Written by: Cesar Grullon, CPA & Spencer Feng, CPA
On July 4, 2025, President Trump officially signed H.R.1, the One Big Beautiful Bill Act (OBBBA). This landmark legislation provides substantial relief to American families and businesses through strategic tax code modernization. Key provisions include:
Business Growth Initiatives
Enhanced Depreciation Benefits
- Restores bonus depreciation to 100% for property placed in service after January 19, 2025.
- Fixed asset expensing (Section 179) limits increased from $1 million to $2.5 million, with phase-outs beginning at $4 million for property placed in service after December 31, 2024.
- 100% Bonus Depreciation for Qualified Production Property for Domestic manufacturers. Construction on property must begin after January 19, 2025, before January 1, 2029, and must be placed in service by December 31, 2030.
- Qualified Production Property is generally defined as nonresidential real property which is used by taxpayers as an “integral part of a qualified production activity,” including the manufacturing, production, or refining of a tangible personal property product (excluding food or beverage prepared in the same building as a retail establishment in which such property is sold).
International Business Changes
- Global Intangible Low-Taxed Income (GILTI) Deduction: Starting January 1, 2026, the GILTI deduction has been reduced from 50% to 40% which causes the effective tax rate to increase to 12.6%.
- GILTI Foreign Tax Credits (FTCs): Starting January 1, 2026, GILTI FTCs have been increased from 80% to 90% allowance, which creates a 14% foreign tax threshold above which no residual U.S. tax is owed.
- Foreign-Derived Intangible Income (FDII) Deduction: Starting January 1, 2026, the FDII deduction reduced from 37.5% to 33.34% which causes the effective tax rate to increase to 14%.
Research & Development Revival
- Permanently reinstates immediate 100% expensing for domestic research and development (R&D) costs, eliminating the capitalization and five-year amortization requirement previously required by the Tax Cuts and Jobs Act (TCJA).
- Foreign R&D maintains 15-year amortization schedule.
- Certain eligible small business taxpayers will have the ability to amend their 2022 through 2024 tax returns to retroactively apply the new domestic research expensing rules. Amended returns for this purpose can be filed up to one year after the enactment of this rule, which means the last day to amend would be July 4, 2026.
Expanded Interest Expense Deductibility
- Adjusted taxable income can now be permanently based off earnings before interest, taxes, depreciation, and amortization (EBITDA) as opposed to EBIT. This will allow taxpayers to deduct more interest expense in a given tax year.
- Foreign inclusions, such as Subpart F and GILTI (inclusion of foreign subsidiary income, now NCTI) and the associated gross-up amounts are removed from the adjusted taxable income calculation as well.
- Ordering rules for interest expense modifying calculations are changed, requiring taxpayers to calculate their interest expense limitation before the application of any other interest expense capitalization provisions
Income Tax Updates
- Tax-Free Tips & Overtime: First $25,000 deductible, phasing out with earnings over $150,000.
- Overtime Deduction: First $12,500 deductible through 2028, phasing out with earnings over $150,000.
- Child Tax Credit: Increased to $2,200 (2025-2028).
- Car Loan Interest: New tax deduction for interest paid on American-manufactured vehicles of up to $10,000 for 2025 through 2028. Phase out of $100,000 for single and $200,000 for married (purchased after 12/31/24).
- Standard Deduction: Permanently increased to $15,750 (single), $31,500 (married), and $23,625 (head of household).
- Senior Tax Deduction: Each person over the age of 65 can deduct an additional $6,000 phasing out with earnings over $75,000 ($150,000 married).
- State & Local Tax (SALT) Relief: Increase deduction to $40,000 for incomes up to $500,000 through 2029 and will be adjusted accordingly for inflation. For incomes between $500,000 and $600,000, the deduction is reduced by 30% of the income exceeding $500,000. This deduction will go back to $10,000 for all income levels in 2030.
- Charitable Contribution Deduction:
- The 60% ceiling for cash gifts is made permanent.
- Charitable contributions must now exceed a floor of 0.5% of adjusted gross income (AGI) to be deductible. For a married couple with an AGI of $500,000, this means the first $2,500 of charitable contributions are non-deductible.
- Non-itemizing taxpayers may now claim a deduction up to $1,000 ($2,000 if married) for cash contributions.
- These changes will come into effect for the 2026 tax year – please don’t hesitate to contact your engagement team for any philanthropic planning prior to these changes.
- Qualified Small Business Stock (QSBS) Exclusion: For QSBS eligible stock acquired after July 4, 2025, the exclusion limit per company is increased from $10 million to $15 million. Also, the five-year holding rule is reduced to a graduated rate (50% gain exclusion for stock held three years, 75% for four years, 100% for five years). The $50 million gross asset limitation for QSBS eligible companies increased to $75 million.
- Tax Rates: Individual, Trust and Estate tax rates were made permanent. They were scheduled to revert back to the greater, pre-2017 rates starting in 2026.
- Trump Accounts: For children born from 2025 to 2029, the Federal Government will deposit $1,000 in a tax-deferred savings account that allows for additional contributions of up to $5,000 per year. Distributions are allowed after the child turns 18 or for certain qualified expenses prior to that.
- 529 Plan Limitation: The annual limitation for 529 Plan distributions for K-12 tuition and expenses increased to $20,000 starting in 2026.
Estate Planning Concerns
- Lifetime Exemption: The Estate & Gift Tax Lifetime Exclusion was increased to $15 million starting in 2026 (adjusted annually for inflation). This provision is considered permanent.
- Basis Step-Up Rules: These rules were not changed. Beneficiaries will continue to benefit from the step-up in basis for inherited assets.
Other Business Provisions
- Permanently extends the 20% Qualified Business Income (QBI) deduction and increases deduction limit phase-ins
- Despite earlier versions of the act, the final version does not contain any limitations on state pass-through entity (PTE) elections. This allows certain pass-through entities the option to be taxed at the entity level for state income tax purposes, which provides a workaround to the cap on the SALT deduction at the individual level.
- Increases the threshold for information reporting for services performed by independent contractors and other payments from $600 to $2,000 for payments made after 2025.
- 1099-K reporting requirements increased to $20,000 and 200 or more transactions.
- Excess Business Loss Limitation: Excess business losses for noncorporate taxpayers will be permanent now instead of originally expiring after 2028.
- For taxable years beginning after December 31, 2025, charitable contribution deductions will be allowed when they fall between 1% and 10% of taxable income. In the past, contributions were limited to 10% of taxable income.
Energy Policy Changes
The legislation phases out select clean energy credits:
- Electric vehicle credit sees accelerated sunsetting for vehicles acquired after September 30, 2025. Any electric vehicles purchased after this date will not be eligible for the credit.
- Clean energy investment and production tax credits (Sections 48 and 45) expires on December 31, 2025, if projects have not started construction. Projects must be placed in service by the end of 2027 to receive credit. Energy credits were set to sunset in 2032 under previous law.
- Many other clean energy incentives previously established under the Inflation Reduction Act of 2022 have been either repealed or significantly reduced.
Given the complexity and scope of these law changes, it is essential to consult with your qualified tax advisor to develop a comprehensive strategy that maximizes your business goals under the new law. Professional guidance will ensure you are positioned to take full advantage of enhanced deductions, credits, and business incentives while maintaining compliance with updated regulations.
Wolf & Company remains committed to staying ahead of evolving tax legislation. Our team will continue monitoring all developments related to the OBBBA implementation, providing timely updates and strategic guidance to ensure your tax planning remains optimized as these provisions take effect.
