On July 4, 2025, President Trump signed into law a Reconciliation bill making permanent many of the provisions of the 2017 Tax Cuts and Jobs Act (TCJA).
We have summarized the provisions that have the most impact on individuals and small businesses.
INDIVIDUAL INCOME TAXES
Income Tax Rates
Under the OBBBA, current income tax rates are made permanent for tax years after 2025. The rates are currently 10%, 12%, 22%, 24%, 32%, 35%, and 37% in 2025. All brackets will continue to be indexed for inflation.
Standard Deduction
The OBBBA increases and makes permanent the TCJA’s Expansion of the Standard Deduction.
In 2025, the Standard Deduction for unmarried individuals increased (other than surviving spouses and Head of Household) from $12,000 to $15,750. For Head of Households – from $18,000 to $23,625.
Additional deductions are available for certain individuals age 65 and older. The OBBBA temporarily increases the additional deduction from $2,000 to $6,000. This deduction phases out when modified adjusted gross income exceeds $75,000 ($150,000 for married couples filing jointly). The deduction is available regardless of whether you itemize or take the standard deduction. You must have a social security number to qualify for the deduction.
Permanent Exemptions
The OBBBA permanently eliminates the personal exemptions.
State and local income tax deductions
For federal income tax purposes, an individual generally may deduct any state and local income and property taxes paid by the individual. The TCJA limits that deduction to $10,000 ($5,000 for married individuals filing separately), which often is referred to as the state and local tax (SALT) cap.
The OBBBA provides a temporary increase of the SALT cap in 2025 through 2029. In 2025, the cap is $40,000 ($20,000 for married individuals filing separately) and is reduced for individuals with modified adjusted gross income in excess of $500,000 ($250,000 for married individuals filing separately) by 30% over the threshold until it reaches $10,000 ($5,000 for married individuals filing separately).
In 2026 through 2029, the cap will increase by 1% over the prior year’s cap, and the income threshold. In 2030, the cap reverts to $10,000 ($5,000 for married individuals filing separately).
Mortgage interest deduction
The TCJA lowered the limitation relating to acquisition indebtedness so that only the interest on the first $750,000 of acquisition indebtedness ($375,000 in the case of married individuals filing separately) is deductible, and it eliminated any interest deduction for home equity loans. The OBBBA makes the TCJA provisions permanent and also treats mortgage insurance premiums as interest for purposes of the deduction and its limitations.
Miscellaneous itemized deductions
The OBBBA permanently eliminates miscellaneous itemized deductions, except for certain unreimbursed employee expenses for eligible educators.
In addition, before 2018, high-income individuals were required to reduce otherwise permitted personal deductions (such as miscellaneous itemized deductions and the charitable deduction). The limitation often is referred to as the Pease limitation, after Congressman Donald Pease, an author of that tax law. The Pease limitation could reduce deductions by up to 80%. The TCJA temporarily eliminated this limitation, allowing individuals to fully deduct permitted deductions regardless of income.
The OBBBA makes the repeal of the Pease limitation permanent and replaces it with a new limitation on itemized deductions that reduces the benefit for individuals at the highest income tax bracket. For example, an individual at the 37% bracket generally saves 37 cents for every one dollar of deduction. This new limitation generally caps the value of each dollar of itemized deductions at 35 cents and applies only to individuals in the highest income tax bracket. The limitation does not apply to the pass-through entity deduction under Section 199A.
In addition, the OBBBA limits the charitable contributions for taxpayers who itemize by providing a deduction only for charitable contributions to the extent that they exceed 0.5% of the taxpayer’s adjusted gross income (with certain modifications).
Limitation on Wagering Losses
This provision limits the deduction for wagering losses to 90% of such losses and only to the extent of wagering winnings.
Temporary deductions for tips
The OBBBA includes a deduction for qualified tips up to $25,000, which begins to phase out for individuals whose modified adjusted gross income is over $150,000 ($300,000 in the case of married couples filing jointly). The deduction is effective in 2025 through 2028.
Deduction for overtime pay
The OBBBA also includes a deduction for qualified overtime compensation, limited to $12,500 ($25,000 for married couples filing jointly). The deduction begins to phase out for individuals whose adjusted gross income exceed $150,000 ($300,000 for married couples filing jointly). The deduction is effective in 2025 through 2028.
Alternative minimum tax
The OBBBA makes the AMT changes in the TCJA permanent and increases the rate at which the exemption is phased out (at certain income tax thresholds).
Child Tax Credit
The OBBBA makes the TCJA changes permanent and also increases the child tax credit from $2,000 to $2,200 in 2025, with an inflation adjustment in 2026 and thereafter. In addition, both the parent (or at least one parent for married couples filing jointly) and each child for whom they are claiming the credit must have a social security number.
Clean energy credits
The OBBBA accelerates the termination of certain tax credits available to individuals for the purchase of certain clean vehicles and for energy efficient home improvements. Under current law, most of the credits are set up to expire December 31, 2032. The OBBBA generally accelerates the expiration of the credits related to the purchase of clean vehicles to those acquired before September 30, 2025. It also accelerates the expiration of the advanced refueling property credit to June 30, 2026, and generally accelerates the expiration of the credits related to energy efficient home improvements to December 31, 2025.
Gift and estate taxes
Each individual has a lifetime gift and estate tax exemption that they can use to transfer assets either during their lifetime or at their death without incurring any federal gift or estate taxes.
The OBBBA increases the base exemption amount to $15 million starting in 2026, with an annual inflation adjustment beginning in 2027. An additional tax, the generation-skipping transfer (GST) tax, applies to certain gifts and transfers from one generation to a recipient who is two or more generations (or, for unrelated individuals, a certain number of years) below the donor’s generation. The exemption from the GST tax is the same as the exemption for gift and estate taxes and would thus increase accordingly.
Qualified business deduction
The TCJA created a new 20% pass-through entity deduction under Section 199A of the Internal Revenue Code for qualified business income. The deduction is available to certain owners of business entities that are taxed at the company level, like a C Corporation, but instead, which pass the income through the business’s owners, like partnerships, multi-member limited liability companies (LLCs) taxed as partnerships and S corporations.
The OBBBA makes the pass-through entity deduction permanent. The OBBBA also creates a new minimum deduction of $400 for taxpayers with at least $1,000 of pass-through income beginning in 2026. The deduction and income threshold are adjusted for inflation starting in 2027.
Bonus depreciation
The TCJA provided for a phase out of the Bonus Depreciation provision. Current law only allowed an immediate deduction of 40% of the cost of qualified property in 2025.
The OBBBA allows taxpayers to take a deduction of 100% of the cost of qualified property acquired on or after January 20, 2025, for property placed in service before January 1, 2031. It further provides for an elective 100% deduction equal to the adjusted basis of qualified production property for the tax year the property is placed into service. Qualified production property is generally defined as any non-residential property located in the United States or any of its possessions to be used for the manufacturing, production, or refining of tangible personal property. The construction of the qualified property must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031.
