Status of Legislation – One Big Beautiful Bill

Final Status of Legislation

This summary highlights the final tax and benefit provisions of the One Big Beautiful Bill Act (H.R.1), signed into law by President Trump on July 4, 2025, after passing the House (218-214) on July 3 and the Senate (51-50) on July 1. The legislation consolidates a sweeping tax and spending reconciliation package, including permanent extensions of Trump-era individual tax cuts, new work requirements for Medicaid and SNAP (Supplemental Nutrition Assistance Program), expanded immigration enforcement funding and measures, and significant rollbacks of clean-energy incentives.

Key Tax & Benefit Provisions (Final Law)

Individual Tax Provisions

• The Child Tax Credit is increased permanently from $2,000 to $2,200 per qualifying child, with annual inflation adjustments.
• A new deduction allows most employees to deduct up to $25,000 ($12,500 if single) in combined income from cash tips and overtime pay, subject to documentation and W-2 reporting requirements.
• A deduction is introduced for interest paid on new auto loans, up to $10,000 per vehicle, provided the vehicle is assembled in the U.S. and meets domestic content requirements.
• Seniors age 65 and older receive a temporary additional standard deduction of $6,000 ($12,000 if married filing jointly), phasing out beginning at $75,000 AGI ($150,000 for joint filers). This provision is effective for tax years 2025 – 2028.
• The law increases the excludable portion of Social Security benefits, effectively making them tax-free for many low- and middle-income recipients. Full exemption is not universal and depends on income thresholds to be determined by Treasury.
• The standard deduction is increased to $15,750 for individuals and $31,500 for married couples filing jointly in 2025, with inflation indexing thereafter.
• The law permanently extends the repeal of the personal exemption and eliminates the phase-out of itemized deductions that previously applied to higher-income taxpayers under pre-TCJA law.
• Certain itemized deductions remain disallowed or limited, including those for moving expenses, unreimbursed employee expenses, investment fees, and casualty losses outside federally declared disasters.
• The law permanently extends the limitation on excess business losses for non-corporate taxpayers under IRC §461(l), which was originally enacted under the TCJA and previously scheduled to expire after 2028. Taxpayers with business losses exceeding the annual threshold (e.g., $610,000 for joint filers in 2025) must treat the excess as a net operating loss (NOL) carryforward.
• For taxpayers in the highest income tax bracket, the law includes placing a floor on the charitable contribution deduction.

Planning Considerations:

1. Employers and payroll professionals should prepare to track and substantiate tip and overtime pay to support claims for the new combined deduction. This deduction is subject to W-2 reporting, documentation requirements, a $150,000 AGI cap, and is set to expire after 2028.
2. Seniors should evaluate their eligibility for the new temporary additional standard deduction and understand how it interacts with changes to the taxation of Social Security benefits, which may now be partially or fully excluded based on income thresholds.
3. Taxpayers planning to purchase new vehicles may wish to time their auto loans to ensure the vehicle meets eligibility for the interest deduction.
4. With personal exemptions permanently repealed, households with multiple dependents may benefit more from the expanded Child Tax Credit and higher standard deduction than from itemizing.
5. Employees who previously claimed unreimbursed job-related expenses should consider negotiating accountable plans or employer reimbursements as alternatives.
6. High-income taxpayers should note the charitable deduction floor beginning in 2026 and may consider accelerating donations or other deductible expenses into 2025 to maximize their benefit.
7. Taxpayers close to the threshold between itemizing and claiming the standard deduction should consider “bunching” deductions in alternate years to optimize tax savings.
8. Business owners and advisors should model the impact of the now permanent §461(I) limitation on excess business losses when projecting results, particularly in years with large depreciation, casualty losses, or pass-through entity losses. Strategies may include spreading losses across years, accelerating income, or coordinating with NOL carryforward rules to avoid unintended deferral.

Charities and Donors

• Starting in 2026, a universal charitable deduction of up to $1,000 will be available to all taxpayers, including those who do not itemize. This deduction applies only to cash donations made directly to qualified public charities.
• Also beginning in 2026, individuals in the highest income tax bracket will be subject to a 0.5% adjusted gross income (AGI) floor on charitable contribution deductions. For C corporations, a 1% AGI floor will apply. These floors reduce the deductible amount by the stated percentage before calculating the allowable deduction.
• A new nonrefundable federal tax credit is established for donations to qualified scholarship-granting organizations (SGOs), with rules similar to those seen in state-level education credit programs. The credit amount and income phaseouts will be detailed in forthcoming IRS guidance.

Planning Considerations:

1. Taxpayers who typically take the standard deduction may benefit by delaying charitable gifts until 2026, when the universal deduction becomes available.
2. High-income individuals should consider accelerating charitable contributions into 2025, before the AGI-based floor limits the value of itemized deductions in 2026 and beyond.
3. Donors who support higher education institutions subject to the new endowment excise tax may consider donor-advised funds or charitable trusts as alternatives to direct contributions, potentially bypassing the taxed investment pools.
4. Corporate donors should reevaluate giving strategies and ensure documentation aligns with the new 1% floor and scholarship credit eligibility criteria.

Alternative Minimum Tax (AMT)

• The increased AMT exemption amounts enacted under the 2017 Tax Cuts and Jobs Act (TCJA) are made permanent, preventing a reversion to the lower pre-2018 levels.
• The AMT exemption phase-out thresholds are also made permanent, beginning at $1 million for married filing jointly and $500,000 for single filers. These higher thresholds significantly reduce AMT exposure for middle- and upper-income taxpayers.
• No additional changes were made to the AMT calculation itself or the list of preference items and adjustments. However, the higher exemption and phase-out levels continue to provide meaningful relief, particularly for taxpayers with incentive stock options (ISOs) or large state and local tax deductions.

Planning Considerations:

1. Taxpayers exercising ISOs or claiming substantial state tax deductions should continue to model AMT exposure, though the risk is significantly lower for most filers under the permanent thresholds.
2. Households nearing the AMT phase-out range should monitor how capital gains, stock option exercises, and miscellaneous adjustments may affect their AMT liability.
3. With AMT relief now permanent, fewer taxpayers will need to track AMT credit carryforwards, simplifying long-term tax planning and reducing recordkeeping burdens.

SALT Cap Changes

• Beginning in tax year 2025, the State and Local Tax (SALT) deduction cap is temporarily increased to $40,000 for all itemizing taxpayers, and $20,000 for married individuals filing separately. These expanded limits apply only to taxpayers with adjusted gross income (AGI) of $500,000 or less.
• For taxpayers with AGI exceeding $500,000, the expanded cap is phased down by 30% of the excess AGI. However, the deduction will not fall below the prior-law baseline of $10,000, regardless of income.
• The increased SALT deduction cap is effective for tax years 2025 through 2029, after which the $10,000 cap returns beginning in 2030. Inflation adjustments may apply during the temporary period.

Planning Considerations:

1. Taxpayers with AGI near the $500,000 threshold should consider deferring income or accelerating deductions to remain under the limit and take full advantage of the increased SALT cap.
2. Taxpayers in high-tax states should reassess the value of pass-through entity (PTE) elections, as the benefit of paying state tax at the entity level may be reduced under the expanded SALT deduction framework.
3. The use of non-grantor trusts may allow some high-income individuals to preserve access to the higher deduction cap, provided the trust itself qualifies as a separate taxpayer with AGI below the threshold.

Pass-Through Entity (PTE) Tax Changes 

• The enacted law does not restrict state-level PTE tax elections. Pass-through entities (partnerships and S corporations) in states that allow entity-level income tax payments (to bypass the SALT cap) may continue to make those elections—no federal disallowance applies.
• While earlier proposals would have limited PTE access based on entity type or service trade classifications, the final bill includes no such restrictions on non-corporate entities.
• No new federal reporting requirements related to PTE elections—such as schedules listing each owner’s details—were added in the final legislation.
• No annual election mechanics were mandated beyond standard federal procedures (electing via the entity’s return); no additional affirmative filings are required.

Planning Considerations:

1. Partnerships and S corporations that already use or plan to use state PTE elections for SALT-cap mitigation can continue doing so without change.
2. Entities should still monitor individual state-level election requirements, but can disregard earlier federal proposals aimed at restricting certain taxpayers or structures.
3. As PTE elections remain fully available, high-income individuals in high-tax states should reassess whether state PTE elections still offer optimal benefit, especially given the temporary SALT-cap increase under the new federal law.

Pass-Through Businesses – IRC §199A

• The final law permanently retains the 20% Qualified Business Income (QBI) deduction under IRC §199A for sole proprietors, partnerships, S corporations, and qualifying trusts and estates.
• It increases the phase-in ranges for wage/property limitations: from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for married joint filers.
• A new inflation-adjusted $400 minimum deduction is introduced for taxpayers with at least $1,000 of QBI from an active business.
• No other structural changes are included; the deduction rate, eligible entities, and income categories remain otherwise unchanged.

Planning Considerations:

1. Business owners should review income levels, W-2 wage and qualified property ratios, and QBI income to maximize the deduction under the expanded threshold bands.
2. Advisors should model the combined impact of the QBI deduction, enhanced SALT cap, and state PTE elections to optimize overall tax efficiency.
3. Include the $400 minimum deduction in forecasting and cash flow projections for smaller pass-through businesses meeting the $1,000 QBI threshold.

Bonus Depreciation – IRC §168

• The law makes 100% bonus depreciationpermanent for qualified property acquired and placed in service after January 19, 2025.
• This provision reverses the phase-out schedule from TCJA, which had gradually reduced bonus depreciation from 100% in 2022, to 80% in 2023, 60% in 2024, scheduled to phase-out completely by 2027.
• The definition of qualified property is expanded to include certain types of nonresidential real property used in manufacturing, refining, or production industries.

Planning Considerations:

1. Businesses planning large equipment or property acquisitions should consider accelerating purchases to take advantage of immediate expensing.
2. Cost segregation studies may help uncover additional property components eligible for bonus depreciation treatment.
3. The concurrent increase to the IRC §179 limit (from $1.25 million – $2.5 million) provides another avenue for full expensing of qualifying property. Businesses should evaluate whether bonus depreciation or IRC §179 provides a better cash flow and tax outcome.

Research & Experimental (R&E) Expenditures – IRC §174

• Domestic research and experimental expenditures are once again fully deductible in the year incurred, reversing the TCJA’s requirement to capitalize and amortize them over five years, and reinstating the pre-2022 rule.
• The amortization requirement remains for foreign research, which must still be capitalized and amortized over 15 years.
• The law provides retroactive relief for small businesses (defined as those with average gross receipts of less than $31 million) allowing them to amend prior returns and deduct domestic R&E costs immediately for tax years beginning after December 31, 2021.
• Taxpayers who previously amortized costs may elect to accelerate the remaining unamortized balance over one or two years.

Planning Considerations:

1. Eligible businesses should evaluate whether to file amended returns for 2022-2024 to reclaim prior deductions and potentially receive refunds.
2. Taxpayers should review the treatment of expenses related to software development, engineering, and other R&D activities to ensure full deductibility.
3. Coordination with the R&D credit under IRC §41 is essential, as the deductibility of R&E expenses may impact credit calculations.
4. IRS procedural guidance will likely be required for accounting method changes, taxpayers should monitor developments.
5. C Corporations planning to qualify for QSBS treatment should evaluate how the increased R&E deduction and bonus depreciation may affect their gross asset total, as the $75 million threshold is a key eligibility test.

International Tax – GILTI, FDII, BEAT, and FTC

• The final law replaces the GILTI regime with a new system taxing Net CFC Tested Income, eliminating the QBAI exemption and reducing the IRC §250(a)(1)(B) deduction from 50% to 40%. This effectively raises the minimum U.S. tax on foreign earnings from about 10.5% to 12.6%, depending on applicable foreign tax credits.
• The FDII regime is renamed Foreign-Derived Deduction Eligible Income (FDDEI) and the IRC §250(a)(1)(A) deduction is reduced from 37.5% to 33.34%, increasing the effective tax rate on qualifying foreign sales from 13.125% to approximately 14%.
• The Base Erosion and Anti-Abuse Tax (BEAT) is made permanent at a slightly increased rate of 10.5%, rather than reverting to a scheduled increase to 12.5%, thereby reinforcing BEAT as a lasting component of the corporate tax landscape.
• The foreign tax credit (FTC) under IRC §960(d)(1) for taxes on tested income increases from 80% to 90%, and IRC §78 is amended to reflect this change. However, new rules disallow FTCs for 10% of foreign taxes on previously taxed earnings under IRC §959(a), and revised allocation rules bar the apportionment of interest and R&E expenses to foreign-source tested income.
• The look-through rule of IRC §954(c)(6) is made permanent, facilitating favorable treatment for intercompany dividends and interest. The bill also restores the limitation on downward attribution under IRC §958(b)(4), and introduces a new regime under IRC §951B imposing Subpart F-like income inclusions on foreign-controlled U.S. shareholders of foreign-controlled foreign corporations (FCFCs).

Planning Considerations:

1. U.S. multinationals should review the impact of the Net CFC Tested Income regime and updated §250 deductions on their global tax rate, as the shift eliminates prior favorable exclusions.
2. With the BEAT regime now permanent, companies must closely monitor base erosion payments and assess how supply chain and licensing arrangements may increase exposure.
3. The increased 90% FTC cap, combined with stricter allocation rules and denial of credits on PTI distributions, heightens the need to align foreign tax payments with income recognition to optimize credit use.
4. The permanent look-through rule supports intercompany financing and repatriation planning, but new inclusions under §951B and restored limits under §958(b)(4) may capture previously excluded foreign structures—warranting immediate review of global ownership and reporting obligations.

Clean Energy & EV Credits

• The $7,500 electric vehicle (EV) tax credit under IRC §30D begins a phase-out period and will be completely eliminated within approximately two years. The law does not provide for an extension or replacement incentive, even for vehicles meeting the domestic content and final assembly requirements.
• Key clean energy production and investment credits, including the IRC §45 Production Tax Credit, IRC §48 Investment Tax Credit, and the newer IRC §45Y and §48E clean electricity credits, will begin a rapid phase-out starting in 2026. This significantly shortens the long-term framework created under the Inflation Reduction Act (IRA), which had extended these credits through 2032 with inflation indexing and bonus multipliers.

Planning Considerations:

1. Taxpayers considering EV purchases or renewable energy installations should act quickly, ideally by the end of 2025, to ensure eligibility for remaining federal credits.
2. Clean energy developers and installers should reassess project timelines, capital needs, and return expectations, especially where tax equity investors play a critical role in financing.
3. Companies with ongoing fleet electrification or sustainability initiatives should update investment models and consider state-level incentives to fill the gap left by expiring federal credits.
4. Businesses structured as foreign-influenced or foreign-controlled entities should pay close attention to eligibility limitations, as many of the repealed credits contained restrictions disqualifying such entities.

Energy-Efficient Incentives – IRC §§179D and 45L

• The law repeals the commercial building energy efficiency deduction  under IRC §179D and the residential energy-efficient home credit under IRC §45L, both of which had been expanded significantly under the IRA.
• These provisions will be phased out for construction projects completed after June 30, 2026.
• The elimination of these incentives marks a substantial shift away from federally supported green construction practices, particularly for developers and homebuilders.

Planning Considerations:

1. Developers, real estate investment trusts (REITs), and homebuilders should identify which projects can be completed before the June 30, 2026 cutoff, especially those relying on IRC §179D or §45L benefits to meet target IRRs.
2. Taxpayers considering energy-efficient retrofits or pursuing LEED certification may need to reassess whether such upgrades remain economically viable without federal tax offsets.
3. Design professionals and energy consultants should help clients explore alternative financing options, such as utility rebates or green bond programs.

Energy Credit Modifications – Wind Solar, and Clean Power

Under the Inflation Reduction Act of 2022, Congress created a long-term, technology-neutral framework for clean energy tax incentives intended to provide policy stability and attract investment through 2032. Some projects qualified for credit rates as high as 50% under enhanced provisions. The new law reverses many of these policies and returns energy tax treatment to pre-IRA status.

• The §45Y Clean Electricity Production Credit and §48E Clean Electricity Investment Credit are repealed for all projects that begin construction after December 31, 2026.
• Legacy credits under §45 (wind production) and §48 (solar and other energy investment) are reinstated but curtailed. Projects must begin construction before January 1, 2026, to be eligible for any credit. Only baseline credit rates will apply (e.g. 1.5 cents/kWh for wind under §45, and 10%-30% for solar under §48, depending on system size and placed-in service year, with no additional multipliers for domestic content, energy community siting, or labor standards. These credits will no longer be adjusted for inflation after 2026.
• All bonus credit provisions, including those for domestic content, energy community siting, and prevailing wage/apprenticeship labor standards are eliminated immediately, regardless of project status or construction progress.

Planning Considerations:

1. Project sponsors and developers should prioritize siting, permitting, and financing efforts in 2025 to begin construction before transitional deadlines.
2. Tax equity investors should review investment pipelines and restructure financing assumptions to reflect the removal of bonus credits and the lack of long-term policy certainty.
3. Corporations considering on-site renewables, such as solar panels for warehouses or office campuses, should revisit ROI projections to determine feasibility without enhanced federal credits.
4. For long-scale, long-lead utility projects, developers may need to restructure capital stacks, secure alternative incentives, or pursue private financing to replace lost tax equity contributions.

Qualified Small Business Stock (QSBS) – IRC §1202 Changes

Prior to the passage of this law, QSBS treatment under §1202 allowed taxpayers to exclude up to 100% of capital gains on qualifying stock if it was issued by a domestic C corporation with less than $50 million in assets, held for at least five years, and acquired after September 27, 2010. The exclusion was capped at $10 million per taxpayer per issuer, or 10 times the taxpayer’s basis, whichever was greater.

• The law modernizes and expands the QSBS benefits for stock issued after July 4, 2025 (the Effective Date):
  • A tiered gain exclusion system is introduced: 50% after 3 years, 75% after 4 years, and 100% after 5 years.
  • The per-taxpayer exclusion cap increases from $10 million to $15 million, with annual inflation adjustments, applicable only to post-Effective Date stock.
  • The gross asset test for eligible corporations increases from $50 million to $75 million, also indexed for inflation.
• The law applies IRC §1223 holding period rules, which prohibit “tacking” of holding periods in certain transactions, such as §1045 rollovers or stock-for-stock exchanges. That means post-effective Date stock acquired through such transactions must begin a new holding period to qualify for the tiered exclusions.

Planning Considerations:

1. Founders, investors, and boards planning new rounds of stock issuance should consider delaying until after July 4, 2025, to take advantage of the tiered exclusions and higher cap.
2. Taxpayers who hold both pre-and post- Effective Date QSBS should consider sequencing their sales to use the $10 million and $15 million caps separately, where possible.
3. Issuing C corporations should verify whether their aggregate gross assets remain below $75 million, factoring in anticipated capital raises, R&E deductions, and bonus depreciation.
4. Taxpayers unable to meet the 5-year holding period may still benefit from partial exclusions, offering more flexibility for M&A, secondary sales, or early exits.
5. Startups or founders currently structured as LLCs or S Corporations may consider converting to a C Corporation to qualify future equity for QSBS treatment. This decision should factor in timing of capital raises, exit plans and expected gain.

Medicaid and SNAP (Supplemental Nutrition Assistance Program)

• The law introduces work requirements for Medicaid recipients, including parents of children aged 14 and older. Most adults without qualifying disabilities will be required to work, train, or volunteer for at least 20 hours per week.
• Federal funding for Medicaid in non-expansion states is reduced, particularly by limiting the use of provider taxes to draw down federal matching funds. Beginning in 2026, provider taxes are capped at 5% of net patient revenue, gradually reduced to 3.5% by 2031.
• A new schedule of cost-sharing requirements is introduced for Medicaid enrollees. States may impost modest premiums and copayments for certain adult beneficiaries with incomes above 100% of the federal poverty level, subject to future HHS guidance.
• SNAP eligibility (formerly known as food stamps) is also restricted, requiring able-bodied adults aged 55-64 to participate in work or training programs for at least 20 hours per week. The age range expands from the previous cutoff age of 49.
• Administrative costs for SNAP are now subject to a 75% federal / 25% state cost-sharing requirement, increasing the financial burden on states administering the program. States may also face reduced federal reimbursements for failure to meet new program integrity benchmarks.
• A new national data verification system will be established to reduce duplication of benefits across state lines and to assist in verifying eligibility for Medicaid and SNAP more efficiently.

Planning Considerations:

1. Health systems, especially those in rural or non-expansion states, should evaluate how the new rules affect Medicaid reimbursements and potential patient access.
2. Nonprofits and food banks may experience increased demand for services and should consider updating grant proposals, partnerships, and donor messaging accordingly.
3. State agencies administering public benefit programs will need to prepare for expanded verification process, budget reallocations, and likely legal challenges.

Endowment and Private Foundation Excise Taxes

• The final legislation does not make any changes to the excise tax applicable to private foundations. The current 1.39% flat rate on net investment income remains in effect, and proposals to introduce a tiered rate structure or increase the tax were removed prior to final passage.
• Similarly, proposed new limitations on excess business holdings by private foundations, including expanded definitions of related-party interests and more stringent aggregation rules, were not included in the enacted law.
• However, changes affecting large private university endowments did make it into the final legislation. Institutions with at least 3,000 students and high per-student assets (as defined by updated IRS thresholds) are now subject to a higher 8% excise tax on net investment income, replacing the prior 1.4% rate.

Planning Considerations:

1. Private foundations can continue to operate under existing tax rules without concern for higher excise rates or changes to investment holding structures.
2. Universities and colleges subject to the new 8% endowment tax should re-evaluate investment strategies, spending policies, and donor outreach efforts in light of increased tax drag.
3. Donors supporting educational institutions may wish to consider alternative giving vehicles, such as donor-advised funds or private foundations, which are not subject to the higher university endowment tax.

Estate, Gift, and Generation-Skipping Transfer (GST) Tax Exemptions

• The law permanently increases the unified estate, gift, and GST tax exemption to $15 million per individual (or $30 million for married couples) beginning in 2026, indexed annually for inflation.
• This reverses the scheduled sunset of the TCJA exemption levels, which would have reduced the exemption to approximately $7.4 million per person in 2026.
• No sunset provision applies, offering long-term planning certainty for high-net-worth families.The step-up-in basis at death is preserved, maintaining the current rule that allows beneficiaries to reset the basis of inherited assets to fair market value at death.
• GST exemption limits are aligned with the new estate and gift exemption levels.

Planning Considerations:

1. Clients considering lifetime gifts or transfers to trusts should revisit their plans to leverage the permanently increased exemption amounts.
2. Grantor and non-grantor trust structures remain available for income and estate tax planning and may be particularly effective when combined with business interests or appreciating assets.
3. Founders and family business owners should consult with estate planning counsel to time transfers, particularly between 2025 and 2026, to maximize available exclusions.Families may benefit from using non-grantor trusts as separate taxpayers, potentially optimizing state income tax positioning and reducing exposure to SALT phaseouts.
4. Non-grantor trusts may continue to offer income tax flexibility, particularly where taxpayers are looking to shift income to states with no or low personal income tax. Trust residency rules should be monitored carefully.

Trump Accounts – Child Savings Vehicles

• The law introduces a new tax-advantage savings vehicle called the Trump Account, modeled after a minor’s IRA but available regardless of earned income.
• Starting in 2026, any child born in 2025 – 2028 will receive a $1,000 government contribution to a Trump Account.
• Family members can contribute up to $5,000 per child per year, regardless of income level. Contributions are not tax-deductible, but earnings grow tax-free.
• No withdrawals are permitted before the beneficiary reaches age 18, unless for death or disability.
• Accounts may only hold qualified investments, subject to future Treasury regulations.

Planning Considerations:

1. Families expecting children in 2025 should prepare to open accounts in 2026 to claim the initial $1,000 government match.
2. High-income grandparents or relatives seeking to fund a child’s future expenses may use Trump Accounts as part of long-term education or homeownership planning.
3. Advisors should track state-level coordination, especially for 529-to-Trump Account rollovers or treatment under financial aid calculations.