Overview of OBBBA Tax Provisions

On May 22, 2025, the U.S. House of Representatives narrowly passed its sweeping tax and spending bill, dubbed The One, Big, Beautiful Bill Act (OBBBA). The bill includes extensions of many provisions of the Tax Cuts and Jobs Act (TCJA) that were set to expire on December 31, 2025. It also includes some new and enhanced tax breaks. As an example, it contains President Trump’s pledge to exempt tips and overtime from income tax.

The bill has now moved to the U.S. Senate for debate, revisions and a vote. If the Senate modifies the bill it will be sent back to the House for a second vote. The House can then either agree with the Senate’s changes or propose further amendments. July 4^th has been discussed as a tentative date to expect an update on the bill’s timeline. Based on comments from key senators, there is likely to be contentious debate and changes prior to finalizing the bill.

Here’s an overview of the major tax proposals included in the House OBBBA.

 

BUSINESS TAX PROVISIONS

Bonus depreciation. Under the TCJA, first-year bonus depreciation has been phasing down 20 percentage points annually since 2023 and is set to drop to 0% in 2027. (It’s 40% for 2025.) Under the OBBBA, the depreciation deduction would reset to 100% for eligible property acquired and placed in service after January 19, 2025, and before January 1, 2030.

Section 199A qualified business income (QBI) deduction. Created by the TCJA, the QBI deduction is currently available through 2025 to owners of pass-through entities, sole proprietors, and self-employed individuals. QBI is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. Under the TCJA, the deduction generally equals 20% of QBI, not to exceed 20% of taxable income (subject to additional rules that can reduce or eliminate the benefit). Under the OBBBA, the deduction would be made permanent, and the deduction amount would increase to 23% for tax years beginning after 2025.

There are additional QBI-related proposals:

• Proposal to eliminate the phase-out cap and calculate the phase-out based on a flat percentage. This would effectively expand eligibility for, and the value of the deduction to, higher-income taxpayers whose pass-through business income makes up a larger share of their overall income.
• A new tax break for investors in “Business Development Companies” (BDCs) by extending them the favorable section 199A deduction. A BDC is a company that has elected to be treated as a regulated investment company. This change in the law could cause BDCs to become a preferred source of borrowed funds since the resulting interest income could be subject to tax at a lower rate, after the QBI deduction.
• Close SALT cap workarounds for pass-through businesses that are considered Specified Service Trades or Businesses (SSTB’s) under Section 199A.

Domestic research and experimental expenditures. The OBBBA would reinstate a deduction available to businesses that conduct domestic research and experimentation expenses (REE). Specifically, the deduction would apply to research and development costs incurred after 2024 and before 2030. The requirement under current law to amortize such expenses would be suspended while the deduction is available. Providing added flexibility, the bill would allow taxpayers to elect whether to currently deduct or amortize domestic research expenses over a period of at least 5 years. Foreign REE remains subject only to 15-year amortization, however.

• Note: There has been no proposal for retroactive relief.
• Taxpayers may not recover foreign capitalized research or experimental expenditures, either as a deduction or a reduction to the amount realized, for any property disposed of, retired or abandoned after May 12, 2025.

Section 179 expensing election. This tax break allows businesses to currently deduct the cost of purchasing eligible new or used assets, such as equipment, furniture, off-the-shelf computer software and qualified improvement property (QIP). The OBBBA would increase the expensing limit to $2.5 million and the dollar-for-dollar phaseout threshold to $4 million for property placed into service after 2024. The amounts would continue to be adjusted annually for inflation. (Under current law, for 2025, the expensing limit is $1.25 million and the phaseout threshold is $3.13 million.)

Pass-through entity “excess” business losses. The Inflation Reduction Act, through 2028, limits deductions for current-year business losses incurred by noncorporate taxpayers. Such losses generally can offset a taxpayer’s income from other sources, such as salary, interest, dividends and capital gains, only up to an annual limit. “Excess” losses are carried forward to later tax years and can then be deducted under net operating loss rules. The OBBBA would make the excess business loss limitation permanent. The OBBBA also modifies the way in which aggregate business deductions will be calculated by adding to that amount any “specified loss,” defined as an excess business loss disallowed under Section 461(l) for a taxable year beginning after December 31, 2024.

Extends tax breaks for multinational corporations with minimal change. Prior to 2017, the U.S. had the third-highest effective corporate tax rate of G-20 countries, which led many companies to shift profits overseas to countries with lower tax rates. The TCJA implemented three new international frameworks to combat erosion of the U.S. tax base and ensure multinational corporations pay their fair share of taxes: the global intangible low-taxed income (GILTI) tax, foreign-derived intangible income (FDII) tax, and the base erosion anti-abuse tax (BEAT).

The bill includes a slight decrease to the current section 250 deduction rates for FDII and GILTI and includes a slight increase to the BEAT rate.

Note: This bill has not proposed the elimination of the qualified business asset investment (QBAI)

Interest Deduction Limitation. Under Section 163(j), the deduction for business interest expense is generally limited to the sum of (1) business interest income, (2) 30% of adjusted taxable income (but not less than zero) and (3) floor plan financing interest. For taxable years beginning after December 31, 2024, and before January 1, 2030, the OBBBA provides that adjusted taxable income be computed by reference to earnings before income taxes without regard to deductions for depreciation, amortization or depletion (EBITDA). This change provides potentially significant increases in the ability to benefit from business interest deductions for many taxpayers.

Corporate Charitable Contributions. The OBBBA reduces the deduction for charitable contributions of a corporation by allowing a deduction only to the extent that these contributions exceed 1% of a corporation’s taxable income. This 1% “floor” on corporate charitable deductions operates in addition to the 10% “ceiling” under current law. Contributions in excess of the 10% ceiling may continue to be carried forward for five years, but contributions disallowed under the 1% floor may be carried forward only in years in which the taxpayer’s charitable contributions exceed the 10% ceiling.

Energy. In respect of the renewable energy credits that were previously introduced, extended or expanded under the IRA, the OBBBA introduces substantial cuts through:

• Acceleration of the phase-out schedules.
• Restrictions on foreign-parented entities claiming credits.
• Elimination of transferability for certain credits.

The deepest cuts were made to the technology-neutral credits in Section 45Y and Section 48E through a manager’s amendment to the OBBBA released on May 21, 2025, which provides that the credits will not be available for facilities that begin construction 60 days after the enactment of the bill or that are placed in service after December 31, 2028.

Observation: Senators have indicated the possibility for changes to one or more of these cuts to the credits. However, given the uncertain outcome, developers would be prudent to plan beginning construction, within the meaning of IRS guidance, as soon as possible on new projects.

 

INDIVIDUAL TAX PROVISIONS

The OBBBA would extend or make permanent many individual tax provisions of the TCJA. Among other things, the new bill would affect:

Individual income tax rates. The OBBBA would make permanent the TCJA income tax rates, including keeping the reduced top individual income tax rate of 37% (down from pre-TCJA 39.6%). The bill provides an extra inflation adjustment to the bottom six income tax brackets, but not the top bracket.

Itemized deduction limitation. The bill would make permanent the repeal of the Pease limitation on itemized deductions.

Standard deduction. The new bill would temporarily boost standard deduction amounts. For tax years 2025 through 2028, the amounts would increase $2,000 for married couples filing jointly, $1,500 for heads of households and $1,000 for single filers. For seniors age 65 or older who meet certain income limits, an additional standard deduction of $4,000 would be available for those years (updated annually for inflation).

Child Tax Credit (CTC). Under current law, the $2,000 per child CTC is set to drop to $1,000 after 2025. The income phaseout thresholds will also be significantly lower. And the requirement to provide the child’s Social Security number (SSN) will be eliminated. The OBBBA would make the CTC permanent, raise it to $2,500 per child for tax years 2025 through 2028 and retain the higher income phaseout thresholds. It would also preserve the requirement to provide a child’s SSN and expand it to require an SSN for the taxpayer (generally the parent) claiming the credit. After 2028, the CTC would return to $2,000 and be adjusted annually for inflation.

State and local tax (SALT) deduction. The OBBBA would increase the TCJA’s SALT deduction cap (which is currently set to expire after 2025) from $10,000 to $40,000 for 2025. The deduction would phase out for taxpayers with AGI over $500,000, but not below $10,000.

• Note: The final version of the OBBBA removed the provision to limit the PTET federal deduction. As such, the existing PTET regimes appear to remain beneficial for passthrough entities, other than SSTBs.
• Note: There is a proposed additional relatively small tax (reduction of itemized deductions) for those in the 37% tax bracket.

Miscellaneous itemized deductions. Through 2025, the TCJA suspended deductions subject to the 2% of adjusted gross income (AGI) floor, such as certain professional fees and unreimbursed employee business expenses. This means, for example, that employees can’t deduct their home office expenses. The OBBBA would make the suspension permanent.

Federal gift and estate tax exemption. Beginning in 2026, the bill would increase the federal gift and estate tax exemption to $15 million. This amount would be permanent but annually adjusted for inflation. (For 2025, the exemption amount is $13.99 million.)

• Observation: On January 1, 2026, under current tax law the exemption is scheduled to reset to $5,000,000 indexed to inflation (approximately $7,000,000). The OBBBA as proposed would increase this exemption significantly.

Extends the increased alternative minimum (AMT) tax exemption. The TCJA increases in the AMT exemption resulted in a significant reduction in the number of taxpayers affected by the AMT. The TCJA dramatically increased the exemption phaseout threshold, which was $160,900 for married couples ($120,700 for singles and heads of households) in 2017. The OBBBA would make this increased AMT exemption permanent.

 

NEW TAX PROVISIONS

On the campaign trail, President Trump proposed several tax-related ideas. The OBBBA would introduce a few of them into the U.S. tax code:

No tax on tips. The OBBBA would offer a deduction from income for amounts a taxpayer receives from tips. However, they would need a valid social security number (SSN) to claim it. The deduction would expire after 2028. (Note: The Senate recently passed, by a vote of 100-0, a separate no-income-tax-on-tips bill that has different rules. To be enacted, the bill would have to pass the House and be signed by President Trump.)

• Tipped workers wouldn’t be required to itemize deductions to claim the deduction.
• Employees still assessed Social Security and Medicare taxes on tips.
• Deduction of up to $25,000 in tips.

No tax on overtime. The OBBBA would allow workers to claim a deduction for overtime pay they receive. Like the deduction for tip income, taxpayers wouldn’t have to itemize deductions to claim the write-off but would be required to provide an SSN. Also, the deduction would expire after 2028.

Car loan interest deduction. The bill would allow taxpayers to deduct interest payments (up to $10,000) on car loans for 2025 through 2028. Final assembly of the vehicles must take place in the United States, and there would be income limits to claim the deduction. Both itemizers and non-itemizers would be able to benefit.

Charitable deduction for non-itemizers. Currently, taxpayers can claim a deduction for charitable contributions only if they itemize on their tax returns. The bill would create a charitable deduction of $150 for single filers and $300 for joint filers for non-itemizers.

Trump Accounts. A new type of savings account will allow parents to contribute up to $5,000 tax-free each year to “Trump Accounts” to be used for a child’s school and other costs when they reach adulthood. Qualifying babies born between Jan. 1, 2025 and Jan. 1, 2029 would receive $1,000 in a Trump account opened by their parents or the Treasury. At the age of 18, additional investments would be capped, but the named account holder would be able to access up to 50% of the money to pay for higher education, training and first-time home purchases.

 

WHAT’S NEXT???

These are only some of the provisions in the massive House bill. The proposed legislation is likely to change (perhaps significantly) as it moves through the Senate and possibly back to the House. In addition to disagreements about the tax provisions, there are Senators who don’t agree with some of the spending cuts. We will continue to monitor these developments and provide further updates as they become available. Have questions? Our experienced tax team is here to help. Contact us at info@ppandco.com or (408) 287-7911.