One Big Beautiful Bill Act — Complete Practitioner Guide (Public Law 119-21)
The One Big Beautiful Bill Act was signed into law on July 4, 2025 as Public Law 119-21. This guide covers all enacted tax provisions, effective dates, dollar amounts, and practitioner action items for 2025 and 2026.
The One Big Beautiful Bill Act (OBBBA) was signed into law by President Trump on July 4, 2025 as Public Law 119-21. All provisions described on this page are current law. Most individual provisions are effective for tax year 2025 and beyond. Practitioners should be advising clients on these provisions now.
OBBBA — Complete Summary of Enacted Tax Provisions
| Provision | What Changed | Effective Date | IRC Section |
|---|---|---|---|
| TCJA Individual Rates — Permanent Extension | Tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) made permanent; no longer set to expire after 2025 | Tax year 2025 and beyond | §§1, 63 |
| Standard Deduction — Permanent + Enhanced | 2026: $15,000 single / $30,000 MFJ / $22,500 HOH — made permanent and indexed for inflation | Tax year 2025 and beyond | §63(c) |
| SALT Deduction Cap Increased | Cap raised from $10,000 to $40,000 ($20,000 MFS) for 2025; increases 1%/year through 2029; phases down for MAGI over $500,000; reverts to $10,000 in 2030 | Tax year 2025–2029 | §164(b)(6) as amended by §70120 |
| QBI Deduction — Permanent + Increased | Section 199A deduction made permanent at 23% (up from 20%); W-2 wage and UBIA limitations retained | Tax year 2025 and beyond | §199A as amended by §70301 |
| Child Tax Credit — Enhanced | CTC increased to $2,200 per child (up from $2,000); refundable portion increased; made permanent | Tax year 2025 and beyond | §24 as amended by §70401 |
| No Tax on Tips (§70201) | New above-the-line deduction for qualified tips received in tipped occupations; FICA taxes still apply; state conformity varies; income limit applies | Tax year 2025 and beyond | §224 (new) |
| No Tax on Overtime (§70202) | New above-the-line deduction for qualified overtime compensation paid under FLSA; FICA taxes still apply; income limit applies | Tax year 2025 and beyond | §225 (new) |
| No Tax on Car Loan Interest (§70203) | New deduction for interest on loans for U.S.-assembled passenger vehicles; limited to $10,000/year; phases out at higher income levels | Tax year 2025 and beyond | §163(h)(3)(F) (new) |
| Senior Deduction (§70103) | New $6,000 above-the-line deduction for taxpayers age 65+; phases out for MAGI over $75,000 single / $150,000 MFJ; available 2025–2028 | Tax years 2025–2028 | §63(f) as amended |
| Trump Accounts (§70204) | New tax-advantaged savings accounts for children under 18; $5,000 annual contribution limit; government contributes $1,000 at birth for eligible children | Tax year 2025 and beyond | §530A (new) |
| AMT Exemptions — Permanent | TCJA AMT exemption amounts made permanent: $137,000 single / $220,700 MFJ (2026, indexed); phase-out thresholds also made permanent | Tax year 2025 and beyond | §55(d) |
| Estate & Gift Tax Exemption — Permanent | TCJA doubled exemption made permanent at $13,990,000 per person (2026); no sunset after 2025 | Tax year 2025 and beyond | §2010(c) |
| Bonus Depreciation — 100% Restored | 100% bonus depreciation restored for qualified property placed in service after January 19, 2025; made permanent | Property placed in service after Jan 19, 2025 | §168(k) as amended by §70307 |
| Section 179 — Enhanced | §179 expensing limit increased to $2,500,000 with phase-out beginning at $3,500,000; indexed for inflation | Tax year 2025 and beyond | §179 as amended |
| R&D Expensing Restored (§70302) | Domestic R&D expenditures may be expensed immediately again (reverses §174 amortization requirement for domestic research); foreign R&D still amortized over 15 years | Tax years beginning after Dec 31, 2024 | §174 as amended by §70302 |
| ERC — Final Deadline (§70605) | Employee Retention Credit claims deadline set; no new ERC claims for wages paid after Sept 30, 2021 (for most employers); VDP program extended | Effective upon enactment | §3134 as amended |
| Clean Vehicle Credits — Terminated | New Clean Vehicle Credit (§30D), Used Clean Vehicle Credit (§25E), and Commercial Clean Vehicle Credit (§45W) terminated for vehicles placed in service after Dec 31, 2025 | After Dec 31, 2025 | §§30D, 25E, 45W |
| Home Energy Credits — Terminated | Energy Efficient Home Improvement Credit (§25C) and Residential Clean Energy Credit (§25D) terminated after Dec 31, 2025 | After Dec 31, 2025 | §§25C, 25D |
| SALT Workaround (PTE Tax) — Preserved | Pass-through entity (PTE) state tax elections not disrupted by OBBBA; IRS Notice 2020-75 treatment continues | Ongoing | §164 / Notice 2020-75 |
| Opportunity Zones — Rural Enhanced (§70421) | New Rural Opportunity Zone designation with enhanced tax incentives; additional deferral and exclusion benefits for investments in qualifying rural census tracts | Tax year 2025 and beyond | §1400Z-2 as amended |
Source: Public Law 119-21 (July 4, 2025); IRS.gov/obbba; IRC as amended
No Tax on Tips — Practitioner Deep Dive
Under OBBBA §70201, workers in tipped occupations may deduct qualified tips as an above-the-line deduction on Schedule 1-A (new form for 2025). The IRS issued final regulations (IR-2026-49) listing qualifying occupations — primarily food service, hospitality, beauty services, and similar customer-facing roles where tipping is customary and regular.
Key mechanics: (1) The deduction applies to federal income tax only — FICA taxes (Social Security and Medicare) still apply to all tip income; (2) Employers must still report tips on W-2 Box 7; (3) The §45B FICA tip credit for employers is preserved; (4) An income phase-out applies — the deduction phases out for higher-income taxpayers; (5) State conformity is not automatic — most states have not yet conformed; verify each client's state before advising.
| Client Type | Federal Tax Impact | FICA Impact | State Impact | Practitioner Action |
|---|---|---|---|---|
| Restaurant server, $35,000 tips/year | Deduct $35,000 on Schedule 1-A; saves ~$3,850–$7,700 federal income tax | Still owes FICA on all $35,000 | Verify state conformity; most states do not conform | File Schedule 1-A; update withholding; advise on state liability |
| Hotel worker, $12,000 tips/year | Deduct $12,000; saves ~$1,320–$2,640 federal income tax | Still owes FICA on all $12,000 | Verify state conformity | Ensure employer is reporting tips on W-2; claim deduction |
| Hair stylist (self-employed), $20,000 tips/year | Deduct $20,000 on Schedule 1-A | Still owes self-employment tax on all $20,000 | Verify state conformity | Separate tip income from service income; document carefully |
Source: OBBBA §70201; IRC §224; IRS IR-2026-49; IRS FS-2026-07
SALT Deduction — $40,000 Cap and Phase-Out Planning
The SALT cap increase to $40,000 is one of the most impactful OBBBA provisions for clients in high-tax states. However, the phase-down provision creates a significant effective marginal rate trap for clients with MAGI between $500,000 and $600,000.
| MAGI | SALT Cap (2025) | Effective Marginal Rate Trap | Practitioner Action |
|---|---|---|---|
| Under $500,000 | $40,000 ($20,000 MFS) | None — full benefit | Maximize itemized deductions; consider PTE election |
| $500,000–$600,000 | Phases down from $40,000 to $10,000 (30¢ reduction per $1 over $500K) | Effective marginal rate can reach 45–50% in this range (35% bracket × 1.30) | Model income timing; consider deferring income below $500K; evaluate Roth conversions carefully |
| Over $600,000 | $10,000 (same as pre-OBBBA) | None — but no benefit either | PTE election remains most effective SALT workaround |
Source: OBBBA §70120; IRC §164(b)(6) as amended; Kitces.com OBBBA analysis (July 2025)
SALT cap schedule (2025–2030): 2025: $40,000 | 2026: $40,400 | 2027: $40,804 | 2028: $41,212 | 2029: $41,624 | 2030: Reverts to $10,000. Phase-out thresholds also increase 1%/year through 2029.
QBI Deduction — Now 23% and Permanent
The OBBBA makes the §199A QBI deduction permanent and increases the deduction rate from 20% to 23% effective for tax years beginning after December 31, 2024. The W-2 wage limitation and UBIA of qualified property limitation are retained. The phase-in thresholds for specified service trades or businesses (SSTBs) are also retained and indexed for inflation.
2026 QBI thresholds: Phase-in range begins at $197,300 (single) / $394,600 (MFJ). Above the upper threshold, SSTBs receive no QBI deduction. Non-SSTBs above the threshold are subject to the W-2 wage / UBIA limitation.
Planning impact: The increase from 20% to 23% adds approximately $600 in tax savings per $100,000 of QBI for a client in the 22% bracket, and approximately $1,110 per $100,000 for a client in the 37% bracket. S-Corp and partnership clients should model the impact of the increased deduction on their entity structure decisions.
Senior Deduction — $6,000 Above-the-Line (2025–2028)
OBBBA §70103 creates a new above-the-line deduction of $6,000 for taxpayers age 65 and older, available for tax years 2025 through 2028. This is in addition to the existing additional standard deduction for seniors. The deduction phases out for MAGI over $75,000 (single) / $150,000 (MFJ) and is fully phased out at $175,000 (single) / $250,000 (MFJ).
Stacking with existing senior benefits: A married couple both age 65+ can claim: (1) $30,000 standard deduction; (2) $3,200 additional standard deduction for age (2 × $1,600); (3) $12,000 new senior deduction (2 × $6,000) = $45,200 total deductions before any itemized deductions. This is a significant planning opportunity for clients in the phase-out range.
Practitioner Planning Checklist — OBBBA Action Items
- Identify all tipped-occupation clients and file Schedule 1-A. Restaurant workers, hotel staff, hair stylists, valets, and other tipped workers qualify. Verify the IRS final regulations (IR-2026-49) for the complete list of qualifying occupations. Check state conformity before advising on state returns.
- Update QBI deduction calculations to 23%. All pass-through clients (S-Corps, partnerships, sole proprietors) now receive a 23% QBI deduction instead of 20%. Update tax projection software and verify that your software has been updated for this change.
- Model SALT phase-out for clients with MAGI $450,000–$650,000. The SALT phase-down creates a steep effective marginal rate cliff. Run income timing analysis for these clients — deferring income below $500,000 may save significant tax.
- Claim the $6,000 senior deduction for all eligible clients (2025–2028). Any client age 65+ with MAGI under $175,000 (single) or $250,000 (MFJ) qualifies. This is above-the-line — available even if the client takes the standard deduction.
- Advise clients on clean vehicle and home energy credit termination. The §30D, §25E, §45W, §25C, and §25D credits are terminated for property placed in service after December 31, 2025. Clients who were planning to purchase EVs or make home energy improvements in 2026 should be advised that these credits no longer apply.
- Review bonus depreciation for all business asset purchases. 100% bonus depreciation is restored for property placed in service after January 19, 2025. Clients who purchased assets in 2025 before the OBBBA was signed should confirm eligibility and consider amended returns if they did not claim 100% bonus depreciation.
- Advise R&D-intensive clients on §174 restoration. Domestic R&D costs can be expensed immediately again for tax years beginning after December 31, 2024. Clients who were amortizing domestic R&D under the prior §174 rules should file amended returns or adjust 2025 returns accordingly.
- Review estate plans — exemption is now permanent at ~$13.99M. The TCJA doubled estate tax exemption is permanent. Clients who made aggressive gifts in 2024 to use the exemption before a potential sunset can relax — but estate plans should still be reviewed for other OBBBA impacts.
- Check overtime deduction eligibility for hourly workers. Clients who receive FLSA overtime pay may deduct qualified overtime compensation. Verify employer documentation and W-2 reporting. FICA taxes still apply to overtime pay.
- Evaluate Trump Accounts for clients with young children. New §530A accounts allow $5,000/year contributions for children under 18, with a government $1,000 contribution at birth for eligible families. These accounts grow tax-deferred and can be used for education, first home purchase, or retirement.
Common Mistakes — OBBBA Implementation Errors
- Treating OBBBA provisions as "proposed" or "uncertain." This is enacted law. Practitioners who fail to advise clients on these provisions — particularly the tip deduction, senior deduction, and QBI increase — are leaving money on the table and may face malpractice exposure.
- Assuming all states conform to the tip and overtime deductions. Most states have not conformed to the federal tip and overtime deductions. A client who deducts $35,000 in tips on their federal return may still owe full state income tax on those tips. Always verify state conformity.
- Missing the SALT phase-out trap. Clients with MAGI between $500,000 and $600,000 face a hidden effective marginal rate of 45–50% on income in that range due to the SALT phase-down. Failing to model this creates significant tax surprises.
- Using the old 20% QBI rate. The QBI deduction is now 23%. Tax software that has not been updated will calculate the wrong deduction. Verify your software version before filing 2025 returns.
- Advising clients to purchase EVs expecting the §30D credit. The New Clean Vehicle Credit is terminated for vehicles placed in service after December 31, 2025. Clients who purchase EVs in 2026 will not receive the credit.
- Failing to file amended returns for 2025 R&D amortization. Clients who were amortizing domestic R&D costs in 2025 under the prior §174 rules can now expense them immediately. This may warrant amended 2025 returns for significant R&D spenders.
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This content is for informational purposes only and does not constitute legal, tax, or accounting advice. Tax laws change frequently. Verify all information with current IRS guidance and applicable state law before advising clients. Circular 230 applies to all federal tax advice. Last reviewed: April 2026.