This summary is provided by Right Path Tax & Accounting for the benefit of our clients. It does not include every provision in the bill. Selected provisions of the bill are summarized below. 

There are a number or provisions in the One Big Beautiful Bill (OBBB or The Act) that took effect in 2025. There are many provisions that aren’t effective until 2026.

TAX TIPS

Look at the impact of the provisions related to both 2025 and 2026. The goal is to reduce your taxes in both years, not just one year. 

You may benefit from accelerating write-offs from 2026 into 2025 if you have time to do so.

If you have Medicare, consider how taxes could affect the premiums you pay. Monthly premiums for 2027 will be based on modified adjusted gross income reported on your 2025 returns. 

You can give up to $19,000 this year ($38,000 jointly) without having to file a gift tax return or use part of your lifetime gift and estate tax exclusion. 

Owners 73 and older must take required minimum distributions from traditional IRAs. Qualified charitable donations made directly from the IRA qualify as RMDs but are not taxable. 

Non-spousal beneficiaries of inherited IRAs have 10 years to fully distribute the inherited IRA. If the decedent was required to take RMDs, the beneficiary will need to take RMDs as long as there is a balance remaining in the account.  

Consider whether a Roth conversion makes sense this year. You don’t have to convert the entire IRA amount. You can convert your traditional IRA to a Roth in increments over several years.

If you own an S Corp or C Corp and expect to owe taxes, bonus yourself at the end of 2025 to increase your tax withholdings. Taxes withheld at any point in the year are treated as evenly paid throughout the year. 

Maximize retirement contributions if you have the cash available to do so.

INDIVIDUAL PROVISIONS

Standard deductions: 2025 standard deductions have increased to $31,500 for joint filers and surviving spouses, $23,625 for heads of households and $15,750 for singles and married filing separately. These will be indexed for inflation each year going forward. 

Child Tax Credit and Credit for Other Dependents: For years beginning after December 31, 2024, the nonrefundable child tax credit has increased to $2200 per child. There is a $500 credit for other dependents (children 17 or over and dependents who aren’t children, such as parents). The credit for other dependents phases out at Modified Adjusted Gross Income (MAGI) of $400,000 for married filing jointly and $200,000 for all other filers.

Individual SALT limitation: The state and local tax (SALT) deduction limitation is increasing from a maximum of $10,000 to a maximum of $40,000 for taxpayers who itemize deductions. Because of this, more taxpayers should be able to itemize deductions. The act retroactively increased the SALT cap for 2025. This deduction phases out for MAGI greater than $500,000 in 2025.   

Unified Credit for Estate and Gift Tax: Effective 2026, the basic exclusion amount will increase to $15,000,000. This provision is effective for estates of decedents dying and gifts made after December 31, 2025. When your spouse passes away, you may benefit from filing a return to combine their unused exclusion amount with your unused exclusion amount. This is not automatic. You must file an estate tax return to claim your spouse’s unused lifetime exclusion amount. Right Path can assist in preparing the forms necessary to transfer your spouse’s unused exclusion amount to you.  

Itemized Deductions: Under the OBBB, itemized deductions for high income taxpayers (income in the 37% tax bracket) will be reduced by 2/37 of the lesser of (a) the amount of the deductions or (b) the taxable income that exceeds the dollar amount at which the 37% tax rate bracket begins. 

This provision applies to tax years beginning after December 31, 2025.

Senior Deduction: Taxpayers age 65 or older, and their spouses if filing jointly, can claim a $6,000 deduction per qualified individual for tax years 2025-2028. This senior deduction is reduced by 6% for the adjusted gross income that exceeds $75,000 (or $150,000 for joint filers), meaning the $6,000 deduction is reduced to zero for gross income of $175,000 ($250,000 for joint filers). 

These changes apply for tax years beginning after December 31, 2024. 

No Tax on Car Loan Interest: For tax years 2025-2028, individuals can deduct up to $10,000 of car loan interest per year, subject to a phase-out starting at $100,000 MAGI for single filers and $200,000 for joint filers. The loan must have been used to purchase a new personal-use passenger vehicle. To qualify:

1. The debt must be incurred after 12-31-24 for the purchase of a new personal use vehicle, secured by a first lien on the vehicle, and the vehicle’s original use must begin with the taxpayer.
2. The vehicle must be a car, minivan, SUV, pickup or motorcycle, with a GVWR under 14,000 pounds, and final assembly of the vehicle must occur in the United State, and
3. The taxpayer must report the VIN on their tax return. 

This provision is effective for qualified indebtedness incurred after 12-31-24 and requires the lender to file information returns reporting interest received on qualified personal auto loans with the IRS.

Child and Dependent Care Credit: The Act increases the maximum credit rate to 50%, reduced by one percentage point, but not below 35%, for each $2,000 or fraction thereof by which the taxpayer’s AGI exceeds $15,000. For AGIs between $43,001 and $75,000 ($86,001 and $150,000 in case of a joint return), the credit rate is 35%. 

The credit is further phase down to 20% for AGO between $75,001 and $105,000 ($150,001 and $210,000 in case of a joint return). 

This provision is effective for years after December 31, 2025. 

Limitation on Residential Interest: The Act permanently lowers the deduction for qualified residential interest to $750,000 in home mortgage acquisition debt. It also permanently treats certain mortgage insurance premiums on acquisition indebtedness as qualified residential interest. 

This provision applies to tax years beginning after December 31, 2025.

Miscellaneous Itemized Deductions Terminated, Educator Expenses Excepted: The Act permanently suspends miscellaneous itemized deductions. 

It adds a deduction for unreimbursed employee expenses for eligible educators to the list of itemized deductions. 

This provision is effective for years after December 31, 2025. 

New Tax-Deferred Investment Accounts for Children: The Act creates a new tax-deferred investment account for children called a “Trump account.”

Contributions to a Trump account are limited to $5,000 annually of after-tax dollars. The $5,000 limit is indexed for inflation. 

Subject to some exceptions, Trump account holders may not take distributions until age 18.

Under a newborn pilot program, for U.S. citizens born between January 1, 2025, and December 31, 2028, the federal government will contribute $1,000 per child into every eligible account. 

This provision is effective for years after December 31, 2025. 

Enhanced Adoption Credit: Effective 2025, the adoption credit is enhanced to include a refundable portion of up to $5,000. Pre-Act law allowed taxpayers to claim a nonrefundable tax credit up to a maximum of $17,280 per child.

Qualified Higher Education Expenses for 529 Accounts: The Act increases the annual limits for 529 account distributions from $10,000 to $20,000. This limitation applies only to K-12 expenses. 

The doubled limitation applies to tax years beginning after December 31, 2025. 

Charitable Deduction Floor Imposed: The Act provides a floor of 0.5% of the taxpayer’s contribution base, which is generally, AGI, on the charitable deductions of individuals. Thus, an otherwise deductible charitable contribution must be reduced by 0.5% of an individual’s contribution base for the tax year. 

This provision applies to tax years beginning after December 31, 2025.

Non-Itemizers Charitable Deduction for Individuals: The Act provides that non-itemizers may claim a charitable deduction of no more than $1,000 ($2,000 for a joint return).

This provision applies to tax years beginning after December 31, 2025.

Limitation on Wagering Losses: The Act provides that the deduction amount for losses from wagering transactions is 90% of the amount of losses for the tax year, to the extent of the gains from such transactions during the year. 

This provision applies to tax years beginning after December 31, 2025.

PAYROLL

Covid Related Employee Retention Credits: On September 14, 2024, the IRS paused the processing of new ERC claims due to the increase of improper claims submitted using ERC mills. The ACT provides several provisions covering the enforcement by the IRS of fraudulent ERC claims. 

The Act limits the availability of ERC credits and refunds after the enactment date unless the claim was filed before February 1, 2024. The Act expands the penalty for erroneous claims for refund or credit to cover employment tax, not just income tax. 

No Tax on Tips: The deduction is up to $25,000 per year per taxpayer. The deduction phases out by $100 for every $1,000 of MAGI above $150,000 ($300,000 for joint filers). Married taxpayers must file jointly to claim the deduction. 

Tips must be reported on IRS-approved forms. 

Any amount deducted is excluded from the definition of qualified business income for purposes of the Code Sec. 199A deduction, preventing double tax benefits. 

This provision applies to taxable years beginning after December 31, 2024. 

No Tax on Overtime: Taxpayers may deduct up to $12,500 per year in qualified overtime compensation ($25,000 for joint filers). The deduction phases out by $100 for every $1,000 of MAGI above $150,000 ($300,000 for joint filers).

Overtime must be properly reported on IRS forms such as W-2s or 1099s. 

Married individuals must file jointly to be eligible for the deduction. 

For overtime earned before January 1, 2026, reporting entities may use reasonable methods to estimate and report qualifying amounts. 

This provision applies to taxable years beginning after December 31, 2024. 

Employer Payment of Student Loans: Educational assistance provided under an employer’s qualified assistance program, up to an annual maximum of $5,250, is excluded from the employee’s income. 

The Act makes permanent the employee exclusion for qualifying employer payments of student loans. 

This provision applies to payments made after December 31, 2025. 

ENERGY INCENTIVES

The Act terminates the following energy incentives:

• The credit for wind energy components produced and sold after December 31, 2027. 
• The energy efficient home improvement property credit for any property placed in service after December 31, 2025.
• Residential clean energy expenditures credit for expenditures after 12-31-25.
• Energy efficient commercial building deduction for the cost of energy efficient commercial building deduction for property the construction of which begins after June 30, 2026. 
• The previously owned clean vehicle credit terminates for vehicles acquired after 9-30-25.
• The clean vehicle credit for vehicles acquired after 9-30-25.
• The qualified commercial clean vehicle credit for vehicles acquired after 9-30-25.
• The alternative fuel vehicle refueling property credit for property placed in service after 6-30-26.
• The new energy efficient home credit sunset date is accelerated to June 30, 2026. Builders and developers will no longer be eligible to claim the credit for homes acquired after that date. 

BUSINESSES

Qualified Business Income: There are limitations and income thresholds for the QBI deduction based on what type of business it is. The current phase-out income threshold for QBI for certain businesses is $197,300-$247,300 for single filers and $394,00-$494,600 for joint filers. The phase-out ranges increase from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers for tax years beginning after December 31, 2025. 

Bonus Depreciation: The Act permanently sets bonus depreciation at 100%.

This provision is effective for property acquired after January 19, 2025.

Corporate Charitable Contributions: The Act provides that allowable contributions by a corporate taxpayer will be allowed only to the extent that the aggregate of such contributions exceeds 1% of the taxpayer’s taxable income for the tax year. The deduction can’t exceed 10% of the corporation’s taxable income computed without regard to the charitable contribution.  

Disallowed contributions can be carried forward for five years. 

This provision applies to tax years beginning after December 31, 2025.

Increased Information Reporting Threshold (1099s): The Act increases the general reporting threshold and the reporting threshold for remuneration to non-employees from $600 to $2,000. 

This provision is effective for payments made after December 31, 2025.

Capital Gains from the Sale of Certain Farmland Property: The Act allows sellers of qualified farmland property to elect to pay capital gains tax resulting from the sale in four equal annual installments. 

Qualified farmland property means real U.S. property used as a farm or leased to a qualified farmer (defined in the Food Security Act of 1986). To qualify, the property must be used substantially for farming purposes for the 10 years preceding the sale. The property must also be subject to prohibitions on non-farm use for at least 10 years after the sale. 

Business Meals: Taxpayers may deduct food and beverage expenses associated with operating the taxpayer’s trade or business with some exclusions and limitations. 

The deduction for meals provided for the convenience of the employer is eliminated entirely for amounts paid or incurred after December 31, 2025.  

The deduction for de minimis food and beverages provided to employees, such as coffee, snacks, and drinks is eliminated entirely for amounts paid or incurred after December 31, 2025. 

50% deductible: meals with customers and clients; meals for business travel

100% deductible: holiday parties and team-building events

0% deductible: meals for employer convenience; meals at entertainment events; office drinks and snacks.