On July 4th, 2025, President Donald Trump signed into law the “One Big Beautiful Bill Act” (OBBBA), a landmark tax and spending package that builds on the 2017 Tax Cuts and Jobs Act (TCJA) from the first Trump administration while introducing significant new provisions. As your trusted advisors, Lucas Horsfall is here to break down the major tax changes impacting individuals and businesses, helping you strategically plan for the road ahead. Here’s a snapshot of the key provisions and what they mean for you:
Key Provisions for Individuals:
Permanent Extension of TCJA Tax Rates and Brackets: The OBBBA codifies and makes permanent the TCJA’s lower individual income tax rates and wider tax brackets that were set to revert to pre-2017 rates as of 2026. This maintains the top individual income tax rate of 37% as opposed to returning to a top rate of 39.6%.
Increased Standard Deduction: The TCJA’s higher standard deduction level is now permanent and will continue to be indexed for inflation.
Senior Deduction: For tax years 2025 through 2028, the law introduces a $6,000 deduction for taxpayers aged 65 and older with a phase-out beginning at $75,000 of modified adjusted gross income ($150,000 for joint filers). The phase-out rate is a reduction of 6% of the deduction for the amount by which the taxpayer’s modified adjusted gross income exceeds the applicable threshold.
State and Local Tax (SALT) Deduction Cap Increase: For tax years 2025 through 2029, the SALT deduction cap rises from $10,000 to $40,000, with phaseouts starting at $500,000 of modified adjusted gross income. The $40,000 limit will increase by 1% annually in conjunction with a 1% increase in the modified adjusted gross income threshold. The phase-out rate is a reduction of 30% of the deduction for the amount by which the taxpayer’s modified adjusted gross income exceeds the applicable threshold, not to go below a deduction of $10,000.
Expanded Child Tax Credit: Increases the credit to $2,200 from $2,000 per qualifying child beginning with the 2025 tax year and indexes the credit for inflation.
No Tax on Tips: For tax years 2025 through 2028, the law provides an above-the-line deduction for tip income of up to $25,000 per return per year. The deduction phases out beginning at $150,000 of modified adjusted gross income ($300,000 for joint filers). The phase-out rate is a reduction of $100 in the amount of the deduction for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds the applicable threshold. Married taxpayers must file a joint return to claim the deduction.
No Tax on Overtime: For tax years 2025 through 2028, the law provides an above-the-line deduction for qualified overtime pay of up to $12,500 ($25,000 for joint filers) per year. The deduction phases out beginning at $150,000 of modified adjusted gross income ($300,000 for joint filers). The phase-out rate is a reduction of $100 in the amount of the deduction for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds the applicable threshold.
Interest Deduction on Principal Residence: The law makes permanent the $750,000 qualifying loan limit on principal residence acquisition indebtedness and also makes permanent the exclusion of home equity indebtedness from the definition of qualified residence interest. The law also permanently treats mortgage insurance premiums as qualified residence interest beginning in 2026.
Interest Deduction on Domestic Auto Purchases: For tax years 2025 through 2028, the law introduces a deduction for loan interest on qualified passenger vehicles. Individuals are allowed an above-the-line deduction for interest on loans utilized to purchase American-made vehicles. Commercial/business use vehicles, campers, and RVs are excluded. The maximum annual deduction is $10,000. The deduction phases out beginning at $100,000 of modified adjusted gross income ($200,000 for joint filers). The phase-out rate is a reduction of $200 in the amount of the deduction for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds the applicable threshold.
Section 1202 Small Business Stock: The law provides for tiered gain exclusion for qualified small business stock (“1202 Stock”) of 50% for stock held for at least three years, 75% for stock held at least four years, and 100% for stock held for at least five years. This change only applies to stock originally issued after the enactment of the OBBBA, July 4, 2025. Further, the per-issuer cumulative exclusion limitation is increased to $15 million from $10 million and will be indexed for inflation going forward. Lastly, the aggregate gross asset calculation under IRC §1202(d) is increased to $75 million from $50 million and will also be indexed for inflation.
Above the Line Charitable Contribution Deduction: For taxable years beginning in 2026, the law creates a permanent deduction for charitable contributions for taxpayers who do not itemize their deductions. Non-itemizing taxpayers can claim a charitable contribution deduction of up to $1,000 ($2,000 for joint filers).
Estate and Gift Tax Exemption: The law makes permanent the higher lifetime estate and gift tax exemptions first introduced by the TCJA. The limits are increased to $15 million per person and are indexed for inflation for decedents dying in 2026.
Key Provisions for Businesses:
100% Bonus Depreciation Restored: The OBBBA reinstates 100% bonus depreciation for qualified property placed in service from January 19, 2025.
IRC 199A Qualified Business Income (QBI) Deduction: The law makes permanent the 20% deduction for certain types of business income and specific dividend income which was originally set to expire at the end of 2025.
Research and Development Expensing: The law introduces IRC §174A which now allows for domestic research and development expenditures to be immediately expensed as opposed to capitalized and amortized over five years beginning with the 2025 tax year. The law maintains that foreign development expenditures must continue to be capitalized and amortized over 15 years. Amounts incurred relating to the development of software are included as qualifying expenses eligible to be immediately deducted. Qualifying small businesses with annual gross receipts under $31 million are allowed to retroactively apply this change to tax years beginning after December 31, 2021, by amending prior returns. All taxpayers have the option to deduct the unamortized amounts of capitalized development costs in either the 2025 tax year in full or ratably over the 2025 and 2026 tax years.
Preservation of the Pass-Through Entity Tax (SALT deduction limitation workaround): The law maintains the deduction for state tax payments made by pass-through entities on behalf of their partners or shareholders, affording each a Federal deduction they would not otherwise receive. This is in concert with the signing of California Senate Bill 132 Ch 25-17 by Governor Newsom on June 27, 2025, which extended California’s pass-through entity elective tax credit regime for another five years as it was set to expire after December 31, 2025.
Business Interest Limitation: The law modifies the IRC §163(j) interest deduction limitation utilizing a calculation of income that excludes depreciation, amortization, and depletion beginning with the 2025 tax year, reverting to a more similar calculation first introduced with the TCJA.
Excess Business Loss Limitation: The law makes permanent the excess business loss limitation introduced by the TCJA whereby net business losses are currently allowed up to certain thresholds – $313,000 for single filers and $626,000 for joint filers for the 2025 tax year. Any excess business losses above these thresholds are carried forward and treated as net operating losses in future years, subject to the 80% taxable income limitation.
Renewal of Qualified Opportunity Zone Program: The law makes permanent the Qualified Opportunity Zone (QOZ) program, offering tax incentives to investors who elect to invest deferred capital gains into QOZs. Deferred gains invested prior to January 1, 2027, will still be required to be recognized as of December 31, 2026. For investments of deferred gains made after December 31, 2026, taxation will be deferred until the earlier of the date of the disposition of the investment or five years from the initial investment. Once reinvestment property is held for five years, the taxpayer receives a 10% basis increase (ensuring only 90% of the deferred gain would be taxed). A specific provision for investments made in newly created qualified rural opportunity funds would afford a 30% basis increase on investments held at least five years. For investments held at least ten years, no tax is imposed on realized gains when the investment is sold.
Conclusion:
At Lucas Horsfall, we’re committed to helping our clients navigate this transformative legislation. Whether you are an individual planning for tax savings or a business looking to optimize deductions, our team is here to provide tailored, personalized strategies to meet your goals. Please ensure you are in contact with a Lucas Horsfall team member so that we can assist you in taking advantage of all planning opportunities available.
