Understanding H.R. 1: The One Big Beautiful Bill Act of 2025 

The One Big Beautiful Bill Act was signed into law on July 4, 2025, by President Donald Trump. This law significantly changes the tax code and makes many previous provisions permanent.

Below are some of the most important updates.

Permanent Tax Brackets  

The current seven tax brackets are now permanent: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. This change was implemented to essentially freeze the current tax rates and block an increase in the top bracket, which was scheduled to increase to 39.6% for 2026. 

Standard Deduction Changes 

The standard deduction increases for all filing statuses:  

• Single filers: The standard deduction increases to $15,750 

• Joint filers: The standard deduction increases to $31,500 

• Head of household filers: The standard deduction increases to $23,625 

• Married filing separately: The standard deduction increases to $15,750 

Seniors – 65 and older have an additional standard deduction of $6,000 through 2028. 

Estate and Gift Tax Exclusion

Effective January 1, 2026, the federal estate and gift tax exclusion and the generation-skipping transfer (GST) tax exemption will increase permanently to $15 million per person. This number will be adjusted for inflation in the future. 

Charitable Contribution Deductions

The law creates a charitable contribution deduction for all non-itemizer taxpayers up to $1,000 (single) and $2,000 (married, filing joint). 

Mortgage Interest Limitation  

The law implements a permanent limitation of $750,000 mortgage balance to receive a mortgage interest deduction on Schedule A (Itemized Deductions).  The laws also makes permanent the exclusion of interest on home equity loans.

Increased State and Local Tax (SALT) Deduction  

Previously, filers had a $10,000 limit for state and local tax deductions on Schedule A. The ceiling is now raised to $40,000 for married couples ($20,000 for married filing separately).

This is subject to phaseout based on modified adjusted gross income (AGI) of $500,000 or more in 2025 but not reduced to less than $10,000.  

The increased SALT deduction takes effect for the 2025 tax year. Then, each year, the deduction cap and income phaseout threshold will increase by 1% starting in 2026.  The SALT deduction returns to $10,000 in 2030.  

Permanent Itemized Deduction Limitations 

Itemized deductions will be limited for taxpayers in the 37% income tax bracket.  This will take effect in 2026.

The law eliminates all personal casualty loss deductions except where a federal or state declared disaster is the reason for the loss.

Other permanently eliminated itemized deductions include:  

• Unreimbursed Employee Expenses 

• Investment Advisory Fees 

• Tax Prep Fees 

• Safe Deposit Box Fees  

Child Tax Credit 

The child tax credit is permanently increased to $2,200, adjusted for inflation, effective in 2025.  Inflation rates will determine the credit after 2028. Phase-out thresholds will remain the same. 

Tip Income Deduction 

The law creates a tip income deduction of up to $25,000 in tips to workers in the service industry, with the income threshold set at $150,000 for single filers and $300,000 for joint filers. This provision applies to tips received in the 2025 through 2028 tax years.   

Overtime Wages 

Employees can deduct up to $12,500 for single filers or $25,000 for joint filers of overtime premium pay from federal taxable income.  

This is effective January 1, 2025, through December 31, 2028. The phase-out applies to:  

• Single filers with incomes over $150,000 

• Joint filers with incomes over $300,000  

Employers will be required to report the amount of overtime that qualifies for the deduction on the employee’s W2. 

Auto Loan Interest Deductible 

Loan interest from auto loans will be deductible, but the vehicle’s final assembly must be in the United States to qualify. The deduction is limited to $10,000 with a $200 phase-out for every $1,000 of income above $200,000 for joint filers and $100,000 for other filers. 

This applies to vehicles purchased after 2024 and is effective January 1, 2025 through December 31, 2028. 

Alternative Minimum Tax (AMT) 

The AMT exemption amount is permanently increased to $1,000,000 for joint filers and $500,000 for single filers.  These amounts will be indexed for inflation.  

The phaseout exemption amount is adjusted from 25% to 50% after 2025. 

Business Provision Changes 

A new permanent deduction allows for the return of 100% bonus depreciation for property purchased after January 19, 2025.   

Section 179 deduction thresholds will increase, changing the limit to $2.5 million for maximum deduction. The phaseout for purchases will increase to $4 million, with amounts adjusted over time to account for inflation.  

The law makes the deduction for Qualified Business Income (Section 199A or QBI) permanent at 20%. 

Research and Development  

The law now eliminates the requirement for businesses to amortize research and development (R&D) costs over five years for domestic R&D. For tax years beginning January 1, 2025, businesses can now deduct R&D expenses in the year incurred.

Businesses with under $31 million in gross receipts can amend 2022–2024 tax returns to deduct unamortized R&D expenses. Alternatively, businesses can deduct unamortized R&D expenses from 2022-2024 fully in 2025 or ratably over 2025 and 2026. 

Termination of credits and deductions 

The law terminates the following credits and deductions:  

The residential clean energy credit, which provided a deduction for rooftop solar, specific batteries, and other energy-efficient home purchases, is canceled. The new home energy efficiency credit ends for homes purchased after 2025, except if construction started before May 12, 2025. 

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