The One Big Beautiful Bill Tax Guide
Bottom Line Up Front
The One Big Beautiful Bill permanently extends Trump's 2017 tax cuts, adds new deductions for tips, overtime, and seniors, and provides significant business tax relief. The Congressional Budget Office estimates the bill would reduce federal tax revenue by $4.5 trillion over the next decade and increase long-run GDP by 1.2 percent.
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Individual Tax Changes
Permanent Extensions of 2017 Tax Cuts
Tax Brackets and Rates
The bill makes permanent the seven tax brackets from the 2017 TCJA, with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The first three brackets (10%, 12%, and 22%) receive an additional year of inflation adjustment. Without this legislation, these rates would have reverted to higher levels on January 1, 2026.
Standard Deduction
The higher standard deduction amounts from 2017 become permanent, with an additional $750 boost for singles ($1,500 for married couples filing jointly) starting in 2025.
Child Tax Credit
The child tax credit increases by $200 to $2,200 starting in 2025 and will be adjusted for inflation thereafter.
Alternative Minimum Tax
The AMT phase-out threshold is reset to 2018 values, providing additional relief for middle and upper-middle income taxpayers.
New Individual Tax Benefits (2025-2028)
No Tax on Tips
Workers can deduct up to $25,000 in tip income from their federal taxes. The deduction phases out for single filers with income over $150,000 and joint filers over $300,000.
No Tax on Overtime
Employees can deduct overtime compensation up to $12,500 for individuals or $25,000 for joint filers, with the same income phase-out thresholds as the tip deduction.
Senior Bonus Deduction
Americans age 65 and older receive an additional $6,000 deduction that phases out when modified adjusted gross income exceeds $75,000 for singles and $150,000 for joint filers.
Auto Loan Interest Deduction
The bill creates a new deduction for auto loan interest up to $10,000 annually, but only for cars manufactured in the United States. The deduction phases out for taxpayers with modified adjusted gross income over $100,000 for singles and $200,000 for joint filers.
State and Local Tax (SALT) Deduction Changes
The SALT deduction cap increases from $10,000 to $40,000 for taxpayers earning less than $500,000 in 2025. The cap rises to $40,400 in 2026 and increases by one percent annually through 2029, before reverting to $10,000 permanently in 2030. This provides significant temporary relief for taxpayers in high-tax states.
Estate and Gift Tax Changes
The bill permanently increases the unified credit and generation-skipping transfer tax exemption from $10 million to $15 million per individual beginning in 2026, indexed for inflation.
New Savings Programs
Trump Accounts for Children
The legislation creates Individual Trust Accounts (Trump accounts) for children under 18, allowing $5,000 in annual contributions for education, small business investments, and first home purchases. Qualifying children born between December 31, 2024, and January 1, 2029, receive a one-time government-funded $1,000 deposit.
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Business Tax Changes
Depreciation and Capital Expenditures
Bonus Depreciation Restored
The bill reinstates permanent 100% first-year depreciation for qualified property acquired and placed in service after January 19, 2025. This reverses the phase-down that had reduced bonus depreciation to 40% in 2025.
Manufacturing Facilities
Businesses can fully and immediately deduct the cost of building new manufacturing facilities, retroactive to January 19, 2025, and continuing for construction that begins before January 1, 2029.
Research and Development
The legislation allows businesses to write off research and development costs in the year they were incurred, with retroactive benefits for investments made after December 31, 2021. This reverses changes that required these costs to be amortized over five years.
Small Business Benefits
Section 199A Deduction (QBI)
The qualified business income (QBI) deduction for pass-through entities becomes permanent at 20% (not increased to 23% as originally proposed in the House). The bill expands eligibility by increasing the phase-in range for specified service trades or businesses (SSTBs) from $50,000/$100,000 to $75,000/$150,000. A new minimum deduction of $400 is introduced for taxpayers with at least $1,000 of qualified business income who materially participate in active trades or businesses.
Business Interest Deduction
The bill restores the more favorable EBITDA-type calculation of the business interest deduction limit for tax years beginning in 2025, making this provision permanent.
International Tax Changes
GILTI and FDII Modifications
The bill renames Global Intangible Low-taxed Income (GILTI) to Net CFC Tested Income and establishes a 14% effective tax rate. Foreign-derived Intangible Income (FDII) is renamed to Foreign-Derived Deduction Eligible Income with a parallel 14% rate. The Base Erosion and Anti-Abuse Tax (BEAT) rate increases to 10.5%.
Real Estate Investment Trusts (REITs)
The bill increases the percentage of a REIT's total assets that may be represented by securities of taxable REIT subsidiaries from 20% to 25%, effective for taxable years beginning after December 31, 2025.
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Clean Energy and Environmental Tax Changes
Credits Terminated
Several clean energy credits face elimination or phase-out with various termination dates between 2025-2027, including electric vehicle credits and residential clean energy property credits. The specific phase-out schedule varies by credit type and includes restrictions related to foreign entities of concern.
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Healthcare Tax Provisions
Affordable Care Act (ACA) Changes
The bill removes limitations on excess tax credit repayments under the ACA, meaning individuals would owe the full amount of any excess advance premium payments based on their actual income.
Starting in 2028, individuals acquiring health insurance through exchanges must undergo pre-enrollment verification of eligibility.
Health Savings Accounts
The legislation expands health savings accounts, putting families more in control of their healthcare decisions.
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Economic Impact and Revenue Effects
GDP and Economic Growth
Economic analysis finds the tax provisions would increase long-run GDP by 1.2 percent, with supporters arguing this growth will partially offset the revenue losses.
Distributional Effects
According to Penn Wharton Budget Model analysis, the top 20% of earners would see their net income increase by nearly $13,000 per year, while the top 0.1% of earners would gain more than $290,000 annually.
The typical family is projected to receive up to $10,900 in additional take-home pay, with households earning less than $100,000 getting a 12% tax cut compared to current law.
Revenue Impact
The Congressional Budget Office estimates the bill would reduce federal tax revenue by $4.5 trillion over the next decade on a conventional basis. On a dynamic basis, incorporating projected economic growth, economic growth pays for about 19% of the major tax cuts.
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Effective Dates and Implementation
Most individual tax provisions take effect for tax years beginning after December 31, 2025. However, several provisions have different effective dates:
- Bonus depreciation and manufacturing facility deductions: January 19, 2025
- Standard deduction boost and child tax credit increase: 2025
- Estate tax exemption increase: 2026
- Temporary deductions (tips, overtime, senior, auto loans): 2025-2028
- SALT cap reversion: 2030
- Clean energy credit terminations: Various dates 2025-2027
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What This Means for You
The One Big Beautiful Bill represents the most significant tax legislation in decades, affecting virtually every American taxpayer and business. Key takeaways include:
For Individuals: Permanent tax rate reductions, enhanced deductions for seniors, service workers, and those with children, plus temporary relief for tips and overtime income. The SALT cap increase provides significant but temporary relief for high-tax state residents.
For Businesses: Restored favorable treatment of capital investments, permanent small business deductions at 20%, expanded eligibility thresholds, and simplified depreciation rules that encourage domestic manufacturing.
For High-Tax State Residents: Temporary but significant relief through the increased SALT deduction cap that gradually increases through 2029 before reverting to $10,000.
For Families: Enhanced child tax credits starting immediately in 2025, new savings accounts for children, and expanded healthcare flexibility.
As with any major tax legislation, the full impact will become clearer as implementation begins and taxpayers adapt to the new rules. Individuals and businesses should consult tax professionals to understand how these changes affect their specific situations and take advantage of available benefits.
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This analysis is based on the final version of the One Big Beautiful Bill Act signed into law on July 4, 2025. Tax laws are complex and subject to interpretation. Consult a qualified tax professional for advice specific to your situation.