July 21st, 2025
On July 4, 2025, H.R. 1, the One Big Beautiful Bill Act, became law. This 887-page Act impacts taxes, agriculture, transportation, education, homeland security, armed services, energy, financial services, immigration, natural resources, and more. This article highlights key tax provisions in the Act. It does not discuss international tax reforms or those related to education. Another post will detail the so-called “skinny farm bill” implemented by the Act. In total the massive Act contains $12.9 trillion in tax provisions. The Congressional Budget Office has estimated that the tax title of the Act will increase the deficit by $3.4 trillion over 10 years. While most of the tax provisions extend or modify current law, the title contains new additions to the tax code as well.
The Act permanently extends the tax rates and brackets in IRC §1(j) enacted by the Tax Cuts and Jobs Act. Additionally, it adds an extra year of inflation adjustments to the end of the10 percent and 12 percent brackets, increasing the income at which the 22 percent bracket begins.
The 2025 standard deduction under IRC §63(c) was slated to be $15,000 for singles and $30,000 for marrieds in 2025 but to revert to half of those amounts (indexed for inflation) in 2026. The Act makes the increased standard deduction permanent, while also providing an increase in the deduction to $15,750 for singles, $23,625 for heads of household, and $31,500 for marrieds filing joint, beginning in 2025.
In 2017, taxpayers could generally take a personal exemption of $4,050 for themselves, their spouse, and each of their dependents. The TCJA suspended the personal exemption from 2018 through 2025. The Act permanently repeals the personal exemption, but it adds a new temporary deduction for seniors.
For tax years 2025-2028, the Act provides seniors (those 65 years of age and older) with an additional $6,000 deduction under I.R.C §151. If seniors are married, each spouse who is 65 and older is entitled to the deduction, as long as they file a joint return and meet the income requirements. The senior deduction begins to phase out for taxpayers with incomes of $75,000 (single) or $150,000 (MFJ). The deduction is available for seniors who take the standard deduction and for those who itemize deductions. Taxpayers must have a social security number to claim this deduction.
Under IRC §24, the Act permanently creates an enhanced child tax credit of $2,200 (beginning in 2025) for qualifying children under 17. This amount is adjusted for inflation after 2025. The Act also permanently retains the current, higher income phase-out thresholds ($200,000 for singles and $400,000 for MFJ). Additionally, the Act makes permanent the $1,400 refundable portion of the credit, indexed for inflation (currently $1,700) and the $2,500 earned income requirement to receive a refundable credit.
The Act also makes permanent the $500 nonrefundable credit for other dependents who do not qualify for the child tax credit, including those over the age of 16, and makes permanent a requirement that the child and at least one parent have a social security number.
The Act makes permanent the 20 percent qualified business income deduction for sole proprietors and pass-through businesses under IRC §199A. This includes the IRC §199A(g) deduction for agricultural cooperatives and their patrons. The Act also increases the phase-in range of the SSTB and wage and investment limitations for businesses. This phase-in range for the income phase-out increases from $50,000 to $75,000 for singles and from $100,000 to $150,000 for joint filers.
The Act includes a new minimum $400 deduction for taxpayers with at least $1,000 in “active” qualified business income. Both amounts will be adjusted annually for inflation. To qualify for this minimum deduction, the taxpayer must materially participate in the business, as defined by IRC §469(h).
The enhancements to the QBI deduction are effective in 2026.
The Act permanently increases the estate and gift tax exemption (basic exclusion), beginning in 2026, to $15 million per person, indexed for inflation each year after that. IRC §2010(c)(3). The basic exclusion for 2025 remains $13.99 million per person.
The Act extends the TCJA’s increased AMT exemptions permanently, with a few tweaks. IRC §55. First, the Act resets the phaseout thresholds to the 2018 levels of $500,000 for singles and $1 million for joint filers (they have been adjusted for inflation since 2018). Second, the AMT exemption amounts are reduced by 50 cents (currently 25 cents) of every dollar once AMT income surpasses the income threshold. In other words, the AMT exemption will phase out more quickly.
The Act makes permanent the TCJA provision lowering the home mortgage interest deduction from $1 million ($500,000 married filing separately) to $750,000 ($375,000 married filing separately). IRC §163(h). It also permanently excludes home equity indebtedness from the definition of qualified residence interest (does not apply to loan used to buy, build, or substantially improve the taxpayer’s home that secures the loan). Beginning in 2026, the Act treats mortgage insurance premiums as qualified residence interest.
The Act makes permanent the TCJA provision limiting the deduction of casualty or theft losses of personal-use property to those attributable to federally declared disasters. IRC §165(h). These deductions are subject to $100 per casualty and 10 percent of adjusted gross income (AGI) reductions unless they are attributable to a qualified disaster loss. Personal casualty and theft losses attributable to a qualified disaster loss are not subject to the 10 percent of AGI reduction, but the $100 reduction is increased to $500. New in 2026, the Act extends the casualty loss deduction to include those losses attributable to a “State declared disaster.”
The Act makes permanent the TCJA suspension of all miscellaneous itemized deductions subject to the 2% floor, including, for example, unreimbursed employee expenses, hobby expenses, and investment fees. IRC §67(g). Beginning in 2026, the Act carves out a special exemption for unreimbursed “educator expenses,” including those incurred by coaches for non-instructional athletic equipment. Educators can now deduct these educator expenses as an itemized deduction, with no special dollar limit. The $300 above the line deduction remains available. IR. §62.
The Act permanently suspends the Overall Limit on Itemized Deductions (Pease limitation), but replaces it with a new, simpler limit on the tax benefit of itemized deductions. IRC §68. The amount of eligible deduction is reduced by the lesser of 2/37 of the itemized deductions or the amount by which the taxpayer’s income exceeds the beginning of the 37 percent tax bracket.
The Act permanently ends the exclusion for a qualified bicycle commuting reimbursement that was in place before the TCJA. IRC §132(f).
The Act permanently repeals the deduction for moving expenses (except in the case of certain Armed Forces and federal Intelligence Community personnel) and permanently ends the exclusion from income for moving expense reimbursements (except for certain active-duty personnel in the Armed Forces and Intelligence Community). IRC §217(k).
The Act limits wagering losses to 90 percent of the loss and only to the extent of the gains from the transactions. IRC §165. It also clarifies that losses from wagering transactions include any deduction otherwise allowable in carrying on any wagering transaction. These provisions apply beginning in 2026.
The Act permanently extends the TCJA’s increased contribution limits and extends and enhances the Savers credit allowed for ABLE contributions. IRC §§529A, 25B. It also makes permanent the ability to rollover a qualified tuition programs into an ABLE account.
The Act permanently excludes from gross income student loans discharged because of the death or permanent disability of the student. The Act requires the taxpayer’s social security number to be included on the return for the year of the discharge. IRC §108(f)(5).
Beginning in 2025, the Act sets a $40,000 limit for the deduction of state and local taxes. IRC §164(b)(6). The TCJA set the limit at $10,000. In 2026, the Act raises the limit to $40,400. Each year, through 2029, the limit increases to 101 percent of the prior year’s limit. Beginning in 2030, the limit is set at $10,000.
From 2025 – 2029, the deduction limit is reduced by 30 percent of the amount by which the taxpayer’s MAGI exceeds $500,000 in 2025, $505,000 in 2026, and 101 percent of the prior year’s income threshold through 2029. In no case can the deduction limit fall below $10,000.
Unlike earlier bills, the Act does not address or seek to limit the pass-through entity tax (PTET) workarounds that have been enacted by most states.
The Act creates a temporary federal income tax deduction in an amount up to $25,000 for “qualified tips” included on a Form W-2, 1099-K, 1099-NEC, or reported by the taxpayer on Form 4317. The deduction is available for tax years 2025-2028. IRC §224.
The Act defines “qualified tips” as any cash tip received by an individual in an occupation that “traditionally and customarily” received tips on or before December 31, 2024. The tip deduction begins to phase out for those with MAGI above $150,000 ($300,000 MFJ). The deduction requires the taxpayer to include a social security on the return. It is not available to those in specified service trades or businesses or if the tip is not completely voluntary.
The Act creates a federal income tax deduction for qualified overtime compensation received during the year. IRC §225. The deduction is limited to $12,500 ($25,000 in the case of a joint return), and it is in effect for tax years 2025-2028. Qualified overtime compensation is overtime pay required under the Fair Labor Standards Act. This deduction begins to phase out for those with MAGI above $150,000 ($300,000 MFJ). Qualified overtime must be reported separately on a W-2 or a 1099 (if the taxpayer is not an employee), and a social security number must be included on the tax return.
The Act creates a new deduction for “qualified passenger vehicle loan interest.” IRC §163(h). This deduction is in place for tax years 2025-2028. Generally, qualified passenger vehicle loan interest is interest paid or accrued on debt incurred after December 31, 2024, for the purchase of (and secured by a first lien on) an applicable passenger vehicle for personal use. Deductible interest per year is capped at $10,000 and phases out when MAGI exceeds $100,000 (singles) or $200,000 (MFJ). It is totally eliminated when MAGI reaches $150,000 (singles) or $250,000 (MFJ).
An applicable passenger vehicle must be manufactured for use primarily on public streets, roads, and highways and have at least two wheels. Final assembly of the vehicle must occur in the United States.
The Act creates a new type of tax-preferred savings account for children. These accounts are established as IRAs under IRC §408(a), but they are not Roth IRAs, and there is no tax deduction for contributions.
The account must be established before the year the child turns 18, and the child must have a social security number. The contribution limit is $5,000 per year, indexed for inflation. Contributions are allowed until the year the beneficiary turns 18 years old. No contributions can be made until 12 months after July 4, 2025 (the date of enactment). Parents and other relatives can contribute to Trump accounts. Additionally, employers can contribute up to $2,500 of the $5,000 yearly contribution, and the employer contribution is not gross income to the beneficiary or the parent. The Act also allows other entities, non-profits, and governmental entities to contribute to Trump accounts. Contributions from these entities are not subject to the $5,000 limit, but these contributions must be provided to all children within a “qualified group.” Some rollover contributions are allowed.
The Act creates a pilot program where the Secretary of the Treasury will contribute $1,000 into an eligible account of each qualifying child (U.S. citizens born 2025-2028). If a Trump account has not been established for a child when a parent files a tax return, the IRS will create the account and notify the taxpayer responsible for the child. The Trump account can be declined. To receive the $1,000 credit, the taxpayer with the qualifying child must include the social security number of themselves and their child on their tax return.
Earnings from Trump accounts are not subject to tax until the money is distributed. Generally, no distributions from the account are permissible until the account holder reaches 18. It appears that traditional IRA distribution rules apply.
The TCJA allowed 100 percent bonus depreciation through 2022 for qualifying property acquired and placed into service after September 27, 2017. It then established a phase-out over the next four years, in increments of 20 percent. For assets placed in service in 2025, the phase-out limits the bonus depreciation deduction to 40 percent of the basis. Bonus depreciation was scheduled to end in 2027.
The Act permanently increases bonus depreciation to 100 percent of basis for property acquired after January 19, 2025. IRC §168(k). This includes trees and vines planted or grafted after January 19, 2025. For property placed in service during the first taxable year ending after January 19, 2025, the taxpayer can elect to have 40 percent bonus depreciation apply. This election also applies where trees and vines are planted or grafted during the first taxable year ending after January 19, 2025.
Beginning in 2022, research or experimental expenses were not deductible under IRC §174. Instead, the expenses were required to be amortized over five years. This was a change made by the TCJA, but it was not effective until 2022.
The Act permanently restores a present deduction for domestic research or experimental expenses paid or incurred in taxable years beginning after December 31, 2024. Research expenses attributable to research conducted outside of the United States must be amortized over 15 years.
At the election of a small business taxpayer meeting the $31 million gross receipts test under IRC §448(a)(3), research expenses can be deducted for tax years beginning after Dec. 31, 2021. Large taxpayers may elect to accelerate the capitalized expenses they paid in years 2022-2024 over one to two years.
The TCJA restricted business interest deductions generally to 30% of adjusted taxable income (ATI), beginning in 2018, for those taxpayers that meet the gross receipts test of IRC §448(c) ($31 million for prior three years in 2025). Until 2022, taxpayers subject to the limit could add back depreciation, amortization, and depletion to their ATI, thereby increasing the amount of their allowable business interest deduction. Beginning in 2022, ATI was reduced by depreciation, amortization, and depletion deductions. As such, business interest deductions were reduced.
The Act permanently restores the provision computing ATI without a deduction for depreciation, amortization or depletion. IRC §163(j). This applies to taxable years beginning after December 31, 2024. The Act also expands the definition of motor vehicles to allow a business interest deduction for floor plan financing of campers and trailers.
IRC §45S provides employers with a general business credit of12.5 percent to 25 percent of wages paid to qualifying employees on family and medical leave (up to 12 weeks). The Act makes this credit permanent.
The 50 percent deduction for meals for the convenience of employers is scheduled to end at the end of 2025. IRC §274(o). The Act specifies that meals provided on certain fishing boats and at certain fish processing facilities are allowed a full deduction after December 31, 2025.
A taxpayer may generally elect to treat the cost of any IRC §179 property as an expense, deductible for the tax year in which the property is placed into service. The maximum IRC §179 deduction for 2025 was scheduled to be $1,250,000, with an investment limit of $3,130,000. These higher amounts ($1,000,000 / $2,500,000, indexed for inflation) were enacted by the TCJA. They are adjusted for inflation each year.
The Act permanently increases the maximum §179 deduction to $2,500,000 and increases the phaseout threshold amount to $4,000,000 for property placed in services in taxable years beginning after 2024. These amounts will be indexed for inflation after 2025.
Nonresidential real property is commercial property for which straight line depreciation is taken over a 39-year recovery period. An exception to this rule is “qualified improvement property,” which is an improvement to the interior of nonresidential real property placed in service after the building is placed in service. Qualified improvement property has a 15-year class life and is eligible for bonus depreciation and §179. Nonresidential real property does not include farm buildings (20-year class life) or residential real property (27.5-year class life).
The Act creates IRC §168(n), which provides an elective 100 percent depreciation allowance for “qualified production property,” defined as any portion of nonresidential real property that meets the following requirements:
Qualified production activity includes the manufacturing, production, or refining of tangible personal property. “Production” is limited to agricultural production and chemical production. Qualified production property does not include the portion of nonresidential real property used for offices, administrative services, lodging, parking, sales activities, software engineering activities, or other functions unrelated to manufacturing, production, or refining of tangible personal property.
If the property is not used for a qualifying use during the 10-year period beginning on the date the property is placed in service, IRC §1245 recapture rules apply.
The Act increases the amount of qualified child care expenses taken into account for the employer-provided child care credit under IRC §45F from 25 percent to 40 percent, beginning in 2025. The Act increases the credit cap from $150,000 to $500,000 and to $600,000 for eligible small businesses.
The Act provides that up to $5,000 of the adoption credit under IRC §23 is refundable. This applies beginning in 2026. The amount will be adjusted for inflation annually.
The Act permanently increases the maximum income exclusion for employer-provided dependent care under IRC §129 from $5,000 to $7,500.
Beginning in 2026, the Act permanently increases the qualifying expenses that may be used to calculate the credit from 25 percent to 50 percent. This credit rate is phased down as income increases. IRC §21(a).
The Act permanently extends provisions applying to Opportunity Zones and makes some general changes to the law. IRC §1400Z. The Act creates a new Opportunity Zone window from 2027 through 2033.
The Act creates a permanent charitable deduction under IRC §170(p) for those who do not itemize deductions. This deduction is limited to $1,000 for singles and $2,000 for MFJ. This deduction applies to tax years beginning after December 31, 2025.
For taxpayers who itemize, the Act imposes a new 0.5 percent floor on the charitable contribution deduction. IRC §170(b). In other words, an individual may only take a deduction for contribution amounts that exceed 0.5 percent of their contribution base (typically AGI). The Act sets a floor of 1 percent for corporate charitable contributions.
Corporate charitable contributions are further limited to 10 percent of taxable income. The Act makes permanent the individual contribution limit of 60 percent of contribution base for cash gifts to public charities.
These changes are effective for tax years beginning after December 31, 2025.
The Act expands the qualified small business stock exclusion under IRC §1202 to allow a 50 percent exclusion if stock is held for three years, a 75 percent exclusion if stock is held for four years, and a 100 percent exclusion if stock is held for five years or more. The Act also increases the eligible corporation’s asset limit from $50 million to $75 million.
The Act provides that a third-party settlement organization is not required to report unless the aggregate value of third-party network transactions with respect to a particular payee for the year exceeds $20,000 and the aggregate number of such transactions exceeds 200. This rule applies to returns made after 2021. IRC §6050W.
Current law requires those engaged in a trade or business to file an information return if they make payments to any person totaling $600 or more in the course of the trade or business. IRC §6041(a). A copy of the Form 1099-NEC or 1099-MISC must also be provided to the payee.
The Act increases the payment threshold for these information returns to $2,000 per payee, beginning with payments made in 2026. The Act also ensures that backup withholding requirements correspond to the new threshold.
The Act allows banks insured under the Federal Deposit Insurance Act, domestic entities owned by a bank holding company, State or Federally regulated insurance companies, domestic entities owned by a State law insurance holding company, and the Federal Agricultural Mortgage Corporation (“Farmer Mac”) to exclude from gross income 25 percent of interest income derived from loans if the loans are secured by:
IRC §139K. This provision is effective for taxable years ending after July 4, 2025.
The Act creates a new election through which those selling farmland property to a qualified farmer can choose to pay their taxes on the gain in four equal installments. IRC §1062. The election is available to individuals, trusts, and entities that have either farmed the property or leased it to a qualified farmer for 10 years prior to the sale.
The seller can only make the election if the land is subject to a covenant or other legally enforceable restriction which prohibits the use of the property other than as a farm for farming purposes for 10 years after the date of the sale or exchange. A copy of the covenant must be filed with the first tax return.
A “qualified farmer” is an individual who is actively engaged in farming.
This provision is effective for sales or exchanges occurring in tax years beginning after July 4, 2025.
The Act repeals or scales back many of the clean energy credit implemented by the Inflation Reduction Act. The Act does not restrict the transferability of credits to domestic entities as earlier bills would have done.
The Act ends all clean vehicle credits—including the IRC §30D clean vehicle credit, the IRC §25E previously owned clean vehicle credit, and the IRC §45W commercial clean vehicle credits—for all vehicles purchased after September 30, 2025.
The Act also ends the alternative fuel vehicle refueling property credit under IRC §30C for property acquired after June 30, 2026.
The Act repeals the energy efficient home improvement credit under IRC §25C for property placed in service after December 31, 2025. This credit applies to energy efficient windows, doors, HVAC property, and home energy audits.
Likewise, the Act terminates the residential clean energy credit under IRC §25D for expenditures made after December 31, 2025. This is the 30 percent credit for the installation of solar, small wind, and geothermal heat pump property in a home.
The Act also repeals the IRC §179D energy efficient commercial buildings deduction where construction begins after June 30, 2026, and the new energy efficient home credit under IRC §70508 for homes acquired after June 30, 2026.
The Act restructures the IRC §45Y clean electricity production credit, in particular restricting the credit for wind and solar facilities where construction begins after July 4, 2026. For those projects, no credit is allowed if the facility is placed in service after December 31, 2027. For all types of projects receiving material assistance from a prohibited foreign entity, no credit is allowed where construction begins after December 31, 2025. For other projects (not wind or solar) the credit phases out for projects where construction begins in 2034 and ends where construction begins after 2035.
The Act also changes the IRC §48E clean electricity investment credit, restricting the credit for wind and solar facilities where construction begins after July 4, 2026. For those projects, no credit is allowed if the facility is placed in service after December 31, 2027. For all types of projects receiving material assistance from a prohibited foreign entity, no credit is allowed where construction begins after December 31, 2025. For other projects (not wind or solar) the credit phases out for projects where construction begins in 2034 and ends where construction begins after 2035.
The Act extends the clean fuel production credit under IRC §45Z for fuel sold through December 31, 2029. The Act also restricts the credit to fuel produced from domestic feedstocks. For fuel produced after 2025, the Act reduces the credit for sustainable aviation fuel from $1.75 per gallon to $1.00 per gallon.
The Act largely leaves the current IRC §45Q carbon oxide sequestration credit intact. It does add a provision to allow all uses (not just sequestration) to receive the same $85/ton rate. The credit is not scheduled to expire until 2033. The Act terminates transferability of the credit to specified foreign entities.
Under IRC §461(l)(3)(A), an “excess business loss” is a loss that exceeds $500,000 (married filing jointly) or $250,000 (single). These limit amounts have been indexed for inflation, so that in 2025, loss limits are $626,000 for MFJ and $313,000 for singles. Currently, any loss disallowed by this rule is treated as a net operating loss and subject to NOL carryover rules. Although 2025 was originally the last year for this provision, intervening legislation has further extended this provision through December 31, 2028.
The Act makes the excess business loss limit for non-corporate taxpayers permanent. The rule continues to treat disallowed losses as NOLs.
The Act prevents any payment of third and fourth quarter employee retention claims unless the claim for credit or a refund was filed on or before January 31, 2024. IRC §3134. It also increases enforcement and penalties for promoters. This includes a new $1,000 penalty per failure for failing to comply with due diligence requirements.
The Act requires a social security number for eligibility for the American Opportunity Tax Credit and the Lifetime Learning Credit. IRC §25A.
The Act creates a task force to assess the cost and feasibility of replacing direct file with different options.
Original article published July 9, 2025. Reprinted here with permission.
By Kristine Tidgren
Director, Center for Agricultural Law & Taxation
Adjunct Assistant Professor, Agricultural Education
Iowa State University
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