The One Big Beautiful Bill Summary

The One Big Beautiful Bill Act (“OBBBA”), signed into law by President Trump on July 4, 2025, is a wide-ranging tax reform package that makes several tax provisions permanent, adjusts limits to be more favorable for both businesses and investors, raises reporting thresholds to reduce administrative burdens, and modifies existing tax credit regimes. The following sections summarize some of the key provisions most relevant to business owners, investors, and individual taxpayers.

BUSINESS TAX

Qualified Business Income Deduction

The OBBBA makes the Internal Revenue Code (“IRC”) Section 199A special 20% tax deduction permanent for “qualified business income” (“QBI”) earned through pass-through businesses such as sole proprietorships, partnerships, and S corporations. This deduction effectively lowers the tax rate on business owners who do not operate as C corporations, allowing eligible business owners to subtract up to 20% of their qualified income from their taxable income before calculating taxes. Originally enacted under the Tax Cuts and Jobs Act in 2018 (the “TCJA”), this deduction was scheduled to expire at the end of 2025, but under OBBBA, it will remain available indefinitely. The Act also sets a minimum deduction for active QBI for “applicable taxpayers” at $400. “Applicable taxpayers” are those taxpayers who’s aggregate QBI for all active qualified trades or businesses for the tax year is at least $1,000.

In addition, IRC Section 199A generally limits QBI deductions (i) based on the amount of W-2 wages paid by a taxpayer, and (ii) for certain “specified service trades or businesses.” While under the TCJA, those limitations were phased in completely for taxpayers having taxable income that is $50,000 ($100,000 for joint filers) greater than specified threshold amounts. Under OBBBA, those limitations will instead phase in completely for taxpayers having taxable income that is $75,000 ($150,000 for joint filers) greater than the specified threshold amounts.

Bonus Depreciation

The OBBBA permanently allows first-year 100% “bonus depreciation” for certain qualified business property acquired after January 20, 2025, allowing businesses to immediately deduct the full cost of qualifying assets— i.e., tangible personal property with a recovery period of 20 years or less, such as equipment, machinery, and computers—in the year they are placed in service. Normally, businesses would have to spread these deductions out over the useful life of the asset, which can sometimes be five or more years. The ability to again deduct the entire cost upfront reduces the after-tax cost of investing in new equipment and encourages businesses to upgrade and expand more quickly.

The law also temporarily extends 100% bonus depreciation to certain types of “qualified production property” (i.e., “QPP”, which is defined as certain no-residential real property used in the manufacturing, production or refining of certain tangible personal property), provided construction on such production property starts between 2025 and 2028. This extension of the 100% bonus depreciation to qualified production property effectively reduces the cost of building or upgrading certain domestic manufacturing facilities.

Business Interest Deduction

Businesses that borrow money are generally allowed to deduct their interest payments from taxes under IRC Section 163(j), but the amount has long been capped by complex rules under the TCJA. The OBBBA reinstates a more favorable definition of “adjusted taxable income” for calculating this cap by letting companies measure income before deducting depreciation, amortization, and depletion. This new definition of adjusted taxable income effectively increases the cap on the amount taxpayers can deduct on their interest payments and allows more businesses to deduct a greater share of their interest expenses. This change is especially important for businesses that rely heavily on borrowed funds to finance growth, such as real estate developers, manufacturers with expensive equipment, or companies in industries with large up-front capital costs. By easing restrictions, the law lowers the after-tax cost of borrowing, making credit more accessible and less expensive. The new definition of adjusted taxable income applies in 2025 and all future tax years.

Exclusion of Gain on Sale of Qualified Small Business Stock

The OBBBA expands the tax break for investors who buy stock in small, growing companies, commonly known as the “qualified small business stock” (“QSBS”) exclusion. Previously, investors could exclude up to $10m in gain from taxes if they held the stock for at least five years and the company had no more than $50m in assets when the stock was issued. The new law increases the asset cap to $75m, raises the maximum exclusion to $15m (or 10 times the original investment, whichever is larger), and introduces new tiered benefits. Now, investors do not always have to wait the full five years to benefit—50% of the gain is excluded after three years, 75% after four years, and 100% after five years. Note that generally, these tax breaks for investments in QSBS only apply to stock issued after the enactment of the OBBBA.

This expansion is designed to encourage more investment in startups and growing C-corp companies, which often struggle to raise capital compared to larger, established corporations, and makes startup investing more attractive, with higher limits allowing larger investments to qualify as well.

Opportunity Zones

Opportunity Zones (“OZs”) are designated economically distressed communities in the US. In addition, under the TCJA, the OZ program was temporary so that many of its key benefits were set to expire at the end of 2026. The OBBBA makes the OZ program permanent by removing that end date, though it does not simply freeze the existing map of “zones” and rules. Instead, it restructures the OZ regime, updating which “zones” qualify, how long designations last, and how the tax benefits will apply going forward.

Designations

One significant change is that the OZ designation will now occur on a rolling 10-year cycle. Starting in mid-2026, state governors will nominate new census tracts, subject to Treasury approval, and new designations will take effect January 1, 2027. Existing OZ designations will also not last forever; rather, each zone’s “term” will end after its 10-year period, and states must renew or redesignate zones.

To tighten the targeting of the program, OBBBA also strengthens the eligibility criteria for what constitutes a “low-income community.” For example, it lowers the income threshold from 80% of area or state median income to 70% and eliminates the ability to designate tracts that merely border qualifying neighborhoods (referred to as the “contiguous tract” rule), effectively shrinking the number of zones.

Tax Benefits

In addition to the changes in how zones are designated, the structure of tax benefits for OZ investments has been refreshed. Previously, deferral of capital gains for investors rolled until 2026, with phased basis step-ups (for example, after holding five or seven years) and ultimate exclusion of gains on long-term OZ investments. The new regime places the older timeline with a rolling 5-year deferral, meaning deferred gains must generally be recognized on the fifth anniversary of the investment or earlier if the investment is sold. For investments held for at least 10 years, investors may elect to increase their basis to fair market value upon sale, excluding subsequent appreciation from tax. Notably, the OBBBA removes earlier constraints that penalized investors who held beyond certain dates. Instead, if an investor holds beyond 30 years, the basis is stepped up as of the 30th anniversary, thus preserving the ability to exclude “future gains” even without earlier disposition.

The new provisions also place emphasis on rural investments by creating a special category called the Qualified Rural Opportunity Fund (“QROF”). These funds must invest at least 90% of their assets in rural OZ property, and in exchange they receive enhanced benefits, including a 30% basis step-up (versus 10% for non-rural OZ investments) for those held for at least five years, and a lower “substantial improvement” threshold (50% rather than 100%) for existing structures.

The law also significantly expands reporting requirements for both Qualified Opportunity Funds and QROFs. Under OBBBA, funds must annually report detailed information about their assets, investments, geographic allocations, underlying businesses (including NAICS codes, census tracts, and employee counts), and the identities and transactions of investors. The law also imposes penalties for noncompliance (fines up to $10,000 or $50,000 for larger funds), daily penalties for failures, and tougher sanctions if errors result from intentional disregard.

ESTATE AND GIFT TAX

Gift, Estate and Generation-Skipping Transfer Tax

Under the TCJA, the “lifetime exclusion” from gift and estate tax – which was $10m, indexed for inflation – was set to “sunset” or expire at the end of 2025. Without new legislation, the lifetime exclusion from gift and estate tax would have dropped to approximately $6-7m, depending on inflation. OBBBA prevents the expiration and permanently raises the lifetime exclusion to $15m per person, effective for gifts made or decedents dying on or after January 1, 2026. This means married couples can exclude $30m (combined) from federal estate taxes.

This new $15m amount is indexed for inflation, so the exemption will gradually increase each year. The maximum tax rate on transfers above the exemption remains at 40%. The rules allowing a surviving spouse to use the deceased spouse’s unused exemption (called “portability”) are also preserved. Finally, the gift tax exemption is the same.

Notably, the OBBBA did not alter many of the detailed rules in the gift, estate tax, and generation-skipping transfer tax regime. For example, the gift tax exclusion – the amount an individual can gift each year to someone without using the lifetime exclusion – will still be $19,000 in 2025 (and will continue to adjust for inflation).

Trump Accounts

The OBBBA creates a new type of tax-advantaged savings vehicle referred to as a “Trump Account,” specifically designed for children under the age of 18. These accounts are meant to encourage long-term savings and investment for minors by allowing contributions that grow tax-deferred until the funds are ultimately withdrawn in the same manner as a traditional IRA. Although contributions themselves are not tax deductible, the investment growth inside the account is shielded from current taxation. Parents, relatives, or others can contribute up to a total of $5,000 per year to a child’s Trump Account, and employers are permitted to contribute an additional $2,500 per year. To jumpstart the program, the federal government will make a $1,000 “seed” deposit for every U.S. citizen child born between January 1, 2025, and December 31, 2028. This government contribution does not count against the annual exclusion limits.

The money in a Trump Account must be invested in a diversified stock index portfolio as defined by the statute, designed to ensure a uniform and relatively stable approach to financial growth. Withdrawals or rollovers are generally prohibited until the child reaches age 18, at which point the balance is rolled into a traditional IRA for that individual. From then on, the funds are governed by the normal IRA rules, meaning distributions are taxed when taken out in adulthood. For children with certain disabilities, the law allows earlier rollovers into “Achieving a Better Life Experience” accounts (“ABLE”) accounts.

EXEMPT ORGANIZATIONS

Expanded Application of Tax on Excess Compensation for Exempt Organizations

The OBBBA makes significant changes to the rules that apply when tax-exempt organizations, such as charities, private foundations, or nonprofit hospitals, pay very high salaries. Under the former rules, a 21% excise tax was imposed on compensation over $1m, though this excise tax only applied to the five highest-paid employees of the applicable organization. The new provisions under the OBBBA broaden this tax so that it may apply to any current or former employee whose pay exceeds $1m, even if that person is not or never was one of the top five highest paid employees. The consequence is that tax-exempt entities will have to track a much wider group of employees and former employees to determine whether the tax applies.

These changes are effective beginning in 2026 and continue to apply to certain large severance packages (called “excess parachute payments”), which may be taxed if they exceed legal thresholds. 

Changes to 529 Education Savings Plans

Section 529 plans are tax-advantaged accounts that can be used to pay educational expenses, including K-12 education, apprenticeship programs, credentialing programs, and student loan repayment. The OBBBA expands the kind of expenses that qualify for tax-free withdrawals from 529 plans. For K-12 education, 529 funds can now cover more than just tuition – newly eligible expenses include curriculum materials, books, online instructional content, standardized test fees, dual-enrollment costs, tutoring (under certain conditions), and educational therapies for students with disabilities. Starting January 1, 2026, the annual limit on tax-free K-12 withdrawals rises from $10,000 to $20,000 per beneficiary.

The use of 529 plan funds for postsecondary credential programs beyond traditional college degrees has also been broadened. Now, distributions may be used for recognized credentialing, licensing, certification, apprenticeship, or workforce training programs, including required tuition, fees, books, supplies, testing, and continuing education associated with maintaining credentials. Previously scheduled to expire, the rule permitting rollovers from 529 accounts to ABLE accounts (for beneficiaries or qualifying family members with disabilities) has also now been made permanent.

The expanded definitions for K-12 and credentialing expenses took effect as of July 5, 2025, however, the higher $20,000 limit for K-12 begins with tax year 2026.

Note that because the 529 plan expansions overlap with other educational tax incentives (such as the American Opportunity Credit or Lifetime Learning Credit), care must be taken not to “double dip” – you cannot use the same expense for both a tax-free 529 withdrawal and a tax credit.

Corporate Charitable Contributions

The Act also updates the rules for corporate charitable giving. Before now, C corporations were only allowed to deduct charitable contributions up to 10% of taxable income, with some exceptions. The new law shifts this calculation so that starting in 2026, corporations may deduct contributions that exceed 1% of their taxable income, up to a maximum of 10%. This is a slightly different framework that ensures even small donations remain deductible, while encouraging larger companies to make substantial contributions to charitable causes.

If a corporation contributes more than the limit, the excess can be carried forward for up to five future years and deducted then. For example, if a company with $10m of taxable income donates $2m in one year, it can deduct $1m immediately (10% of income) and then carry the remaining $1m forward to apply against income in later years.

INDIVIDUAL INCOME TAX

Information Reporting on Form 1099-K

The law also addresses concerns about overly burdensome tax reporting for individuals and small businesses that sell products or services through online platforms. Prior rules required third-party payment processors like PayPal, Venmo, eBay, or Etsy to issue a Form 1099-K to sellers once they crossed very low thresholds, sometimes creating confusion and unnecessary paperwork for casual sellers. The OBBBA raises the reporting threshold to require both at least 200 transactions and at least $20,000 in gross receipts before a 1099-K must be issued. This means that hobbyists or people selling a few personal items online will no longer face the burden of having to complete and file unexpected tax forms.

In addition, for the 90% of individuals who do not itemize deductions, the COVID era included a short-term provision that allowed deduction for certain charitable contributions. That provision has been made permanent by OBBBA and deduction amounts have been increased to $1,000 for individuals and $2,000 for joint filers. For those taxpayers who do itemize deductions, a 0.5% floor has been imposed, which means that contributions are reduced by 0.5% of the contribution base for that year before any of the contributions are deducted. The Act further makes permanent the increase in the limits on cash contributions to public charities from 50% to 60% of a taxpayer’s contribution base.

The Act increases the reporting threshold for the more traditional 1099-MISC and 1099-NEC forms, which are often used to report contractor payments. Beginning in 2026, the threshold will rise from $600 to $2,000 and will be adjusted for inflation in later years. These changes simplify tax compliance for small-scale sellers and entrepreneurs and reduces fiscal and administrative headaches for both taxpayers and the IRS. By raising thresholds, the law aims to focus reporting requirements on meaningful business activity, rather than casual or one-time transactions.

Limitations on Itemized Deductions

Beginning in 2026, the OBBBA imposes a new overall limitation on the tax benefit of itemized deductions. Under the new rule, itemized deductions will be reduced by 2/37 of the lesser of (a) the total amount of the deductions, or (b) the amount by which taxable income exceeds the threshold for the top 37% tax bracket. In effect, for high-income taxpayers in the top tax bracket, every dollar of itemized deduction is worth only 35 cents in tax relief (rather than 37 cents) once this limit is applied.

At the same time, the OBBBA permanently eliminates the old “Pease limitation” (which was a 3% reduction in itemized deductions above certain income levels), whereby under the prior law, a taxpayer’s itemized deductions would be reduced by 3% of adjusted gross income above a threshold and capped at 80% of the deductions. OBBBA now removes that rule entirely in favor of the simpler 2/37 formula. Note, however, that the QBI deduction is excluded from this limitation (i.e., it is not reduced by the 2/37 rule).

State and Local Tax Deduction Limitation

The Act temporarily increases the cap on the federal deduction for state and local taxes (“SALT”) paid by individuals. Starting in 2025, the SALT deduction cap rises from $10,000 to $40,000 for joint filers and from $5,000 to $20,000 for married individuals filing separately. This higher cap is scheduled to increase by 1% annually through 2029, reaching approximately $42,000 for joint filers by that year. Beginning in 2030, however, the cap will revert to the original $10,000 limit for joint filers and $5,000 for separate filers.

Despite the increased cap, the OBBBA introduced a phaseout for high-income taxpayers. Specifically, the SALT deduction begins to phase out when a taxpayer’s modified adjusted gross income exceeds $500,000 for joint filers ($250,000 for separate filers) in 2025. The phaseout reduces the SALT deduction by 30% of the excess over the gross income but modified adjusted gross income above the threshold, with the deduction not falling below the original $10,000 limit. The phaseout threshold also increases by 1% annually through 2029, but the minimum deduction remains at $10,000.

Enhanced Standard Deduction & Personal Exemption Repeal

The OBBBA permanently increases the federal standard deduction (i.e., the amount taxpayers can deduct from gross income instead of itemizing deductions on their Form 1040), building on the enhancements from the TCJA. For the 2025 tax year, the standard deduction is set at $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly. These amounts are inflation-adjusted annually, with the 2026 figures rising to $16,000, $24,000, and $32,000, respectively. This permanent increase simplifies tax filing for many taxpayers by reducing the need to itemize deductions.

Individual Alternative Minimum Tax

The Alternative Minimum Tax (the “ATM”) is a tax levied on taxpayers with significantly high incomes, intended to ensure such taxpayers pay a minimum amount of tax. Effective beginning in 2026, the OBBBA permanently extends the increased ATM exemption amounts and phaseout threshold established by the TCJA. For the 2026 tax year, the AMT exemption amounts are set at $88,100 for single filers, $137,000 for married couples filing jointly, and $68,500 for married individuals filing separately. These exemption amounts are inflation-adjusted annually thereafter. In addition, the phaseout thresholds – above which the exemption begins to decrease – are set at $500,000 for single filers and $1m for married couples filing jointly, with annual inflation adjustments beginning in 2027.

The OBBBA also introduces a doubling of the phaseout rate from 25% to 50%, meaning that for every dollar of AMT income above the phaseout threshold, the exemption is reduced by 50 cents, accelerating the phaseout process and potentially increasing the number of taxpayers subject to the AMT.

Gain on Sale of Certain Farmland Property

The OBBBA contains a new election for taxpayers who sell or exchange “qualified farmland property” (defined as farmland used as a farm for the previous 10 years and subject to restrictions for the next 10 years to restrict the land for farm use) to qualified farmers (i.e., individuals actively engaged in the business of farming). Taxpayers are permitted to elect to pay gain from the sale or exchange of qualified farmland over four equal installments, even though the entirety of the proceeds from such sale or exchange are received in a single year or transaction. Taxpayers are able to make the election by the due date of their initial tax return, and elections will be on an individual partner or shareholder basis. The provision is intended to ease the tax burden when farmland is sold, protect family farming operations, and encourage land to stay in agricultural use.  The new election will be effective for sales or exchanges of farmland in tax year 2026.

Temporary No Tax on Tips

The Act introduced a new temporary federal income tax deduction for workers in traditionally tipped occupations. Effective retroactively from January 1, 2025, to December 31, 2028, eligible employees and self-employed individuals can deduct up to $25,000 of qualified cash tips received during the year from individual income tax returns. This deduction is available to both itemizing and non-itemizing taxpayers. It phases out, however, for individuals with modified adjusted gross income exceeding $150,000 ($300,000 for joint filers), with the deduction reduced by $100 for every $1,000 over the threshold. Notably, the deduction is not available to married individuals filing separately.

To qualify, the tip must be voluntary and reported to the IRS, either through a Form W-2, Form 1099, or Form 4137. Acceptable forms of payment include cash, checks, debit cards, and gift cards. Digital assets and tips linked to illegal or adult activities are excluded. The deduction applies to a wide range of occupations where tipping is customary, such as servers, bartenders, hair stylists, and delivery drivers. A comprehensive list of eligible occupations has been provided by the IRS. It is also important to note that this deduction applies only to federal income taxes; workers are still required to pay employment taxes on tip income.

Temporary No Tax on Overtime Pay

Similar to the temporary federal income tax deduction for tipped income, the OBBBA also introduced a new federal income tax deduction for overtime pay, also effective from January 1, 2025, to December 31, 2028. This provision permits eligible workers to deduct the “premium portion” of their overtime compensation – i.e., the amount paid above their regular hourly rate, as required by the Fair Labor Standards Act. The maximum annual deduction is $12,500 for single filers and $25,000 for married couples filing jointly. The deduction phases out the same as for the temporary federal income tax deduction for tipped income (i.e., for individuals with a modified adjusted gross income exceeding $150,000 and $300,000 for joint filers, reducing by $100 for every $1,000 over the threshold).

Again, as with the temporary federal income tax deduction for tipped income, to qualify, the overtime pay must be reported on a Form W-2, Form 1099, or another specified statement furnished to the individual. The deduction is available to both itemizing and non-itemizing taxpayers; however, it is not available to married individuals filing separately. Additionally, the deduction applies only to federal income taxes; payroll taxes still apply to the overtime pay.

ENERGY TAX CREDITS

Energy Efficient Commercial Buildings Deduction

The OBBBA accelerates the expiration of the IRC Section 179D deduction for energy-efficient commercial buildings. Previously set to expire in 2026, this deduction is now eliminated for tax years beginning after December 31, 2025, and taxpayers must place qualifying improvements in service by that date to claim the deduction.

Cost Recovery for Energy Property

The OBBBA modifies the depreciation schedules for certain energy property. Specifically, the Act shortens the recovery period for qualified energy property, impacting both residential and commercial installations.

Advanced Manufacturing Production Credits

The OBBBA also introduced a phaseout for the advanced manufacturing production credit (under IRC Section 45X) for wind components. The credit is terminated for components produced and sold after December 31, 2027, and effective for eligible components sold after December 31, 2026, a person will not be treated as having sold an eligible component unless 65% of the direct material cost to produce the secondary component is attributable to primary components mined, produced, or manufactured in the US.

Residential Clean Energy Credits

The OBBBA accelerates the expiration of the Residential Clean Energy Credit (IRC Section 25D). Previously set to expire in 2034, the credit is now available only for installations placed in service by December 31, 2025. This credit applies to solar panels, geothermal systems, wind, biomass, and other clean energy installations.

Clean Vehicle Credits

The OBBBA eliminates the Clean Vehicle Credit (IRC Section 30D) for new, used, and commercial electric vehicles. These credits are repealed after September 30, 2025, with no extensions or grandfathering provisions.

Alternative Fuel Vehicle Refueling Property Credits

The OBBBA accelerates the expiration of the Alternative Fuel Vehicle Refueling Property Credit (IRC Section 30C). Originally set to terminate in 2032, the credit is now only available for property placed in service on or before June 30, 2026.

Earlier Phaseouts for Wind and Solar Projects

The OBBBA accelerates the phaseout of the Clean Electricity Production Credit (IRC Section 45Y) and the Clean Electricity Investment Credit (IRC Section 48E) for wind and solar energy property. These credits are terminated for property placed in service after December 31, 2027. Projects that begin construction within one year after the enactment of the OBBBA (i.e., by July 4, 2026), however, may still qualify.

New Foreign Entity Rules on Clean Energy Tax Credits

The OBBBA introduces restrictions on the availability of clean energy tax credits for projects involving foreign entities of concern (FEOCs), such as those from adversarial nations. These restrictions vary by tax credit and tax year, preventing entities tied to such nations from accessing U.S. clean energy tax incentives.