One Big Beautiful Bill Act

Tax Impacts and Other Provisions

The One Big Beautiful Bill Act was signed into law by US President Donald J Trump on Thursday, the 4th of July holiday. This law is part of the president's agenda for his second term in office and brings several changes to the country's tax system.

Below we highlight the main changes brought about in this new legislation, ranging from the permanence of provisions from the Tax Cuts and Jobs Act (TCJA) to new deductions, changes for businesses, international taxes, education, and clean energy credits.

Permanence of the TCJA (Tax Cuts and Jobs Act)

The legislation makes permanent several important provisions of the TCJA that would otherwise expire.

• Marginal Tax Rates: The lower TCJA rates for individuals become permanent from 2026. There is also an additional year of cost of living adjustment for inflation for the 10% and 12% tax brackets.
• Standard deduction: The enhanced standard deduction is extended permanently and adjusted annually for inflation. It increases to $15.750 for individual declarants and to $31.500 for couples declaring together.
• Paid Leave: The TCJA's tax credit for paid family and medical leave for employers is made permanent. This credit allows employers to claim non-refundable credits of 12.5% to 25% of the wages paid to employees on paid leave.
• Mortgage deductions: The TCJA's mortgage deduction is permanent, allowing taxpayers to deduct interest on first mortgage payments. $750,000 mortgage debt your home.
• Child Tax Credit: The maximum amount of tax credit per child is increased by $2,200 per child from 2025 and the amount is indexed to inflation. The refundable additional child credit (ACTC) of $1.400 also becomes permanent, adjusted for inflation. The income limits of $200,000 for individuals e $400.000 for joint declarants are permanently maintained, as well as the non-refundable credit of $500 for each dependent who is not a qualified child.
• Alternative Minimum Tax (AMT): An increased exemption established by the TCJA is extended permanently, reducing the income subject to the special AMT rules.
• Inheritance and Gift Tax: The exemption for inheritance and gift tax is permanently extended and increased to 1TP4Q15 million for individual taxpayers e $30 million for couples filing jointlyfrom the 2026 tax year. The value of the exemption is indexed to inflation after 2026.
• Pass-Through Business Income: The 199A business deduction for companies pass-through is maintained at the current level of 20%. The phase-in is increased, making the deduction more generous. In addition, a new minimum deduction of $400 is created for eligible taxpayers with at least $1,000 of income pass-through from 2026.

State and Local Tax Deduction (SALT)

• SALT Deduction Limits: The state and local tax (SALT) deduction limit is temporarily increased to $40.000 (from $10,000) and increases by 1% annually until 2029. Families with incomes below $500,000 qualify. In 2030, the threshold returns to $10,000. For incomes exceeding $500,000, the deduction decreases to a minimum of $10,000. There are no new limits on the SALT deduction for businesses pass-throughallowing state taxes on entities to be pass-through (PTETs) continue to avoid the SALT limit.

New Tax Deductions

Several new deductions are introduced for a limited period.

• No tax on tips: A deduction for qualified tips is created for the 2025 to 2028 tax years. The deduction is limited to $25.000 and is eliminated for income exceeding $150,000 for individuals and $300,000 for joint filers. Certain professions (law, health, consultancy, etc.) are excluded.
• No Overtime Taxes: A deduction for overtime compensation is established for tax years 2025 to 2028. The deduction is limited to $12.500 for individuals e $25,000 for joint declarantswith the same phase-outs income from the deduction of tips.
• Deduction for the Elderly: Taxpayers aged 65 and over receive a deduction of $6.000 of their taxable income for the years 2025 to 2028, in addition to the regular standard deduction. This deduction is eliminated at a rate of 6% for individuals with income above $75,000 or joint filers with income above $150,000.
• Deductions for interest on auto loans: A deduction of up to $10.000 is created for interest payments on auto loans for fiscal years 2025 through 2028. It applies only to interest paid on loans for new cars whose final assembly is in the US. The deduction is reduced for modified adjusted gross income exceeding $100,000 for individuals or $200,000 for joint filers.

Provisions for companies

Significant changes to the tax treatment of companies.

• Research and Development (R&D): Immediate R&D spending is made permanent, reversing the change made by the TCJA and allowing companies to immediately deduct the cost of their domestic research expenses in the year they are paid or incurred starting in fiscal year 2025.
• Business Interest Expenses: The legislation re-establishes a more favorable treatment for business interest expenses, allowing companies to calculate their adjusted taxable income (ATI) without including deductions for depreciation and amortization as of the 2025 tax year. This provision is permanent.
• Depreciation Deductions: The bonus depreciation rate of 100% is permanently restored for certain property if placed in service on or after January 19, 2025. The legislation also allows taxpayers to immediately deduct 100% from the cost of qualified production property placed in service before 2031. The maximum amount that can be deducted for certain depreciable business assets is increased to $2.5 million, with phase-out for costs exceeding $4 million.
• Opportunity Zones: The Opportunity Zones program is modified and made permanent. It defines a low-income community as a census tract that does not exceed 70% of the state median income or has a poverty rate of at least 20% and the median family income does not exceed 125% of the state median income. The bill provides for a step-up in basis of 30% for opportunity zones in rural areas maintained for at least five years. For non-rural areas, the step-up in basis is increased by 10%.
• Credit for Low-Income Housing: The legislation would permanently increase the state allocation cap for the low-income housing tax credit (LIHTC) by 12% beginning in fiscal year 2026. This increase would be applied to the 9% LIHTC allocation. The bill also reduces the bond funding cap for LIHTC from 4% to 25% for bond-funded projects beginning in 2026.
• Corporate Charitable Donations: The legislation imposes new limits on corporate charitable deductions, allowing corporate taxpayers to deduct charitable contributions between 1% and 10% from taxable income. Contributions that exceed the limit can be carried forward for up to five tax years.
• Employee Retention Tax Credit (ERTC): The Senate bill includes provisions on the employee retention tax credit (ERTC), including requirements for due diligence enhanced for promoters regarding a taxpayer's eligibility for an ERTC. It also prevents the IRS from paying ERTC claims filed after January 31, 2024, for the third and fourth quarters of 2021.

International provisions

• Foreign taxes: The final bill does not include the "retaliatory tax" that would have penalized the US income of entities in foreign countries deemed to have discriminatory tax policies.
• De Minimis" exemption: The bill repeals the privilege de minimis and extends the exemption worldwide, as of July 1, 2027. It imposes additional penalties before that date on imports that violate other provisions of US customs laws.
• Foreign Income: The final measure permanently reduces the deduction for foreign-derived intangible income (FDII) to 33,3% (from 37.5%) and the deduction for globally taxed intangible income (GILTI) to 40% (from 50%). It also permanently increases the base erosion tax rate and anti-abuse (BEAT) to 10,5% (from 10%).

Education

• Tax on donations: The legislation exempts schools from the gift tax if they have fewer than 3,000 paying students. It also modifies the existing excise tax of 1.4% on annual net investment income for endowments of private colleges and universities subject to the tax. The new tiered rates are:
  • 1.4% for institutions with an adjusted donation per student greater than $500,000 and up to $750,000.
  • 4% for institutions with an adjusted donation per student greater than $750,000 and up to $2 million.
  • 8% for institutions with an adjusted donation per student greater than $2 million.
• Eligibility for Federal Student Aid: The legislation exempts certain assets when determining student need, such as the net value of a farm where a family resides, a family-owned small business with up to 100 full-time employees, or a family-owned commercial fishing business as of the 2026-2027 school year.
• Eligibility for Pell Grants: The legislation excludes families from the grant with a student aid index more than double the Pell Grant maximum. It also counts certain foreign income toward a student's AGI when determining eligibility as of July 1, 2026. Students will not be eligible for a Pell Grant if they receive more than the cost of attendance in aid from other sources.

Clean Energy Credits

The legislation repeals and phases out the main tax credits enacted in the Inflation Reduction Act, but maintains clean electricity production and investment credits for technologies other than wind and solar.

• Extension of the Clean Fuel Credit: The legislation extends the credit for two years, until 2029. The bill prohibits the credit for any raw material produced outside the US, Mexico or Canada.
• Clean Electricity Credits: The legislation ends clean electricity production and investment credits for wind and solar projects for any installation put into service after 2028. The provision applies to projects that begin construction 12 months after enactment. Other qualifying technologies, such as hydroelectric, nuclear and geothermal, can still be used in full until 2033. After 2033, they will be reduced to 75% in 2034, 50% in 2035 and eliminated in 2036.
• Advanced Manufacturing: The legislation modifies the phase-out of this credit, limiting its use to the manufacture of wind components produced and sold after December 31, 2027. Credits for critical minerals will be reduced to 75% from 2031, 50% in 2032, 25% in 2033 and eliminated in 2034. Metallurgical coal production is eligible for the credit until December 31, 2029.

Credits: Adapted from NAEA - National Association of Enrolled Agents