The One Big Beautiful Bill Act: what it actually changes for your 2025 and 2026 taxes
It's the largest US tax overhaul since 2017 — and it lands across two filing seasons. Here's a clear, fully-sourced breakdown of what changed, who it affects, and which breaks are permanent versus the ones with a ticking clock.
On July 4, 2025, the sweeping tax-and-spending package widely known as the One Big Beautiful Bill Act (OBBBA) was signed into law as Public Law 119-21. A quirk worth knowing: the catchy short title was actually stripped out during the Senate process, so the law technically has no official short title — but "OBBBA" or "OBBB" is what everyone, including practitioners, now uses.
The single most important thing to understand is that this law affects two different tax years at once, which is why it's confusing so many people:
- Your 2025 return (filed in early 2026) already reflects several changes — some of them retroactive to January 1, 2025.
- Your 2026 tax year is where most of the structural, permanent changes lock in.
At its core, the Act makes permanent most of the 2017 tax cuts that were due to expire at the end of 2025, then layers several brand-new deductions on top. Below, use the filter and tabs to jump straight to what matters for you.
Who does this affect? Pick your situation
Tap a category to highlight the sections most relevant to you. (You can pick more than one.)
Tax rates and the standard deduction are locked in
The seven tax brackets introduced in 2018 (10%, 12%, 22%, 24%, 32%, 35% and 37%) are now permanent. Without this Act, rates were scheduled to rise in 2026, with the top rate returning to 39.6%. The larger standard deduction is permanent too, and was bumped up again:
| Standard deduction | 2025 | 2026 |
|---|---|---|
| Married filing jointly | $31,500 | $32,200 |
| Head of household | $23,625 | $24,150 |
| Single / married filing separately | $15,750 | $16,100 |
Child Tax Credit Permanent
Increased to $2,200 per qualifying child under 17 and made permanent (it was set to drop to $1,000). Up to $1,700 is refundable.
SALT deduction cap 2025–2029
The state-and-local-tax deduction cap jumps from $10,000 to $40,000 ($20,000 if married filing separately).
Estate & gift exemption Permanent
The lifetime exemption rises to $15 million per person for 2026 (from $13.99M), indexed for inflation — locking in certainty for estate planning.
"Trump Accounts" for kids New
New tax-deferred savings accounts for children under 18, with up to $5,000/year in contributions. Babies born 2025–2028 (US-citizen, parent with SSN) get a one-time $1,000 federal seed.
The fine print: charitable giving, mortgage interest, AMT & the "37% cap"
Charitable deduction for non-itemizers (2026): people who take the standard deduction can deduct up to $1,000 ($2,000 joint) of cash gifts. But if you do itemize, a new 0.5%-of-AGI floor applies before charitable gifts count.
Mortgage interest: the $750,000 acquisition-debt limit is now permanent, and mortgage insurance premiums (PMI) are once again deductible as mortgage interest.
Alternative Minimum Tax: the higher AMT exemptions are permanent, but the phase-out now bites faster (50 cents per dollar) and resets thresholds to $500,000 (single) / $1,000,000 (joint).
Top-bracket itemizers: a new limitation caps the value of itemized deductions for those in the 37% bracket at roughly 35 cents per dollar.
Four brand-new deductions for working Americans
These are the headline "No tax on…" provisions. Each is a deduction (not a zero-tax exemption), each is available whether you itemize or not, each phases out at higher incomes, and — importantly — all four run only from 2025 through 2028. They're claimed on a new IRS form, Schedule 1-A.
No tax on tips 2025–2028
Deduct up to $25,000 of qualified tips, in occupations the IRS lists as customarily tipped.
No tax on overtime 2025–2028
Deduct up to $12,500 ($25,000 joint) of the premium portion of overtime — the extra "half" of time-and-a-half required under federal law.
No tax on car loan interest 2025–2028
Deduct up to $10,000 of interest on a loan for a new, personal-use vehicle.
Enhanced senior deduction 2025–2028
An extra $6,000 deduction per person age 65+ ($12,000 for a qualifying couple), on top of the existing senior standard deduction.
The fine print: what counts as a "qualified tip" or "qualified overtime"
Qualified tips are voluntary cash or charged tips (including shared tips) in occupations the IRS formally identified as customarily and regularly tipped on or before Dec 31, 2024, and reported on a W-2, 1099, or Form 4137. For the self-employed, the deduction can't exceed net income from the business where the tips were earned.
Qualified overtime is the amount paid above your regular rate of pay as required under section 7 of the Fair Labor Standards Act — the "and-a-half" part, not your full overtime wage — and it must be reported on a W-2 or 1099.
Powerful, permanent breaks for business owners
For owners of pass-through businesses — LLCs, S-corps, partnerships and sole proprietors — this is largely good news, and much of it is now permanent rather than expiring.
20% QBI deduction Permanent
The Section 199A qualified business income deduction (20% of eligible income) is made permanent. A new $400 minimum deduction applies if you have at least $1,000 of active QBI.
100% bonus depreciation Permanent
Full first-year expensing is restored permanently for most qualifying property acquired and placed in service after Jan 19, 2025 — instead of spreading the deduction over years.
Section 179 expensing Expanded
The annual expensing cap jumps to $2.5 million (with a $4M phase-out) for 2025, indexed to about $2.56M / $4.09M in 2026.
Domestic R&D expensing Restored
Businesses can again immediately deduct domestic research costs (for tax years beginning after Dec 31, 2024), reversing the unpopular five-year amortization rule.
The fine print: interest deductions, QSBS and the ERC crackdown
Business interest (Section 163(j)): the more generous EBITDA-based calculation is back, letting many businesses deduct more interest by adding back depreciation and amortization.
Qualified Small Business Stock (Section 1202): a new tiered exclusion (50% at 3 years, 75% at 4, 100% at 5), a higher $15 million gain cap, and a $75 million gross-asset limit — a meaningful win for startup founders and investors.
Employee Retention Credit: the Act disallows certain late-filed 2021 ERC claims and extends the IRS's window to challenge claims to six years — tighten up any ERC documentation now.
Credits being phased out — act before the deadlines
The Act pays for some of its breaks by ending others, mostly clean-energy incentives. If any of these apply to you, timing matters.
Clean vehicle (EV) credit Ending
The credit for new and used clean vehicles ends for vehicles acquired after September 30, 2025.
Residential clean energy (25D) Ending
The 30% credit for home solar, battery storage and similar systems ends for expenditures after December 31, 2025.
Energy-efficient home improvement (25C) Ending
Credits for efficient windows, doors, insulation and HVAC end for property placed in service after December 31, 2025.
EV charger credit Ending
The alternative-fuel refueling property credit ends for property placed in service after June 30, 2026.
Permanent vs temporary: the part most people miss
The most common planning mistake is treating every new break as if it's here to stay. It isn't. Use this distinction when you plan:
- Permanent (plan around these as your baseline): the tax brackets, the larger standard deduction, the 20% QBI deduction, 100% bonus depreciation, the expanded Section 179, the $15M estate exemption, and the $2,200 Child Tax Credit.
- Temporary (use them while they last): no tax on tips, overtime and car loan interest, and the enhanced senior deduction — all expire after 2028. The $40,000 SALT cap reverts to $10,000 after 2029.
What you should actually do now
- Don't leave money on your 2025 return. If you earn tips or overtime, are 65+, or bought a qualifying US-made vehicle on finance, make sure your preparer uses Schedule 1-A.
- Front-load the temporary breaks. Where it makes sense, accelerate decisions that benefit from the 2025–2028 deductions and the 2025–2029 SALT cap.
- Time capital purchases. With 100% bonus depreciation and a $2.5M Section 179 cap, the timing of equipment buys can materially change your tax bill.
- Revisit your entity and compensation mix. With QBI now permanent, multi-year planning around how you pay yourself is worth a fresh look.
- Mind the state side. Many states don't automatically conform to these federal changes, so your state result can differ — a common trap.