement the prior year strategy).
Qualified Small Business Stock ("QSBS", or §1202 Stock) - Benefits Expanded
The capital gain exclusion for certain C corporation stock has been enhanced for QSBS issued or acquired after 7/4/2025 from $10M or 10x the basis in the stock (whichever is higher) to $15M.
Previously, the benefit was limited to 5 year holding periods. For QSBS acquired after 7/4/2025, a 50% gain exclusion applies to 3 year holding periods, 75% to 4 year, and 100% to 5 years or more.
This is going to make choice of entity type for newly formed businesses a much more nuanced consideration going forward.
New - 100% Special Depreciation Allowance for Certain Real Property
Qualified Production Property (“QPP”) - OB3 created a new 100% special depreciation allowance for certain nonresidential real property placed in service after 7/4/2025.
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- Property must be an integral part of a qualified production activity whose construction began after 1/19/2025 and is placed in service after 7/4/2025.
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- A qualified production activity is the manufacturing, production, or refining of a qualified product.
- The portion of the real property used for offices, administrative services, sales, or other functions unrelated to manufacturing, production, or refining of tangible personal property do not qualify for QPP bonus depreciation.
- The Form 1099 reporting threshold is now $2,000 and will be inflation-adjusted in later years. This applies to payments made after 12/31/2025, so it will not affect 1099 reporting until January 2027 when 2026 forms are being issued.
Individual Changes
Current Tax Brackets - Permanent
- The individual tax bracket structure and standard deduction that was created in the TCJA is now permanent, which prevents rate increases to 2017 levels.
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Estate and Gift Exclusions - Permanently Increased
- The lifetime estate and gift exclusion has been permanently increased to $15 million beginning in 2026. The 2025 exemption is $13.99M.
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State and Local Deduction - Increased
- State and Local Tax Deduction: the maximum deduction for single and joint filing statuses is $40,000 starting for tax year 2025.
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- However, after $500,000 of modified adjusted gross income ("MAGI"), the maximum deduction starts phasing out until $600,000 of MAGI when it is limited to $10,000. This provision expires after 2029, at which point it will go back to the 2018-2024 maximum deduction of $10,000 for all filing statuses.
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New - Tips Deduction
This is for individuals who work in an occupation that customarily and regularly received tips on or before 12/31/2024.
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- These individuals can deduct up to $25,000 per year in tip income starting in tax year 2025.
- It is an "above the line deduction" so the individual does not have to itemize their deductions to use this provision.
- After $150,000 (single, HOH, married separate) or $300,000 (joint) of MAGI, the deduction starts phasing out.
The loan must have begun after 12/31/24 and the vehicle's final assembly must have occurred within the USA. The deduction is up to $10,000 but begins to phase out when MAGI exceeds $100,000 for single filers or $200,000 for joint filers, and is eliminated entirely at MAGI of $150,000 or $250,000, respectively. It is an "above the line deduction" so the individual does not have to itemize their deductions to use this provision
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529 Plan Benefits - Expanded
- The annual limit for using 529 plan assets for K-12 expenses has increased to $20,000 starting in 2026.
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- Qualified expenses now include non-tuition costs such as books, fees, curriculum materials, AP exams, college admission exams, etc. For post-secondary students, funds can now be used for credentialing, including tuition, fees, books, etc. for credentialing programs. Credentials include industry-recognized certificates or licenses, apprenticeship completion certificates, occupational or professional licenses, etc.
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Green Tax Credits - Terminated
- The previously owned clean vehicle credit is terminated for vehicles acquired after 9/30/2025.
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- The energy efficient home improvement credit (ex. windows, doors, etc.) and the residential clean energy credit (ex. solar panels, geothermal, etc.) are terminated for property placed in service after 12/31/2025.
Changes effective in 2026
- Gambling Losses - Limited
- Taxpayers can only deduct 90% of their wagering losses during the tax year, up to the total amount of gains.
- The losses remain an itemized deduction.
- New - Trump Accounts
- This is a tax-deferred savings account intended for individuals under 18.
- The Treasury will contribute $1,000 for US citizens born after 12/31/24 and before 1/1/2029.
- Annual contributions are capped at $5,000 per beneficiary; contributions are not permitted until 7/4/2026.
- Charitable Contributions - Adjusted
- Taxpayers who take the standard deduction can now deduct charitable contributions up to $1,000 for single filers or $2,000 if filing joint as an "above the line deduction."
- For individuals, there is now a 0.5% AGI floor on itemized charitable contributions. Only the amount contributed that exceeds 0.5% of your AGI is deductible.
- For corporations, there is now a 1% taxable income floor on deductible charitable contributions in addition to the (already existing) 10% taxable income limit.
- Qualified Opportunity Zones (QOZ) - Permanent
- The Act makes QOZ permanent beginning 1/1/2027. This provision does not impact the prior QOZ program or the required gain recognition.
- Itemized Deduction - Limited
- Taxpayers in the 37% bracket will see their itemized deductions reduced which effectively limits the benefit of itemized deductions for high-income taxpayers to 35% rather than 37%.
- Dependent Care Exclusion - Increased
- This applies to taxpayers whose employers pay for dependent care expenses. Previously taxpayers could exclude income related to employer-provided dependent care benefits up to $5,000 per year; for 2026 and beyond it is increased to $7,500 per year.