One Big Beautiful Bill, OBBB. 2025 Trump Tax Reform

The 2025 tax reform - via the One Big Beautiful Bill or OBBB - is a major tax reform extending key elements of the 2017 Tax Cuts and Jobs Act (TCJA) and enacting numerous new tax measures.

2025 Tax Reform Overview

Tax Deductions, Temporary Deductions
Individual Rates
Child and Family Tax Credits

Tax Deductions

For tax year 2025, the standard tax deduction will be $15,750 for single, married filing separate filers, $31,500 for married filing jointly/surviving spouse filers, and $23,625 for the head of household filing status. The 2017 Tax Cut and Jobs Act - TCJA - elimination of the personal exemption has also been made permanent. Detailed overview of standard tax deductions by tax year.

Temporary Deductions (2025–2028)

The following temporary deductions are available to taxpayers with standard deductions and those who itemize deductions.

Tip Income Deduction: Qualified tips - reported via Form 4137 - include voluntary cash tips and charged tips received from customers or through tip-sharing. Tip deduction is available for both itemizing and non-itemizing taxpayers. Self-employed individuals in a specified service trade or business (SSTB) are not eligible under section 199A. Neither are employees whose employer is in an SSTB. Tip Income Deduction limites: Up to $25,000 in tip income can be deducted annually for workers in traditionally tipped industries. The deduction is above the line and phases out when modified AGI exceeds $150,000 (or $300,000 for joint filers).

Overtime Income Deduction: Up to $12,500 (for single, married filing separate, head of household files) ($25,000 for joint filers) of overtime premium pay can be deducted above the line. The deduction is above the line and phases out when modified AGI exceeds $150,000 (or $300,000 for married filing filers). The overtime deduction is available for both itemizing and non-itemizing taxpayers.

Auto Loan Interest Deduction: For the tax years 2025 through 2028, taxpayers may deduct interest paid on a loan used to purchase a qualified vehicle for personal use, provided that the vehicle meets other eligibility criteria. (Auto lease payments do not qualify.) Details about the auto loan lnterest deduction.

To qualify for the interest deduction, the interest must be paid on a loan that is:

originated after December 31, 2024
used to purchase a vehicle
the original use of which starts with the taxpayer (used vehicles do not qualify)
for a personal use vehicle (not for business or commercial use)
secured by a lien on the vehicle.
if a qualifying vehicle loan is refinanced later, the interest paid on the refinanced amount is generally eligible for the deduction.

What is a a qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds that underwent final assembly in the United States.
Taxpayer eligibility: The auto-loan interest deduction is available for both itemizing and non-itemizing taxpayers. The taxpayer must include the vehicle's Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed.
Reporting: Lenders or other recipients of qualified interest must file information returns with the IRS and provide taxpayers with statements showing the total amount of interest received during the taxable year.

Interest Deduction Limits: Up to $10,000 of interest on new auto loans is deductible, which is limited to US assembled vehicles. Deduction phase out: When modified AGI exceeds $100,000 (singles, head of household, married filing separate) ($200,000 for married filing jointly).

Note: The temporary deductions for tips, overtime pay, and auto loan interest are exceptions from standard tax principles and are intended as tax relief for certain tax payers. They will sunset in 2028 and eligibility rules will apply.

Itemized Deduction Changes

A: State and Local Tax (SALT) Deduction: The SALT deduction cap was temporarily increased from $10,000 to $40,000, increasing by 1% each year through 2029. The cap is only fully available to taxpayers with a modified AGI up to $500,000 ($1M for joint filers) and permanently reverts to $10,000 starting in 2030.
B: Home Mortgage Interest Deduction: The qualified residence interest deduction continues to be limited to interest on the first $750,000 of home debt. Interest on home equity loans remains excluded from the definition of qualified residence interest; see IRC § 163.
C: Casualty Losses: Personal casualty losses remain deductible only if they result from an officially declared disaster, including federally declared events and certain qualifying state-declared disasters.
D: Miscellaneous Deductions: The OBBB permanently disallows miscellaneous itemized deductions. However, unreimbursed educator expenses are removed from the list of miscellaneous itemized deductions.
E: High-Income Limitation: The overall cap on itemized deductions for high-income taxpayers has been permanently removed, and a new limitation has been implemented. For taxpayers in the 37% bracket, itemized deductions are reduced by a formula (2/37 of the lesser of the total itemized deductions or the excess of taxable income beyond the 37% bracket threshold).
F: Charitable Contributions: Two significant changes aim to encourage charitable giving while limiting its tax shelter value. First, the Act creates a new above-the-line charitable deduction allowing taxpayers who claim the standard deduction to additionally deduct up to $1,000 for single/married filing separate filers and $2,000 for married filing jointly/surviving spouse of charitable contributions each year. Important: taxpayers who do itemize must reduce the charitable contribution deduction by 0.5% of their contribution base for that tax year.

Additional Individual Provisions

G: Senior Tax Deduction: For the tax years 2025 through 2028, individuals age 65 (as of Dec. 31 of the tax year) and older may claim an additional $6,000 deduction. This new deduction is in addition to the current additional standard deduction for seniors under existing law. The $6,000 senior deduction is per eligible individual ($12,000 total for a married couple where both spouses qualify). The deduction phases out for taxpayers with modified adjusted gross income over $75,000 (singles, married separate, head of household) ($150,000 for joint filers). Find out if you pay taxes on your social security income?
Qualifying senior taxpayers: To qualify for the additional deduction, a taxpayer must turn 65 on or before Dec. 31 of the tax year.
Taxpayer eligibility: The deduction is available for both itemizing and non-itemizing taxpayers, who must include the Social Security number of the qualifying individual(s) on the return and file jointly if married to claim the deduction.

H: AMT Reforms: Starting for tax year 2026, the OBBBA permanently extends the TCJA’s individual AMT exemption amounts, with continued inflation indexing. The exemption phaseout thresholds return to their 2018 tax year levels ($500,000 for single filers and $1 million for joint filers), also indexed for inflation. Additionally, the phaseout rate has been increased from 25% to 50% of the amount by which a taxpayer’s AMT income exceeds the threshold.
I: Trump Accounts: The OBBBA establishes new tax-preferred savings accounts for minors, nicknamed “Trump Accounts.” These are structured as a traditional IRA for children under 18. Contributions are capped at $5,000 annually, indexed for inflation after 2027. Withdrawals are allowed starting in the calendar year the beneficiary turns 18. To jump-start this program, the government will provide a $1,000 “baby bonus” tax credit for each child born from in 2025, 2026, 2027 or 2028 when a Trump Account is opened for them. The OBBB does not allow Trump Account contributions until 12 months after the law’s enactment
Education Provisions:
J: Section 529 education savings plans are expanded: Tax-free 529 plan distributions can now cover broader expenses, including certain homeschooling and K–12 expenses.
K: Scholarship, charitable contributions: As of 2025 a $1,700 charitable contributions credit is available to scholarship-granting organizations. ‍
L: Student Loan Forgiveness: Starting for tax year 2026, student loan forgiveness as the result of death or permanent disability remains deductible from income.

Individual Income Rates, Brackets

The 2025 Trump tax reform or the OBBB makes permanent the individual income tax rate brackets introduced in via the TCJA in 2017.

Child Tax Credit

Child Tax Credit: The CTC was made permanent and increased to a maximum of $2,200 per child in starting in tax year 2026. The higher income limits at which the Child Tax Credit phases out and the refundable portion of the credit are also permanent.

The Child and Dependent Care Credit: The CDCC now covers up to 50% of qualifying expenses, but there are phase-downs for higher income. The CDCC gradually decreases for AGI over $15,000 but not below 20%.

Estate and Gift Tax Provisions

Estate, Gift Tax Exemption: Starting in 2026, the estate and lifetime gift tax exemption is permanently increased to $15 million per person ($30 million for joint filers), indexed for inflation.

Green Energy Credits

Electric Vehicle and Residential Credits are being terminated (25E, 30D, 45W, 25C, 25D).

Electric Vehicle credits for new, used, and commercial vehicles end after Sept. 30, 2025.
Residential energy credits for solar, heat pumps, etc. end after 2025.
Clean Electricity Credits (45Y/48E): Terminated for wind and solar facilities placed in service after 2027.
Clean Hydrogen Credit (45V): Terminates after 2027.
Clean Fuel Credit (45Z): Extended through 2029.
Carbon Capture Credit (45Q): Equalizes the credit rate for utilized carbon oxide with the rate for carbon oxide stored in geological formations.

Business Tax Changes

Depreciation and Expensing as the result of the OBBB

A: Section 179 Expensing: The Section 179 cap for immediate expensing has been raised significantly. Businesses can now expense up to $2.5 million in qualifying equipment purchases per tax year, minus the amount by which the property costs exceed $4 million.
B: Bonus Depreciation: Full business property expensing was extended permanently. Businesses can immediately deduct 100% of the cost of eligible property acquired after January 19, 2025.
Qualified Production Property: The OBBBA permits a full first-year deduction for the cost of certain real property used in manufacturing
Section 179 Expensing: The cap for Section 179 immediate expensing was significantly raised. Businesses can now expense up to $2.5 million in qualifying equipment purchases per year, reduced by the amount that the property costs exceed $4 million. Both of these thresholds are indexed for inflation.
C: Research & Developing Expensing: The OBBB allows full expensing of domestic R&D costs in the year incurred starting Jan. 1, 2025; retroactive relief is provided. Small businesses (average gross receipts ≤ $31 million) cab elect to apply full expensing to past R&D costs paid or incurred after year 2021. Larger firms that capitalized R&D from 2022-2024 are allowed a catch-up deduction by either deducting the remaining amortization in the first post-2024 year or spreading it over two years.
D: Business Interest Deduction (163(j)): The OBBBA permanently relaxes the limitation on business interest deductions to 30% of EBITDA, starting in tax year 2025.
E: Section 199A Pass-Through Deduction: The 20% Qualified Business Income deduction for pass-through entities (sole proprietors, partnerships, S-corporations) is now permanent for tax years starting 2026.
F: Excess Business Losses: The limitation on excess business losses under section 461, which disallows non-corporate business losses above a certain threshold, was also made permanent. The limitation applies only in the year the loss is incurred, and any disallowed amount is carried forward as a net operating loss for use in future years.

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