Breaking Down the Tax Provisions of the One Big Beautiful Bill Act

The One Big Beautiful Bill Act is a massive bill that overhauls much of the U.S. tax system. Our Federal & International Tax and State & Local Tax teams cover the Act’s key tax provisions for individuals and businesses.

• The Act makes permanent many of the Tax Cuts and Jobs Act of 2017’s provisions that were due to expire
• International tax implications are extensive, affecting GILTI, FDII, and BEAT
• Energy credits are curtailed, but opportunity zones are reinvigorated

On July 4, 2025, President Donald Trump signed into law the One Big Beautiful Bill Act (OBBBA), following its narrow passage in Congress. The OBBBA represents one of the most comprehensive overhauls of the federal tax code in recent years, introducing sweeping changes that will affect individuals, businesses, and international taxpayers alike. Encompassing hundreds of provisions, the Act addresses a broad spectrum of tax policy areas, including individual and business taxation, international tax rules, energy and environmental incentives, housing and community development, and the taxation of educational endowments.

The OBBBA’s enactment marks a significant legislative milestone, reflecting evolving policy priorities and responding to ongoing debates over tax reform, economic growth, and fiscal responsibility. Its provisions are poised to reshape the tax landscape for years to come, with both immediate and long-term implications for taxpayers, advisors, and stakeholders across the country. While the OBBBA remains a significant legislative milestone, practitioners have already begun to identify aspects of the law that may require further clarification. The IRS and Treasury Department are expected to issue Q&A materials, formal regulations, and other forms of guidance for many of these provisions.

Individual Taxes

• Permanent Lower Rates. The Tax Cuts and Jobs Act (TCJA) reduced individual income tax rates through 2025. The OBBBA makes the TCJA’s reduced rates permanent, meaning that the top marginal income tax rate will remain at 37% (or 40.8% inclusive of the net investment income tax).
• Increased Standard Deduction. The TCJA increased the standard deduction to $12,000 for individuals and $24,000 for married joint filers, adjusted annually for inflation. The OBBBA permanently increases the standard deduction by $750 per individual (resulting in a total deduction of $15,750 for 2025) and $1,500 for married joint filers (resulting in a total deduction of $31,500 for 2025), with annual inflation adjustments.
• Termination of Personal Exemption. The OBBBA permanently eliminates the personal exemption by setting the personal exemption amount to zero. However, it allows a temporary $6,000 deduction for taxpayers aged 65 and older through 2028.
• Increased SALT Cap. The TCJA capped the deduction for state and local taxes at $10,000 ($5,000 for married taxpayers filing separately) through 2025 (with no phaseout based on AGI), and the OBBBA increases the cap to $40,000 ($20,000 for married filing separately) for the next five years, with a phaseout at $500,000 modified AGI ($250,000 for single taxpayers). The OBBBA also includes 1% annual increases to the cap and phaseout threshold until 2030 (i.e., the cap will be $40,400 for 2026 and the AGI threshold will be $505,000 for 2026). In 2030, the cap number will reset to $10,000 with no phaseout. Notably, the final OBBBA does not include provisions limiting the pass-through entity tax (PTET) workarounds, which were present in earlier versions of the bill. The PTET workaround allows pass-through entities to pay state income taxes at the entity level, effectively bypassing the SALT cap by reducing the pass-through income of partners and members. The OBBBA does not disturb the guidance provided in IRS Notice 2020-75, which stated that state and local income taxes imposed on and paid by a partnership or S corporation are deductible by the entity when computing its non-separately-stated income or loss for the year of payment.
• No Tax on Tips and Overtime. The OBBBA provides above-the-line deductions for tips (up to $25,000) and overtime pay (up to $12,500). These deductions are gradually phased out for taxpayers with modified adjusted gross income exceeding $150,000 ($300,000 for married joint filers).
• Car Loan Interest Deductions. The OBBBA provides a $10,000 deduction (through 2028) for car loan interest associated with new vehicles assembled in the United States. This deduction is phased out for taxpayers with modified adjusted gross income exceeding $100,000 ($200,000 for married joint filers).
• Child Tax Credit. The OBBBA increases the child tax credit by $200 (to $2,200 total) through 2028.
• Qualified Business Income Deduction. The OBBBA permanently extends the Section 199A Qualified Business Income Deduction, maintaining the deduction rate at 20%.
• Estate and Gift Tax Exemption. The OBBBA permanently increases the basic estate and gift exclusion to $15 million per person for individuals ($30 million for married joint filers) dying or gifts made beginning in 2026, with annual inflation adjustments.
• Alternative Minimum Tax. The OBBBA makes permanent the increased AMT exemption and phaseout thresholds, effective December 31, 2025. It also reverts the exemption phaseout thresholds to 2018 levels of $500,000 ($1 million for joint returns), indexed for inflation.
• Limitation on Itemized Deductions. The OBBBA limits the benefit of itemized deductions for top bracket taxpayers (37%), providing a benefit at only 35%.
• Excess Business Loss Rule. The TCJA introduced the Excess Business Loss Limitation (EBL) Rule, which limits the amount of business losses that noncorporate taxpayers can use to offset nonbusiness income. For tax year 2025, the inflation-adjusted thresholds are $313,000 for single filers and $626,000 for joint filers. Losses exceeding these thresholds are not deductible in the current year but are treated as net operating losses (NOLs) and carried forward to future years, at which point they can offset business and other sources of income. The OBBBA makes the EBL Rule permanent and modifies the calculation of excess business losses by requiring taxpayers to include disallowed EBLs from prior years in the current year’s EBL computation.
• Qualified Small Business Stock (QSBS). The OBBBA significantly expands the benefits for QSBS issued after July 4, 2025. First, the OBBBA increases the gross asset value cap for a qualified small business from $50 million to $75 million, with inflation adjusted annually. Next, the OBBBA increases the per-issuer cap on excluded gain from $10 million to $15 million (indexed for inflation starting in 2027). The OBBBA also introduces a tiered system for QSBS exclusion based on the holding period, effectively shortening the holding period of QSBS. The OBBBA allows 50% of the exclusion if the QSBS is held for three years, 75% of the exclusion if the QSBS is held for four years, and 100% of the exclusion if the QSBS is held for five years or more.
• Miscellaneous Itemized Deductions. For tax years following 2025, the OBBBA permanently eliminates certain miscellaneous itemized deductions scheduled to expire under the TCJA, including unreimbursed employee expenses, investment advisory fees, tax preparation fees, certain legal fees, hobby expenses, and safe deposit box rentals (but excluding unreimbursed expenses for eligible educators). The OBBBA also introduces a new limitation on itemized deductions for taxpayers in the 37% income tax bracket (only providing a benefit at 35%).

Business Taxes

• Bonus Depreciation. The OBBBA permanently extends 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. In addition, it provides an elective 100% depreciation allowance for qualified production property (QPP) through 2030. QPP includes newly constructed and certain existing non-residential real estate used for manufacturing, production, or refining of tangible personal property in the United States.
• Research and Development. The OBBBA restores the ability to immediately deduct domestic research or experimental expenditures paid or incurred after December 31, 2024. Small businesses with revenue of $30 million or less may retroactively apply this change to expenditures after December 31, 2021. Other taxpayers may elect to accelerate unamortized amounts incurred 2022–2024 either in the first taxable year beginning after December 31, 2024 or ratably over the first two taxable years beginning after December 31, 2024.
• Business Interest Expense. For tax years after 2024, the OBBBA permanently restores the calculation of the business interest expense limitation to the method used between 2017 and 2022, which was based on 30% of EBITDA (earnings before interest, tax, depreciation, and amortization). This change allows for potentially higher interest expense deductions, particularly for capital-intensive businesses.
• Advanced Manufacturing Investment Credit (Section 48D). The OBBBA increases the advanced manufacturing investment credit rate from 25% to 35% for property placed in service after December 31, 2025.
• Taxable REIT Subsidiaries (TRSs). Currently, one of the asset tests applicable to a real estate investment trust (REIT) requires that no more than 20% of the value of a REIT’s total assets can be represented by the securities of one or more TRSs. The OBBBA increases the percentage limit under that asset test from 20% to 25% for taxable years beginning after December 31, 2025.
• Disguised Sales. The OBBBA further clarifies that Section 707(a)(2) of the Code, concerning transactions between partners and partnerships, is “self-executing.” This is expected to present a hurdle to arguments that Section 707(a)(2) does not apply to disguised sales of partnership interests in the absence of final regulations.

International

• No Retaliation Tax. The OBBBA does not include the previously proposed Section 899 (or the previously proposed super-BEAT provisions) to retaliate against foreign jurisdictions with “discriminatory taxes” (e.g., Pillar 2’s UTPR).
• GILTI. The OBBBA renames “global intangible low-taxed income” (GILTI) tax to “net CFC tested income” (NCTI) and raises the effective rate to 12.6% after December 31, 2025. The OBBBA permanently decreases the Section 250 GILTI deduction to 40%. The Act also eliminates the reduction for net deemed tangible return for qualified business asset investment (QBAI) and most deduction expense apportionment. But the OBBBA reduces the Foreign Tax Credit haircut to 10% so that foreign tax of at least 14% generally would eliminate residual U.S. tax on NCTI.
• FDII. The OBBBA renames “foreign-derived intangible income” (FDII) to “foreign-derived deduction eligible income” (FDDEI) and raises the effective rate to roughly 14% after December 31, 2025, by permanently reducing the Section 250 FDDEI deduction to 33.34%. The Act also repeals QBAI and effectively applies a 14% rate to all qualifying FDDEI.
• Deemed Paid Foreign Tax Credit. The OBBBA increases deemed paid foreign tax credits under Section 960 from 80% to 90%.
• Sourcing of Inventory Produced in the United States. The OBBBA introduces a limited sourcing rule for inventory produced in the United States and sold abroad, allowing only 50% of such income to be treated as foreign-source income.
• Base Erosion Minimum Tax (BEAT). The OBBBA permanently sets the BEAT rate at 10.5% and continues the taxpayer-favorable treatment of the R&D credit, low-income housing tax credit, renewable electricity production credit, and Section 48 credit for BEAT taxpayers with regular tax liability. The current base erosion percentage threshold of 3% is maintained.
• Look-Through Rule for Related Controlled Foreign Corporations (CFCs). The OBBBA permanently extends the Section 954(c)(6) Subpart F look-through rule for payments from related CFCs.
• Limitation on Downward Attribution of Stock Ownership. The TCJA repealed Section 958(b)(4), which prevented “downward attribution” of stock owned by a foreign person to a U.S. person. Effective for tax years of foreign corporations beginning after December 31, 2025, the OBBBA restores Section 958(b)(4), generally prohibiting downward attribution from a foreign person for purposes of determining U.S. shareholder and CFC status, except in applying new Section 951B.
• New Section 951B. The OBBBA introduces a new Section 951B, which would extend application of the CFC inclusion rules, including Subpart F and GILTI, to “foreign controlled US shareholders” of “foreign controlled foreign corporations.” This new provision is meant to target the intended aim of TCJA’s repeal of Section 958(b)(4), so-called “de-control” transactions.

Community and Energy Taxes

• Phase-Out for Wind and Solar Tax Credits. For clean electricity production tax credits (PTCs) and clean electricity investment tax credits (ITCs), developers that begin construction of their projects within 12 months of the enactment of the OBBBA (i.e., before July 4, 2026) qualify for Section 45Y and Section 48E federal credits under the preexisting rules. The OBBBA requires projects beginning construction after July 4, 2026 be placed in service on or before December 31, 2027 to remain eligible for the applicable credits. On July 7, 2025, President Trump issued an Executive Order directing the Secretary of Treasury, within 45 days of enacting the OBBBA to “take all action as the Secretary of the Treasury deems necessary and appropriate to strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code for wind and solar facilities. This includes issuing new and revised guidance as the Secretary of the Treasury deems appropriate and consistent with applicable law to ensure that policies concerning the ‘beginning of construction’ are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.” Stay tuned for how this guidance changes the existing rules and how it is to be applied.
• Ownership and Sourcing Restrictions Related to Prohibited Foreign Entities. Under the OBBBA, renewable energy projects that are owned by, or that use “material assistance” from, prohibited foreign entities (PFEs) could lose credit eligibility. PFEs consist of specified foreign entities and foreign-influenced entities. However, what constitutes “material assistance” remains unsettled. Safe harbor tables illustrating percentages that constitute “material assistance” are expected to be published in 2026. However, until the safe harbor tables are published, taxpayers can rely on tables in IRS Notice 2025-08 to determine the percentage of costs that apply to eligible components and manufactured products and on certifications from suppliers of eligible components and manufactured products for PFEs.
• Extended Statute of Limitations and Compliance Obligations. The OBBBA extends the period for the IRS to disallow energy credits due to “material assistance” from PFEs to six years after the tax return is filed. Additionally, the OBBBA threshold for determination of substantial understatement of income tax for energy credits under Sections 45X, 45Y, and 48E were reduced to 1% from 10%, heightening the compliance requirements for projects under those sections.
• Transferability. The OBBBA preserves the ability to transfer or sell tax credits, with some restrictions on transfers of tax credits to PFEs.
• Preserved Clean Credits. The OBBBA largely preserved tax credits for battery storage, domestic manufacturing (Section 45X), hydro (Section 45V), nuclear (Section 45U), carbon capture (Section 45Q), and clean fuel production (Section 45Z).
• Residential and Electric Vehicle (EV) Credits. The OBBBA disallows any residential clean energy credit (Section 25D) made after December 31, 2025. The OBBBA similarly eliminates the clean vehicle credit (Section 30D) for any vehicle acquired after September 20, 2025.
• Excise Tax on Investment Income of Certain Private Colleges and Universities. The OBBBA limits the application of the endowment tax to educational institutions with at least 3,000 full-time students (increased from 500) in the preceding tax year, while retaining the student-adjusted endowment floor of $500,000. The OBBBA also modifies the tax rate based on the “student-adjusted endowment” (the value of the college’s or university’s endowment divided by the number of “eligible students”). For colleges and universities with a student-adjusted endowment between $500,000 and $750,000, the excise tax rate is 1.4%. For colleges and universities with a student-adjusted endowment between $750,001 and $2 million, the excise tax rate is 4%. For colleges and universities with a student-adjusted endowment over $2 million, the excise tax rate is 8%. These changes take effect for tax years beginning after December 31, 2025.
• Opportunity Zones (OZs). The OBBBA establishes a permanent OZ policy, building on the original OZ structure. The bill creates rolling, 10-year OZ designations beginning January 1, 2027, updates definitions of low-income community (LIC), and eliminates the ability for contiguous tracts that are not LICs to be designated as OZs. The bill narrows LIC qualifications, expands tax benefits, and allows investors to receive incremental reduction in gain starting on the first anniversary of the investment. Special rules are created for investments in qualified rural opportunity funds, and new reporting requirements and IRS funding are provided.
• New Markets Tax Credit (NMTC). The OBBBA permanently extends the expiring NMTC, which permits individual and corporate investors to receive a credit against their federal income taxes for making indirect investments in certain qualified active low-income community businesses.
• Low-Income Housing Tax Credit (LIHTC). Beginning in 2026, the OBBBA permanently increases the amount of the LIHTC allocation to 12% and lowers the bond-financing threshold to 25% for projects financed by bonds.

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