Editor’s note: Horsesmouth will offer a free webinar titled “The Big Reveal: What the New Tax Law Means for You, Your Clients, and 2025 Planning” on Wednesday, July 16 at 4 p.m. ET. Learn more and register here.
The following article is part one of a two-part series providing an overview of the provisions of the OBBB Act.
Staying ahead of legislative changes that directly impact our clients’ financial well-being is crucial to our profession. The recent signing of the “One Big Beautiful Bill Act” (OBBB Act) by President Trump on July 4 represents a monumental shift in the American fiscal landscape. This comprehensive budget reconciliation law is poised to dramatically influence tax planning, investment strategies, and social policy for years to come.
This two-part summary provides a detailed overview of the OBBB Act’s core provisions, confirmed to reflect the final text signed into law, not earlier drafts or proposed versions.
Understanding these changes intimately will be crucial for navigating client conversations, identifying new opportunities, and mitigating potential risks in the evolving economic environment. All information presented below has been cross-referenced with recent analyses from the Congressional Budget Office (CBO) and reputable legal and tax advisory firms following the bill’s final passage.
In this first part of a two-part series, we present summaries of 12 key permanent provisions of the OBBB Act, along with their specific implications and confirmed details, ordered from most to least applicable to individual and business clients:
- Permanent extension of individual tax rates: The OBBB Act permanently extends the individual income tax rates established by the 2017 Tax Cuts and Jobs Act (TCJA). These rates, including the current brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) and their associated thresholds, were originally slated to expire at the end of 2025 but will now remain in effect indefinitely. This provides long-term clarity for individual tax planning, retirement projections, and income diversification strategies for all income levels.
- Expanded standard deduction: The OBBB Act includes a permanent substantial expansion of the standard deduction beginning in tax year 2025. For example, starting in 2025 the standard deduction increases to $31,500 for joint filers, $23,625 for head of household, and $15,750 for all other filers, inflation adjusted thereafter.
- Permanent Qualified Business Income (QBI) deduction: The Section 199A deduction for qualified business income is made permanent. This deduction allows owners of pass-through businesses (such as sole proprietorships, partnerships, and S corporations) to deduct a portion of their qualified business income. The deduction rate is staying at 20%. The act modifies the phase-in range for wage and investment limitations for certain businesses by increasing the amount from $50,000-$75,000 for non-joint tax returns and from $100,000-$175,000 for joint returns. It also proposes an inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 of QBI from active trades or businesses. This provides significant, long-term tax relief for small and medium-sized businesses, directly influencing business structuring and investment decisions.
- Permanent incentives for business owners: Three incentives for business owners will be permanent: deductions for research and development expenses, a 100% bonus depreciation rate for property assets like machinery and factories, and an allowance to apply depreciation and amortization costs to the basis of interest expenses.
- Deduction for research and development (R&D) expenses: The immediate deductibility of research and development expenses for businesses has been restored, reversing the amortization requirement introduced in 2022. Beginning in tax year 2026, businesses can once again fully deduct R&D costs in the year they are incurred, rather than spreading them over five years (or 15 years for foreign research). This change provides a significant cash flow benefit for innovative businesses, particularly in technology, biotech, and manufacturing, and encourages continued domestic investment in research and innovation.
- 100% bonus depreciation reinstatement: The 100% bonus depreciation has been restored for qualifying property acquired after January 19, 2025, and placed in service before January 1, 2030. This allows businesses to immediately deduct the full cost of eligible assets in the year they are placed in service, rather than depreciating them over several years. This strong incentive for business investment aims to improve cash flow and stimulate capital expenditure. This is a powerful incentive for businesses looking to expand or upgrade equipment, offering a key tax planning opportunity for business-owning clients.
- Expanded interest expense deduction for businesses: Businesses are permanently allowed to include depreciation and amortization when calculating their interest expense limitation under Section 163(j). This effectively restores the pre-2022 definition of adjusted taxable income (ATI), enabling companies to deduct a larger portion of their interest expenses. By incorporating depreciation and amortization back into the calculation, capital-intensive businesses—such as those in manufacturing, real estate, and energy—will see enhanced interest deductibility, improving after-tax cash flow and making new investments more financially viable.
- Phase-out of clean energy tax credits: The OBBB Act significantly scales back and accelerates the phase-out of several clean energy tax credits established under the Inflation Reduction Act of 2022. This definitively shifts policy toward promoting fossil fuels over renewable energy sources and has implications for individual taxpayers considering specific energy-efficient upgrades for their homes or vehicle purchases.
- Clean vehicle credits (Section 30D, 25E): The credits for new electric vehicles (Section 30D, up to $7,500) and previously-owned clean vehicles (Section 25E, up to $4,000) are largely repealed for vehicles acquired after September 30, 2025. This is a rapid termination of incentives that have been driving EV adoption.
- Alternative Fuel Vehicle Refueling Property Credit (Section 30C): This credit, which incentivized the installation of home charging stations for EVs and other alternative fuel vehicles, is repealed for property placed in service after June 30, 2026.
- Residential Energy Credits (Section 25C, 25D): The Energy Efficient Home Improvement Credit (Section 25C) is terminated for property placed in service after December 31, 2025. The Residential Clean Energy Credit (Section 25D, commonly known as the consumer solar tax credit for installing solar panels on homes) is terminated for expenditures made after December 31, 2025. This means homeowners will no longer receive federal tax credits for installing solar panels, energy-efficient windows, or other qualifying home improvements after these dates.
- Increased Child Tax Credit: The maximum amount of the Child Tax Credit (CTC) is increased from $2,000 to $2,200 per child, with the credit amount indexed for inflation in future years. The refundable portion of the credit is also adjusted for inflation, ensuring its value keeps pace with rising costs. However, critics note that the version passed offers fewer benefits than the temporary pandemic-era expansion, which had reached a broader section of low-income households.
- Income phase-outs for Child Tax Credit: The OBBB Act largely maintains the existing income phase-out thresholds for the Child Tax Credit, providing consistency for taxpayers. The credit begins to phase out for single filers with a modified Adjusted Gross Income (AGI) exceeding $200,000, and for married couples filing jointly with an AGI exceeding $400,000. For every $1,000 (or fraction thereof) that a taxpayer’s AGI exceeds these thresholds, the credit is reduced by $50. This means that higher-income earners will see their Child Tax Credit reduced or eliminated entirely once their income surpasses these specified limits.
- Permanent charitable deduction (including non-itemizers): There is a permanent above-the-line charitable deduction for non-itemizers, starting in tax year 2026. Taxpayers who do not itemize can deduct up to $1,000 (single filers) or $2,000 (married filing jointly) in qualified charitable contributions annually. For those who do itemize, the Act introduces a new 0.5% AGI floor, meaning only charitable gifts that exceed 0.5% of adjusted gross income will be deductible. This change expands charitable giving incentives for a broader base of taxpayers while modestly limiting deductions for smaller donations by higher-income filers. It may also streamline filing and planning for charitably inclined clients.
- Permanent lifetime gift and estate tax exclusion: The Act permanently increases the estate and lifetime gift tax exemption to an inflation-indexed $15 million for single filers and $30 million for joint filers beginning in 2026. This is a significant increase from the previously scheduled drop in 2026 (to roughly $7 million under pre-OBBB law). High-net-worth individuals now have greater certainty and a powerful opportunity for long-term estate planning.
- Tax on remittances: A new 1% tax is imposed on remittances, which are cross-border money transfers. The tax applies to both U.S. and non-U.S. citizens sending transfers. This excise tax is effective for transfers sent after December 31, 2025.
- Medicaid spending cuts: The act implements significant cuts to federal spending on Medicaid and the Children’s Health Insurance Program (CHIP), projected at $1.02 trillion over the next decade. This includes new eligibility verification requirements and expanded work requirements for some expansion populations. The CBO estimates that these changes could lead to at least 10.5 million people losing health insurance coverage by 2034. It also includes a provision that would effectively defund Planned Parenthood clinics for one year by prohibiting any health clinic that provides abortion care from accepting Medicaid funds for any other service. Furthermore, it allows states to charge Medicaid enrollees with family incomes between 100% and 138% of the federal poverty level up to $35 per health care service, capped at 5% of family income, and allows providers to turn away patients who cannot afford these costs.
- Expanded SNAP work requirements: The OBBB Act expands work requirements for recipients of Supplemental Nutrition Assistance Program (SNAP) benefits. This extends requirements to a broader range of individuals, including some parents with children over age 6 and adults aged 55-64. These individuals must demonstrate compliance with a 20-hour-per-week work requirement or qualify for an exemption to receive benefits for more than three months in a three-year period. It also reverses bipartisan SNAP paperwork-requirement exemptions for vulnerable groups, including veterans, people experiencing homelessness, and youth aging out of foster care. Additionally, the act shifts some program costs and responsibilities to states.
- Increased college endowment taxes: The OBBB Act significantly reforms and raises taxes on investment income from college endowments. It imposes a multi-tiered rate structure based on a school’s “student-adjusted endowment.” The tax rate starts at 1.4% for endowments between $500,000 and $750,000 per student, escalating up to 8% for the wealthiest colleges (those with endowments over $2,000,000 per student). This applies to colleges with more than 3,000 tuition-paying students.
Effects on the deficit and national debt
The fiscal implications of the OBBB Act are substantial and represent a critical area for our analysis and client communication. The OBBB Act includes a substantial increase in the national debt ceiling by $5 trillion. This provision provides the government with additional borrowing capacity to fund its operations and the new spending initiatives included in this sweeping bill.
According to the Congressional Budget Office (CBO)’s analysis of the final version, the bill is estimated to increase primary (non-interest) budget deficits by $3.25 trillion over the fiscal year (FY) 2025–2034 budget window. When accounting for higher interest costs due to increased borrowing (projected at an additional $690 billion), the legislation is projected to increase total budget deficits by approximately $3.94 trillion through FY 2034.
This significant increase in deficits is primarily driven by the permanent extension of the TCJA tax cuts and the introduction of new temporary tax deductions, which collectively result in substantial federal revenue reductions. While the bill does include nearly $1.5 trillion in gross spending cuts (most notably in Medicaid and SNAP), these offsets are insufficient to fully mitigate the revenue losses.
As a direct consequence of these projected deficits, the national debt held by the public is forecast to climb significantly. The CBO projects that if the OBBB Act is enacted, the national debt would reach 124% of Gross Domestic Product (GDP) by the end of FY 2034, compared to an estimated 117% of GDP under current law.
Other analyses, like that from the Committee for a Responsible Federal Budget (CRFB), suggest that if the temporary provisions (like the tip, overtime, and auto loan deductions, and Trump Accounts) were to be made permanent beyond their scheduled expirations, the total debt increase could exceed $5 trillion. Some analyses warn that government debt could hit 130% of GDP within a decade, surpassing levels seen after World War II.
In part two of this series, we will examine some of the temporary provisions included in the OBBB, several of which will be crucially important for tax planning.
Sources and Citations