We want to bring your attention to several significant tax law changes included in the newly passed “One Big Beautiful Bill Act” (OBBBA). This sweeping legislation makes permanent many of the provisions originally enacted under the Tax Cuts and Jobs Act (TCJA) of 2017, but it also introduces a complicated landscape of new deductions and changes to existing exemptions and credits.
As always, your team at SBZK is working to advocate for the best tax outcomes and will be utilizing year-end tax planning strategies to maximize tax savings allowed under our ever-evolving tax code. But given the complexity of the new law and the nuance of some of its most telegraphed changes, we wanted to share a brief summary of the most impactful provisions that may affect your individual and business tax planning going forward.
We encourage you to review these highlights and reach out with any questions about how they may apply to your specific situation. Please note that tax implications and their planning recommendations will vary, and many of these changes may be modified or further clarified as the legislation gets implemented.
Individual Tax Rate Cuts & Standard Deduction Increase
Under the Tax Cuts and Jobs Act (TCJA), marginal tax rates for all tax brackets above 10% were reduced, and the standard deduction was nearly doubled—but these were set to expire after 2025. The OBBBA makes these provisions permanent:
- Tax rate cuts: Prevents a reversion to higher pre-TCJA tax brackets starting in 2026, capping the maximum federal tax bracket at 37% vs. 39.6%.
- Standard deduction: Maintains higher deductions, reducing taxable income for most households and relegating the burden of itemizing deductions to those taxpayers with larger expense outlays.
Estate and Gift Tax Lifetime Exemption Set at $15M for 2026 (Inflation-Adjusted Thereafter)
Without intervention, the lifetime estate and gift exemption would have dropped from ~$14M in 2025 to ~$7M in 2026. The OBBBA sets the exemption at $15M:
- High-net-worth individuals can now continue to transfer significant wealth with minimized or no estate/gift tax.
- Adjusted for inflation annually starting in 2027, this provision provides greater long-term planning certainty for estate and gift strategies.
Preservation of Pass-through Entity Tax (PTET)
PTET laws in states like CA and NY allow pass-through entities (e.g., partnerships and S corporations) to elect to pay state income taxes at the entity level, effectively bypassing the federal State and Local Tax (SALT) cap:
- Despite OBBBA increasing the SALT cap to $40K, many high-income taxpayers will still be limited by income thresholds and deduction caps that apply for incomes above $500,000.
- The PTET remains a crucial tool for maximizing state tax deductions and reducing federal taxable income.
New Limitation on Deduction for Charitable Contributions
Beginning in 2026, only the portion of an individual’s total charitable contributions in excess of 0.5% of modified AGI is deductible as an itemized deduction. Corporations are subject to a similar 1% floor.
- This new limitation may prompt charitable high-income taxpayers to accelerate contributions in 2025, through front-loading gifts, DAFs, and private foundations.
Alternative Minimum Tax (AMT) Exemption Phase-out
Although the AMT exemption levels from TCJA are preserved, the OBBBA increases the severity of the phase-out:
- High-income taxpayers are more likely to face AMT liability.
- This change partially reverses the relief provided by TCJA, though AMT overall remains less burdensome than it was pre-2018.
Qualified Business Income (QBI) Deduction Made Permanent
The 20% QBI deduction for pass-through business owners was originally scheduled to sunset after 2025. OBBBA makes it permanent:
- Eligible business owners can continue to deduct up to 20% of their qualified business income.
- OBBBA also slightly loosens the income phaseout rules for Specified Service Trades or Businesses (SSTBs), providing greater access to the deduction for professionals like doctors, lawyers, and consultants.
- Investors in certain real estate structures will continue to benefit from the 20% deduction on qualified income.
New $6,000 Senior Deduction (with Income Limits)
This is a new provision aimed at providing targeted tax relief for older adults:
- Available to taxpayers age 65 and older, with adjusted gross income below certain thresholds (details pending final IRS guidance, but you generally must be making less than $250,000).
- Meant to offset increased healthcare and retirement living expenses, further reducing taxable income for qualifying seniors.
- This provision has been messaged as “no tax on social security,” and while it offers tax relief targeted at the same demographic, social security will continue to be taxed as it has in the past.
New Car Loan Interest Deduction (with Income Limits)
OBBBA introduces a deduction of up to $10,000 in interest paid on qualifying car loans:
- Only available for autos assembled in the U.S., reinforcing domestic manufacturing.
- Subject to income limits starting at $100,000
- This marks a rare reintroduction of a personal interest deduction, which was largely eliminated by TCJA.
New Tax-Advantaged Accounts for Newborns (“Trump Accounts”)
This provision creates a government-seeded savings vehicle for newborns:
- Each child born between 2025–2028 will receive a $1,000 federal contribution.
- Families can contribute up to $5,000 annually, with tax-advantaged growth similar to Coverdell or Roth-style accounts.
- Details are pending, but funds will likely be restricted for education, housing, or retirement.
- Accounts are not likely to be available until next year.
Bonus Depreciation Reinstated to 100% for Property Acquired After 01/19/2025
Bonus depreciation was phasing out under prior law but is now restored:
- Businesses can immediately expense 100% of the cost of eligible assets (e.g., equipment, machinery, qualified improvements).
- This encourages capital investment and offers significant upfront tax savings to businesses.
Opportunity Zones (OZ) Made Permanent
Originally established by TCJA to encourage investment in economically distressed areas, OZs were set to expire:
- OBBBA creates rolling 10-year designations starting in 2027, providing new planning and investment flexibility.
- Capital gains deferrals, basis step-ups, and potential exclusions will continue to be offered to attract long-term investment.
- A major win for investors with capital gains seeking tax-efficient opportunities.
Termination of Clean Energy Credits
OBBBA eliminates or phases out many of the green energy incentives enacted in prior legislation:
- Clean vehicle credits expire on September 30, 2025.
- Home energy efficiency credits expire on December 31, 2025.
- This marks a significant policy shift and may accelerate clean energy investments in 2025 before the credits are gone.
For a more comprehensive summary of the tax provisions in the OBBBA, please refer to the list below.
- Tax Cuts & Jobs Act Extensions
- State and Local Tax Deduction
- Charitable Contribution Deduction
- Child Tax Credits
- Alternative Minimum Tax
- Itemized Deductions
- Qualified Business Income Deduction
- Deduction for Tips
- Deduction for Overtime Pay
- Senior Deduction
- Car Loan Interest Deductions
- Trump Accounts
- Child and Dependent Care
- Business Provisions Phasing Down from Tax Cuts and Jobs Act
- Other Business Provisions
- 1099 Reporting
- Qualified Small Business Stock Gain Exclusion
- Clean Energy Provisions
- International Provisions
- Administrative Provisions and Excise Taxes
Tax Cuts & Jobs Act Extensions
- Individual tax rate cuts made permanent:
Rates Under TCJA Pre-TCJA Rates 10.0% 10.0% 12.0% 15.0% 22.0% 25.0% 24.0% 28.0% 32.0% 33.0% 35.0% 35.0% 37.0% 39.6% - Standard deduction increase made permanent: 2025 set at $15,750 Single, $23,625 Head of Household, $31,500 Joint
- Personal exemption repeal made permanent
- Limitation of casualty loss deduction to federal disasters made permanent, and state declared disasters added
- Only 90% of gambling losses will be deductible and will remain limited based on gambling gains
- Estate and gift tax exemption amount set at $15 million ($30 million joint) for 2026 and adjusted for inflation thereafter
- Lower mortgage interest deduction made permanent; mortgage insurance premiums continue to qualify
- Repeal of deduction for home equity indebtedness made permanent
- Moving expense deduction permanently repealed except for Armed Forces and (new) Intelligence Community
- Allowance of rollovers from qualified tuition programs to ABLE accounts made permanent
- $40,000 adjusted for inflation at 1 percent annually through 2029 ($40,400 for 2026)
- Reverts to $10,000 in 2030
- Threshold of $500,000 MAGI – limit reduced by 30 percent of taxpayer’s MAGI in excess of threshold
- Deduction limit never reduced below $10,000
- Preservation of Pass-through Entity work around
Charitable Contribution Deduction
- New Deduction for non-itemizers up to $1,000 ($2,000 for joint)
- New 0.5% floor for individual charitable contribution deductions
- New 1% floor for corporate contribution deductions
- All changes above begin with 2026 Tax Year
- $2,200 starting in 2025; indexed for inflation after 2025
- Phase-out starts at MAGI of $200,000 ($400,000 joint)
- Social Security numbers required for children and at least one parent
- $1,400 refundable credit made permanent (indexed for inflation)
- $500 credit for other dependents made permanent
- Increase exemption phaseout threshold to $500,000 ($1 million joint) and indexed for inflation
- Maximum phase-out percentage increased to 50 percent from 25 percent
- Permanent repeal of miscellaneous itemized deductions
- Unreimbursed educator expenses can be deducted as a miscellaneous itemized deduction (includes coaches)
- Permanent repeal of overall itemized deduction limitation
- Instead of overall limit, there will be a 35% effective cap on the benefit of total itemized deductions via a new reduction of itemized deductions by 2/37ths of the lesser of:
- Amount of itemized deductions
- Amount of taxable income that exceeds start of 37% tax bracket
Qualified Business Income Deduction
- Made permanent at 20 percent
- Phase-out at $75,000 (up from $50,000), $150,000 joint for Specified Service or Trade Business
- $400 inflation adjusted minimum with at least $1,000 of QBI
- Above-the-line deduction for tax years 2025 through 2028
- Up to a maximum of $25,000
- Phase-out at MAGI of $150,000 ($300,000 joint) at a rate of $100 for each $1,000 over the threshold
- Applies to customary tip businesses including food and beverage, beauty and hair care (Secretary of Treasury to provide list)
- Limited to voluntary tips
- Social Security number required
- Married taxpayers must file joint return
- Tips still subject to FICA taxes
- Must be Included on W-2, 1099-K, 1099-NEC, or Form 4317 (Social Security and Medicare Tax on Unreported Income)
- Extend Section 45B employer credit for FICA tax paid on cash tips to beauty and hair care industry
- Above-the-line deduction for tax years 2025 through 2028
- Up to $12,500 deduction ($25,000 joint)
- Phase-out starts at MAGI of $100,000 ($200,000 joint) at a rate of $100 for each $1,000 over threshold
- Social Security number required
- Married taxpayers must file jointly
- Remains subject to FICA taxes
- Must be reported separately on W-2 or 1099
- Above-the-line deduction for tax years 2025 through 2028
- Age 65 or older
- Additional $6,000
- Replaces Trump’s proposal to not tax Social Security benefits, which could not be done under budget reconciliation
- Phase-out at MAGI of $75,000 ($150,000 joint) at rate of 6%
- Phased-out at MAGI of $175,000 ($250,000 joint)
- 2025 through 2028
- Capped at $10,000
- U.S. assembly required
- Phase-out at MAGI of $100,000 ($200,000 joint) at $200 for each $1,000 over threshold
- Available to both itemizers and nonitemizers
- Annual $5,000 per year contributions from birth to age 18
- Age based withdrawal restrictions (pending further clarification )
- Social Security number required
- $1,000 initial credit funded by Federal government
- Employers can contribute up to $2,500
- Can rollover to ABLE Accounts
- Rules similar to IRAs
- Percentage increased from 35% to 50%
- Phase down with AGI of $75,000 ($150,000 joint)
- No phase down below 20%
- Employer Dependent Care Assistance
- Maximum increased from $5,000 to $7,500
- Employer-provided child-care credit
- 40% replaces 25%
- 50% for small businesses
- Maximum to $500,000 from $150,000, $600,000 for eligible small businesses, adjusted for inflation
Business Provisions Phasing Down from Tax Cuts and Jobs Act
- Bonus depreciation – 100% for property acquired after 1/19/2025
- Not otherwise retroactive
- Research and experimental expenses – 100% after 12/31/2024
- Foreign activity still 15-year amortization
- Small businesses with gross receipts of $31 million or less may apply retroactively to tax years beginning after 12/31/2021
- Limitation of business interest – EBITDA limitation reinstated after 12/31/2024
- Code Sec. 179 expensing – $2.5 million limit, reduced as costs exceed $4 million
- Paid family and medical leave, Code Sec. 45S, made permanent
- Special depreciation for qualified production property –100% after 1/19/2025 for construction that begins before 1/1/2029, placed in service before 1/1/2031
- Generally nonresidential real property, such as factories
- Advanced Manufacturing Investment Credit rate increased to 35% from 25%
- Spaceports treated like airports under exempt-facility bond rules
- Opportunity Zones made permanent
- Redefine “low-income community”
- Qualified Rural Opportunities Fund
- New Markets Tax Credit made permanent
- Certain residential construction projects after enactment eligible for completed contract method rather than percentage-of-completion method
- Excess business losses provision made permanent
- Low Income Housing Tax Credit enhancements made permanent
- Permanently increase LIHTC state allocations to 12%
- Reduces require bond financing percentage from 50% to 25%
- 1099 information reporting – $2,000 replacing $600
- 1099-K reporting – restoration of $20,000, 200 transactions
Qualified Small Business Stock Gain Exclusion
- 50% if held for 3 years
- 75% if held for 4 years
- 100% if held for 5 years
- Terminated after 9/30/2025:
- Previously-owned Clean Vehicle Credit-25E
- Clean Vehicle Credit-30D
- 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
- 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
- Sourcing certain income from sale of inventory produced in US
- Modification of deduction for FDII and “Net CFC Tested Income” (new term for GILTI)
- 33.3% replaces 37.5%
- 40% replaces 50%
- BEAT 10.5% replaces 10%
- Determination of deduction eligible income
- Permanent extension of look-thru rules for Related CFCs
- Repeal of election for 1-month deferral of determination of taxable years of specified foreign corporations
- Restoration of limitation on downward attribution of stock ownership in applying constructive ownership rules
- Proposed Section 899 “Revenge tax” dropped from bill
Administrative Provisions and Excise Taxes
- Social Security number required for AOTC and LLC
- 31.8% excise tax on “qualified litigation proceeds” from litigation financing activity
- Repeal of direct file 30 days after passage; task force funded to study replacement of free file program
- Remittance transfer tax: 1% tax on transfer of cash, money orders, cashier’s check, or similar instrument
- Employee Retention Credit enforcement: $1,000 penalty
- A proposed penalty for unauthorized disclosure of taxpayer information was removed from bill
- Earned Income Tax Credit proposal dropped from bill
- Modification of pro rata share rules
