One Big Beautiful Bill Passed by Congress

On July 3, 2025, Congress gave its final approval to H.R.1, The One Big Beautiful Bill, capping off a week of high-stakes political drama on Capitol Hill. The action began in the Senate, where Vice President JD Vance cast the tie-breaking vote to approve the tax bill and send it back to the House. 

The House then faced its own drama. To pass this legislation before the Fourth of July, the chamber had to vote on the Senate’s version without making any changes. Any adjustments would delay passage until after the holiday. 

House leaders opted to accept the Senate’s version, angering several House Republicans. This played out during several procedural House votes, where members withheld support. Several votes were held open for hours as these members stood firm and negotiated privately with top leaders and even the President. Finally, these members agreed to support the bill, clearing the procedural hurdles. 

The bill narrowly passed through the House on July 3 by a 218-214 vote. Officially approved by Congress, this legislation then moved to the President and received his signature.  

Here are some key tax changes in the bill that passed Congress:

Individual Provisions

Individual Tax Rates: Individual tax rates were made permanent by the bill and will not rise in 2026. This means the current tax rates are not scheduled to sunset. A future Congress and President could always change the income tax rates, but these tax rates are not set to expire. Taxpayers should plan accordingly. Additionally, these lower rates for capital gains and dividends are unaffected by the tax bill, keeping their tax-favored status.

Increased Standard Deduction: The standard deduction increased to $15,750 for single taxpayers and to $31,500 for married filing jointly taxpayers. This change is permanent and effective for tax years beginning in 2025 (and then indexed for inflation).

Child Tax Credit: The expanded Child Tax Credit increased from $2,000 to $2,200, applicable for the 2025 tax year. 

Deduction for Seniors: A new deduction allows qualified individuals aged 65 and older, effective first for the 2025 tax year, to claim up to $6,000.

Qualified Business Income Deduction: This deduction for owners of certain pass-through entities is now permanent and kept at the 20% level (not the 23% proposed earlier by the House). Further, the taxable income limitation for this deduction increased from $50,000 to $75,000 for individual taxpayers, effective for tax years beginning in 2025.   

State and Local Tax (SALT) Tax Deduction: The SALT deduction had been capped at $10,000 since 2018. It’s now increased to $40,000 beginning with the 2025 year. The higher threshold only applies through 2029, when it will revert to the $10,000 figure. This higher deduction is phased out for taxpayers with income over $500,000 and fully reduced to the $10,000 level with income over $600,000. This SALT cap was probably the most contentious issue in the entire bill, hotly debated this year as the bill progressed. Further, the final bill did not contain any adjustment for a Pass-Through Entity (PTE) workaround, which was proposed earlier.

Alternative Minimum Tax (AMT) Exemption: The higher AMT exemption amounts are extended permanently and adjusted for inflation, effective for tax years beginning in 2026.

Estate and Gift Tax Exemption: The estate and gift tax exemption maximum is permanently increased to $15 million, effective for decedents passing away after December 31, 2025. The $15 million threshold is indexed for inflation.

“No Tax on Tips”: A new deduction is allowed for qualified tips for service industry workers. Eligible tip amounts for this deduction are capped at $12,500 for individuals and $25,000 for joint returns. This deduction applies for tax years 2025 through 2029. The IRS will need to provide guidance for impacted employees and employers. 

“No Tax on Overtime”: The legislation allows for a deduction for overtime pay, applicable to workers whose income does not exceed $150,000 for single filers and $300,000 for joint filers. The deduction only applies to extra overtime income, not base pay. The IRS will again need to provide guidance for impacted employees and employers.

Auto Loan Interest Deduction: The legislation allows for a deduction of up to $10,000 for interest paid on auto loans for U.S.-made vehicles. This is even available to taxpayers who do not itemize their deductions. However, there are limitations that reduce this deduction for taxpayers with higher income (over $200,000 if married filing jointly). The deduction is effective for tax years beginning in 2025. 

Trump Accounts: The legislation introduces a new “Trump Account,” defined as an individual retirement account – per Section 408(a) – that is not designated as a Roth IRA. Contributions are subject to a $5,000 annual limit for beneficiaries under age 18. Other employer- or rollover-contributions would be allowed and not subject to the $5,000 limit. After age 18, beneficiaries can distribute the funds for qualified use – generally for educational purposes, starting a business or other eligible purposes.

Federal Scholarship Granting Organization (SGO) Contribution Tax Credit: The legislation introduces a new tax credit for individual taxpayers who contribute to qualified Scholarship Granting Organizations (SGOs). This provision is designed to incentivize private contributions to fund elementary and secondary education scholarships for eligible students. The credit permitted in the year cannot exceed $1,700 annually and must be a cash contribution. The IRS will need to provide guidance on this new credit.

Business Provisions

Bonus Depreciation: The 100% bonus depreciation deduction is restored. This higher threshold applies for additions placed in service after January 19, 2025, and are permanent.  

Research and Development Expenses: Starting with tax years beginning after December 31, 2024, businesses are once again allowed to fully deduct their research and development expenses the same year those costs are incurred. This change is permanent. This applies to all businesses in every industry but not to foreign research expenses, which will continue to be amortized over fifteen years. Additionally, this bill allows businesses to deduct the unamortized portion of research expenses – capitalized and amortized over five years since 2022 – either entirely in 2025 or spread across 2025 and 2026. Further, retroactive relief is available for small businesses with less than $31 million in revenue.

Interest Deduction Limitation: Since 2023, the deduction for interest expense has been limited to a lower threshold based on EBIT (earnings before interest and taxes). Starting in 2025, the bill notes this limitation shifting to a more favorable threshold based on EBITDA (earnings before interest, taxes, depreciation and amortization). This favorable change is permanent. There is continued relief for small businesses.

Section 179 Deduction for Qualifying Equipment Purchases: The Section 179 deduction limit increased from $1,250,000 to $2,500,000, and the phase-out threshold raised to $4,000,000. This provision applies to property placed in service in tax years beginning after December 31, 2024, and is permanent.

Qualified Production Facility: Traditionally, the structural components of a manufacturing facility are depreciated over 39 years using the straight-line basis. However, this new law introduces a provision allowing Qualified Production Property (QPP) to be currently deductible. QPP is defined as a U.S.-based facility engaged in the manufacturing, production or refining of a qualified product that results in a substantial transformation of the property. Further IRS guidance is needed to clarify various aspects of this new deduction.

Qualified Opportunity Zone (QOZ) Permanency and Enhancement: This legislation introduces several changes to the QOZ provisions originally enacted during President Trump’s first term. It enhances the basis step-up for rural investments, adjusts the timing of gain recognition and makes QOZs a permanent part of the tax code.

Enhancement of Employer Provided Childcare Credit: The employer-provided childcare credit is enhanced, allowing businesses to claim a credit of up to $500,000 – or $600,000 for small businesses – for qualified childcare expenses. The credit covers up to 40% of eligible expenses for most businesses – 50% for small businesses – encouraging businesses to support working families. 

This Tax Alert highlights select individual and business provisions from the broader legislation. Other provisions include: 

• Enhancements to the Qualified Small Business Stock Exemption (QSBS) exemption under Section 1202
• Changes to certain energy credits from the Inflation Reduction Act of 2022
• Certain international tax provisions
• Provisions impacting tax-exempt organizations 

A more detailed analysis will follow.

This legislation presents many opportunities for individuals and businesses. Please contact your Sikich adviser for more information.

About Our Authors

Tom Bayer, CPA, CExP, has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He has deep experience providing a range of accounting, tax, and business advisory services to commercial clients across industries.

Jim Brandenburg, CPA, MST, possesses extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions, and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.