BWK Blog

One Big Beautiful Bill Act

by Barton Walter and Krier | Aug 26, 2025 | Industry Updates

Dear Client,

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBB), ushering in several significant changes to federal tax law, many of which take effect in 2025 or 2026. In addition to extending a variety of tax policies that were set to expire at year-end, the OBBB introduces important updates that could have a notable impact on both businesses and individual taxpayers.

Please keep in mind that many states, including Minnesota, do not automatically adopt federal tax law changes. Therefore, some changes introduced by the new bill may not apply under state law. Unless there’s a special session, Minnesota legislators aren’t set to meet again until January, so it may be some time before we know exactly how the state will respond.

While the bill includes several taxpayer-friendly provisions, we are still awaiting further IRS guidance on interpretation, implementation, and procedures. We’re also closely monitoring how states respond to these federal updates. To ensure effective tax planning—and determine whether amended returns are warranted in select cases—we will wait for additional IRS guidance before making any changes. Our goal is to provide you with the best advice once all the details are clarified.

Below is an overview of key highlights from the newly enacted tax law:

Income Tax Rate & Brackets

  • Lower individual and trust tax rates and brackets from the 2017 tax law are now permanent.
  • Fixes to the marriage penalty, capital gains, and qualified dividend rates are also made permanent.
  • Bracket adjustments for inflation have been updated.

Standard Deduction

  • Permanently increased to $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single or married filing separately.
  • Indexed for inflation using 2024 rates.

SALT (State and Local Tax) Deduction

  • The cap increases to $40,000 in 2025, with annual increases through 2029.
  • Returns to $10,000 in 2030.
  • Phases out for taxpayers with over $500,000 in modified AGI in 2025.

Estate & Gift Tax

  • Exemption increases to $15 million starting in 2026, indexed for inflation thereafter.

Depreciation & Expensing

  • 100% bonus depreciation is now permanent for qualified assets placed in service after January 19, 2025.
  • Section 179 expensing limit increases to $2.5 million, with phase-out beginning at $4 million.
  • New rules allow certain real property used in production to be fully depreciated immediately.
  • R&D Expensing (Section 174 Update)

Immediate deduction for U.S.-based R&D expenses

  • Foreign R&D remains deductible over 15 years.
  • Businesses that capitalized domestic R&D expenses from 2022–2024 can take a one-time “catch-up” deduction.
  • Small businesses (average gross receipts of $31 million or less, 2022–2024) may elect retroactive application of the rule.
  • Awaiting IRS guidance before filing amended returns.

Qualified Business Income (QBI) Deduction

  • The 20% QBI deduction is now permanent.
  • Active income minimums and phase-in thresholds have been raised, expanding eligibility.

Business Interest Deduction

  • Reverts to the more favorable EBITDA-based limitation method, effective 2025 and made permanent.
  • Clarifies interaction with capitalization rules.

Excess Business Losses

  • Permanent limit of $250,000 (single) and $500,000 (joint).
  • Farm loss limitation remains off.

Alternative Minimum Tax (AMT)

  • Exemption amounts permanently increased.
  • Phaseout thresholds revert to $500,000 (single) and $1,000,000 (joint), indexed for inflation.
  • Phaseout rate increased to 50%.

Personal Exemptions & Senior Deduction

  • Personal exemptions permanently eliminated.
  • Temporary $6,000 senior deduction available from 2025–2028, phased out above $75,000 (single) or $150,000 (joint).

Tips & Overtime

  • From 2025 to 2028, taxpayers can deduct up to $25,000 in tip income and $12,500 in overtime pay ($25,000 for joint filers).
  • Deduction phases out at $150,000 (single) or $300,000 (joint).
  • Employers must report more detailed pay information.
  • Available even for non-itemizers.

Car Loan Interest

  • Temporary deduction (2025–2028) for up to $10,000 per year in interest on loans for new U.S.-made vehicles.
  • Phases out at $100,000 (single) and $200,000 (joint).

Mortgage Interest Deduction

  • Still limited to $750,000 of acquisition debt.
  • Mortgage insurance premiums are permanently deductible.

Miscellaneous Itemized Deductions

  • Permanently disallowed, except for unreimbursed educator expenses (K–12 professionals).

Child & Family Savings and Credits

  • New “Trump Account” allows $5,000/year in tax-deferred savings for children.
  • $1,000 federal contribution for each newborn from 2025–2028.

529 Plans

  • K–12 education withdrawals capped at $20,000 annually.
  • Expanded eligible expenses.
  • New category for “qualified post-secondary credentialing expenses.”

Charitable Contributions

  • Itemizers can only deduct contributions exceeding 0.5% of AGI.
  • C Corporations: threshold is 1% of taxable income.
  • Cash donation limit of 60% of AGI is now permanent.
  • Non-itemizers can claim up to $1,000 ($2,000 joint) for donations.

Gambling Losses

  • Deductions capped at 90% of winnings.

Information Reporting

  • 1099-NEC and 1099-MISC thresholds increase to $2,000 in 2026 (indexed for inflation).
  • 1099-K reporting thresholds revert to $20,000 and 200+ transactions.

Qualified Small Business Stock (Section 1202)

  • Capital gains exclusion increases with holding period:
  • 50% after 3 years
  • 75% after 4 years
  • 100% after 5 years
  • Gain cap increases to $15 million.
  • Qualifying company asset limit raised to $75 million.

Casualty Loss Deduction

  • Limited to losses from federally or state-declared disasters.

Employee Retention Credit (ERC)

  • New penalties for ERC promoters.
  • Longer enforcement window.
  • No new claims allowed.

Clean Energy Credits

  • Many energy-related credits end early (mostly by end of 2025 or mid-2026).
  • No more 5-year accelerated depreciation for new energy property after 2024.
  • No carryforward for revoked project certifications.
  • Tighter domestic manufacturing rules.

Questions? BWK Is Here to Help

If you have questions about how these changes may affect you or your business, or would like to discuss how the OBBB tax law may present planning opportunities, please reach out to your BWK advisor. We’re here to help you evaluate both immediate and long-term strategies that align with your goals.

Sincerely,

The BWK Team