One Big Beautiful Bill Act (2025)

The unified estate and gift tax exemption is permanently set at $15 million per individual ($30 million per married couple) beginning January 1, 2026, indexed for inflation from 2027. The generation-skipping transfer tax exemption is aligned with this amount. The 40% top transfer tax rate is unchanged. Step-up in basis at death is unchanged. Portability is unchanged.

This eliminates the scheduled TCJA sunset, which would have dropped the exemption to roughly $7 million per person on January 1, 2026. The "use it or lose it" pressure that drove the late-2025 gifting wave is gone.

Employees and self-employed individuals in occupations that customarily and regularly received tips on or before December 31, 2024, may deduct qualified tips up to $25,000 per year. The deduction is available whether the taxpayer itemizes or takes the standard deduction (above-the-line). For self-employed taxpayers, the deduction may not exceed net income from the trade or business in which the tips were earned.

Qualified tips are voluntary cash or charged tips received from customers or via tip sharing, reported on Form W-2, Form 1099, or Form 4137. The IRS publishes the list of qualifying occupations. The deduction phases out above MAGI of $150,000 (single) / $300,000 (joint).

Workers may deduct qualified overtime pay covered by the Fair Labor Standards Act, up to $12,500 (single) or $25,000 (joint), as an above-the-line deduction. The deduction phases out above MAGI of $150,000 (single) / $300,000 (joint). Married filing separately is ineligible. The taxpayer must have a Social Security number valid for work, and the employer must designate overtime wages on Form W-2 (a transitional approximation rule applies for 2025).

Qualified overtime is the premium portion - the amount paid in excess of the regular rate, not the full hour. A worker paid $30 per hour regular and $45 per hour overtime deducts $15 per overtime hour, not $45.

Taxpayers age 65 and older receive a $6,000 deduction in addition to the standard deduction or itemized deductions ($12,000 for joint filers where both spouses qualify). The deduction phases out beginning at MAGI of $75,000 (single) / $150,000 (joint). A Social Security number valid for work is required. Married filing separately is ineligible.

This was the political response to "no tax on Social Security." The bill does not actually exempt Social Security benefits from tax - the deduction reduces taxable income for many seniors but is income-sensitive and capped.

Up to $10,000 of interest on a loan used to purchase a personal-use vehicle assembled in the United States may be deducted as an above-the-line deduction. The deduction phases out beginning at MAGI of $100,000 (single) / $200,000 (joint). The vehicle must be new, for personal use, and the loan must be secured by the vehicle.

The Child Tax Credit is permanently set at $2,200 per qualifying child (up from $2,000) and indexed for inflation. The refundable portion ($1,400 base, indexed) is also permanent. Phase-out thresholds remain at $200,000 (single) / $400,000 (joint). A Social Security number valid for work is required for the taxpayer (or at least one spouse for joint filers) and for the child. The Other Dependent Credit remains at $500 and is permanent.

A new tax-advantaged savings account for children under 18, structured similarly to a Roth IRA. Each U.S. child born from 2025 through 2028 receives a one-time $1,000 federal seed contribution. Annual contributions of up to $5,000 are permitted with no income phase-out. Employers may contribute up to $2,500 per year per employee (or per dependent) tax-free to the employee. Funds must be invested in U.S. equity index funds (S&P 500 or similar). Withdrawals after age 18 are tax-free for qualified expenses (higher education, first-time home purchase, qualified small business expenses).

OBBBA §70302 added new IRC §174A, allowing taxpayers to fully deduct domestic research and experimental expenditures in the year paid or incurred. This reverses the TCJA capitalization-and-amortization mandate that had been in effect since 2022. Foreign R&E expenditures must still be capitalized and amortized over 15 years under the unchanged IRC §174.

Treatment of capitalized 2022-2024 amounts. All taxpayers may elect to deduct any remaining unamortized domestic R&E balance entirely in 2025, ratably over 2025 and 2026, or continue the original 5-year amortization. The change is a taxpayer-initiated method change with automatic IRS consent; no Section 481(a) catch-up adjustment is required for the prospective change.

Small business retroactivity election. Taxpayers meeting the IRC §448(c) gross-receipts test ($31 million average over the prior three years, tested for the first tax year beginning after December 31, 2024) may elect to retroactively apply Section 174A to expenditures paid or incurred in tax years beginning after December 31, 2021, by amending 2022, 2023, and 2024 returns or by filing Form 3115. The retroactive election must coordinate with Section 280C(c) (the credit-vs.-deduction reduction).

OBBBA permanently restores 100% bonus depreciation (made permanent for property placed in service after 1/19/2025) for qualified property acquired and placed in service after January 19, 2025. The TCJA phase-down (40% for 2025, 20% for 2026, 0% for 2027) is repealed prospectively. Qualified property is generally tangible MACRS property with a class life of 20 years or less, computer software, and qualified improvement property. Used property remains eligible if acquired from an unrelated party.

The January 19, 2025 cliff. Property subject to a written binding contract entered into before January 20, 2025, is not eligible for 100% expensing under the new rules. Such property is locked into the TCJA phase-down rate (40% for 2025 placed-in-service). Letters of intent and non-binding agreements are generally not "binding contracts." Deal teams need to track contract dates, not just placed-in-service dates.

OBBBA also includes a transition election allowing taxpayers to apply the 40% TCJA rate for property placed in service in the first tax year ending after January 19, 2025 (60% for long-production-period property and certain aircraft under §168(k)(2)(B)/(C)). Taxpayers may also elect out of bonus entirely for one or more property classes.

A new provision allowing 100% expensing of certain non-residential real property used in a qualified production activity in the United States. Without §168(n), such property would otherwise depreciate over 39 years.

To qualify, property must (i) be non-residential real property, (ii) have construction beginning after January 19, 2025, and before January 1, 2029, (iii) be placed in service in the U.S. before January 1, 2031, (iv) have its original use begin with the taxpayer, and (v) be used as an integral part of a qualified production activity (manufacturing, production, or refining of qualified products). Food served on-site (i.e., restaurants) does not qualify. This is a major new incentive for U.S. manufacturing capacity.

OBBBA permanently restores the EBITDA-based calculation of adjusted taxable income (ATI) for purposes of the 30% business interest expense limitation. From 2022 through 2024, ATI was calculated on an EBIT basis (no depreciation, amortization, or depletion add-back), which materially tightened the cap for capital-intensive businesses. The EBITDA add-back is now permanent.

New twist - capitalized interest. Effective for tax years beginning after December 31, 2025, OBBBA brings capitalized business interest under §163(j) (unless it is required to be capitalized under §263(g) or §263A(f)). This closes a common workaround that capitalized interest could avoid the §163(j) limitation. The new ordering rule generally calculates the §163(j) limitation before applying interest capitalization provisions.

International coordination. Subpart F income, NCTI inclusions, and §78 gross-up are excluded from ATI for tax years beginning after December 31, 2025.

The 20% qualified business income deduction is made permanent for owners of S-corporations, partnerships, and other pass-throughs (including REIT dividends). The deduction was set to expire at the end of 2025 under TCJA. The phase-in range for the W-2 wages and unadjusted basis limitations is widened from $50,000 / $100,000 to $75,000 (single) / $150,000 (joint), reducing the cliff effect for taxpayers above the threshold.

A new $400 minimum deduction applies to taxpayers with at least $1,000 of QBI from activities in which they materially participate. The new itemized-deduction threshold rules under OBBBA do not affect the QBI deduction calculation.

For QSBS issued after July 4, 2025, OBBBA replaces the binary five-year hold with a tiered exclusion:

• 3-year hold: 50% gain exclusion (28% rate on remaining gain)
• 4-year hold: 75% gain exclusion (28% rate on remaining gain)
• 5-year hold: 100% gain exclusion (unchanged from prior law)

The per-issuer gain cap is increased from $10 million to $15 million (or 10x basis if greater), indexed for inflation from 2027. The aggregate gross-assets test for the issuing C-corporation is increased from $50 million to $75 million, also indexed.

Stock acquired before July 4, 2025, follows the prior rules ($10 million cap, $50 million asset test, full five-year hold). F-reorganizations and similar structures do not reset the holding period to access the new tiers - the original issuance date governs.

The maximum Section 179 deduction is increased from $1 million to $2.5 million, with the dollar-for-dollar phaseout beginning at $4 million of qualifying property (up from $2.5 million). Both amounts are indexed for inflation. Section 179 is treated as amortization for §163(j) purposes - factor it into interest-cap models.

OBBBA renames Global Intangible Low-Taxed Income (GILTI) as Net CFC Tested Income (NCTI) and rewrites the calculation. The 10% Qualified Business Asset Investment (QBAI) exemption is eliminated entirely - all CFC tested income (other than excepted categories) is now subject to inclusion. The Section 250 deduction is permanently set at 40% (down from 50%), producing a corporate effective tax rate on NCTI of approximately 12.6% before foreign tax credits.

The deemed-paid foreign tax credit haircut on NCTI is reduced from 20% to 10% - meaning corporations may now claim 90% of foreign taxes paid (previously 80%). The NCTI FTC limitation is calculated by excluding interest expense and R&E from allocation, and only directly allocable deductions reduce foreign-source NCTI.

Inclusion shareholder rule. A 10% U.S. shareholder must now include subpart F and NCTI income if the shareholder held CFC stock at any time during the tax year - not just on the last day of the year. This change is material for M&A diligence, mid-year exits, and structures with rotating ownership.

FDII is renamed Foreign-Derived Deduction Eligible Income (FDDEI) and the §250 deduction is permanently set at 33.34%, producing a 14% effective rate on qualifying foreign-derived income. This sits between the prior 13.125% rate (37.5% deduction) and the 16.4% rate (21.875% deduction) that would have applied beginning in 2026 under TCJA's pre-OBBBA sunset.

The 10% QBAI return is eliminated. Interest expense and R&E are no longer allocated against deduction-eligible income, materially expanding FDDEI for highly-leveraged or research-intensive exporters. Gains from disposition of certain intangibles described in §367(d) are excluded from FDDEI for dispositions after June 16, 2025. Up to 50% of income from U.S.-produced inventory sold for foreign use through a foreign office or fixed place of business may be treated as foreign-source.

The base erosion and anti-abuse tax (BEAT) rate increases from 10% to 10.5%. The research credit and a portion of applicable §38 credits are permanently excluded from the BEAT add-back. The threshold for BEAT applicability (generally, U.S. corporations with average annual gross receipts of at least $500 million making deductible payments to foreign related parties) is unchanged.

OBBBA also imposes a new 1% excise tax on certain outbound cash and physical-instrument remittance transfers from the U.S. to foreign jurisdictions. The originally-proposed Section 899 "revenge tax" on residents of "discriminatory foreign countries" was removed in the Senate.