The budget act contains significant tax law changes with various effective dates affecting individuals, businesses and nonprofits

On July 4, 2025, President Donald Trump signed into law HR 1, the 800-plus page final version of the 2025 Budget Reconciliation Act, also referred to as the “One Big Beautiful Bill Act” or “Tax Reform 2025,” after it narrowly passed a 218-214 vote in the House of Representatives the day prior.

On July 1, the budget act survived the Senate following a 50-50 vote, requiring Vice President JD Vance to break the tie. Since being introduced in the House nearly two months ago, the bill has been controversial among many politicians, pundits and taxpayers due to its $3.4 trillion federal deficit price tag between 2025 and 2034, according to the nonpartisan Congressional Budget Office, which also projects that the budget act would reduce federal deficits by $441 billion under a current-policy baseline rather than current law. How exactly the federal deficit will fare remains unknown.

The budget act contains significant tax law changes with various effective dates affecting individuals, businesses and nonprofits. It makes permanent, with some modifications, the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that were due to expire at the end of 2025. In addition, the budget act provides additional tax relief, including enhanced child tax credits, standard deductions, state and local tax (SALT) deductions and small-business deductions. It also provides several new tax breaks reflecting 2024 campaign promises—namely separate deductions for overtime wages, tips and car loan interest.

Now that the budget act has become law, who will be affected? Everyone, we believe—but not equally.

This is not business as usual. It is the most significant tax overhaul since 2017. It touches nearly every corner of the tax code and will reduce taxes for most individuals and businesses. And it does not wait until 2026—many major provisions take effect in 2025, including expiring tax favorable provisions. As a result, tax planning should start sooner rather than later.

What are the impactful provisions for you, your business, your family and your wealth? Below we provide an overview of key provisions with respect to individuals, businesses and international taxpayers, highlight the ending energy incentives and close with notable omissions that could find their way into future legislation. We have also compiled a quick reference chart comparing key tax provisions under prior law and new law, including the effective dates of all provisions discussed in this Alert. Over the balance of this year, we will be issuing a series of deep-dive insights on the tax provisions of the budget act, including planning opportunities.

Individual Provisions

Major TCJA Extensions and Modifications

• Extends income tax rate changes: The new law makes the TCJA’s temporary modification to the individual tax rates permanent.
• Increases estate and gift tax exemption: The new law permanently increases the estate and gift tax exclusion amount to $15 million for an individual and $30 million for a married couple. The increased exclusion amount will be indexed for inflation using 2025 as the new base year for measuring. The portability election for a surviving spouse is still in effect.
• Increases the generation-skipping transfer tax (GST) exemption: The new law makes the GST exemption equal to the estate and gift exclusion amount, now $15 million. The deceased spouse’s unused GST exemption is not portable to the surviving spouse.
• Expands SALT cap: The new law increases the maximum itemized deduction an individual can claim for SALT from $10,000 to $40,000 and is now indexed for inflation. However, this limit is reduced for taxpayers with modified AGI exceeding $500,000, but not to be reduced below $10,000 ($5,000 for taxpayers that are married filing separately). The new $40,000 limit is temporary—beginning in tax year 2030, the limit on the SALT deduction will revert to the original $10,000, regardless of income level.
• Enhances child tax credit: The new law permanently increases the full amount of the child tax credit to $2,200 with a maximum refundable credit of $1,400, both indexed to increase annually for inflation.
• Replaces Pease limitation: Prior to the TCJA, the Pease limitation reduced itemized deductions for high income taxpayers. This provision was temporarily suspended under the TCJA and was eliminated under the new budget act. However, the new law replaces this limitation with a new limitation that reduces the benefit itemized deductions provide to taxpayers in the 37 percent tax bracket so that itemized deductions will only reduce their tax liability by 35 percent of the itemized deductions.

New Tax Provisions

• Establishes “Trump accounts”: The new law will create a new type of tax-exempt savings account for children to be used for qualified expenses (higher education, small business loan, first-time purchase of a principal residence) and includes initial government funding of $1,000 for children born in 2025 through 2029.
• Deducts tip income from adjusted gross income (AGI): The new law allows an above-the-line deduction for tip income that is already included in income elsewhere on an individual’s tax return for the years 2025-2028. The deduction is limited to $25,000 and is phased out for single taxpayers with modified AGI above $150,000 and married filing jointly taxpayers with modified AGI above $300,000.

• Deducts overtime income from AGI: The new law also includes an above-the-line deduction for qualified overtime compensation of up to $12,500 per taxpayer, subject to the same income limitations as the deduction for tip income.

• Allows car loan interest deduction: The new law allows up to $10,000 as an above-the-line deduction for interest paid on a qualified passenger vehicle loan for the years 2025-2028. The deduction is phased out for single taxpayers with modified AGI above $100,000 and married filing jointly taxpayers with modified AGI above $200,000.
• Provides charitable contribution deduction for nonitemizers: For taxpayers who do not itemize their deductions, the new law allows single taxpayers and married filing jointly taxpayers to deduct up to $1,000 and $2,000, respectively, as an above-the-line deduction for cash contributions made during the year.
• Allows additional deduction for seniors: The new law will implement an additional $6,000 deduction for tax years 2025 through 2028 for seniors 65 or over with AGI below $75,000 single, $150,000 for married filing jointly, on top of the additional standard deduction already available to seniors.

• Limits charitable deduction for individuals who itemize: The new law establishes that charitable contributions will be reduced by 0.5 percent of the taxpayer’s AGI.
• Restores the itemized deduction for mortgage insurance premiums: The deduction for mortgage insurance premiums expired in 2021 but has now been permanently restored.

Other TCJA Provisions Made Permanent

• Increases standard deduction: The new law permanently increases the standard deduction to the following amounts: single and married filing single: $15,750; head of household: $23,625; and married filing jointly: $31,500 (indexed for inflation) effective as of January 1, 2025.
• Extends alternative minimum tax (AMT) exemptions: The new law maintains the AMT exemption of $500,000 ($1 million for married filing joint), but increases the phaseout rate to 50 percent of the amount the taxpayer’s AMT income exceeds the threshold amount.

• Limits mortgage interest deduction: The new law will make the $750,000 acquisition indebtedness limit permanent (previously lowered from $1 million by the TCJA).
• Eliminates interest on home equity debt: The TCJA temporarily suspended the deduction of interest on home equity debt, unless it was used for qualifying purposes (buying, building or substantially improving the taxpayer’s home). The new tax law makes this provision permanent.
• Eliminates personal exemptions: The new law will permanently terminate the pre-TCJA deduction for personal exemptions in favor of the larger standard deductions.
• Makes permanent the other dependent credit: The new law makes permanent the nonrefundable credit of $500 per qualifying dependent who does not qualify for the child tax credit.
• Eliminates miscellaneous itemized deductions: The new law will permanently eliminate the deduction for miscellaneous itemized deductions (e.g., unreimbursed employee expenses, investment expenses, club and union dues, hobby expenses, to name a few).
• Excludes educational assistance from income: The new law will make permanent the $5,250 maximum exclusion for employer payments of student loans under Section 127 educational assistance programs.

• Limits casualty loss deductions: The new law makes permanent the casualty loss deduction being restricted to areas recognized as qualified disasters as declared by the federal government. However, the law also includes language allowing certain state-declared disaster areas to be eligible for casualty loss deductions.
• Eliminates moving expenses deduction: The new legislation permanently eliminates the deduction for moving expenses except for members of armed forces and intelligence community.

Other Changes

• Enhances adoption credit: Under the current law, for 2024 up to $16,810 is available as a nonrefundable credit for expenses incurred to adopt a child. This credit amount is indexed for inflation to increase every year. The new law allows up to $5,000 of this credit to be refundable.
• Further limits gambling losses: The new law will make the limitation on losses only to the extent of winnings from wagering transactions permanent. The law further limits losses to 90 percent of the amount of such losses.
• Updates qualified expenses for 529 plan distributions: The new law allows for tax-exempt distributions from 529 plans used for education expenses with attendance or enrollment at elementary or secondary school and homeschool expenses. The budget act also allows for tax-exempt distributions used for “qualified postsecondary credentialing expenses” such as study and testing fees for the CPA, bar and medical exams, as well as financial industry and vocational/technical credentials.

Business Provisions

• Revives 100 percent bonus depreciation: The new law makes the bonus depreciation provisions permanent by allowing the 100 percent first-year depreciation deduction for property acquired and placed in service on or after January 19, 2025.
• Enacts new bonus depreciation on qualified production “manufacturing property”: The new law allows a new 100 percent bonus depreciation on manufacturing property where construction begins after January 19, 2025, and before January 1, 2031.
• Increases Section 179 deduction: The new law increases the maximum amount of a Section 179 deduction for small businesses to $2.5 million, with the phaseout threshold amount increased to $4 million.
• Immediately deduct U.S. research and development expenses: The new law allows taxpayers to immediately deduct domestic research or experimental expenditures while any R&D conducted outside of the U.S. would continue to be capitalized over 15 years. It also permits small businesses to elect to deduct any remaining capitalized expenses in 2025.
• Expands Section 199A qualified business income (QBI) deduction: The new law keeps the QBI deduction at 20 percent, makes the deduction permanent and adds a new minimum $400 deduction for taxpayers with at least $1,000 of qualified business income. Also, the phaseout ranges are increased, allowing more higher income taxpayers to claim the deduction by increasing the $100,000 (married filing jointly) and $50,000 (single filers) phaseout ranges to $150,000 and $75,000, respectively.
• Eases Form 1099 information reporting: The new law increases the filing threshold for Forms 1099-NEC and 1099-MISC from $600 to $2,000, beginning in in 2026 and indexed annually for inflation. Effective in 2025, the 1099-K threshold for reporting on electronic third-party payments to payees (such as from Venmo, PayPal, Uber, Airbnb, Etsy, etc.) is raised from $2,500 in annual transactions (and an anticipated $600 in transactions for 2026), with no minimum threshold as to the number of transactions, to include only payees which receive over $20,000 and have a total number of transactions exceeding 200.
• Reduces charitable deduction for corporations: The new law adds a 1 percent floor of taxable income on deductible charitable contributions made by corporations.
• Extends excess business losses under Section 462: The legislation permanently limits pass-through business losses and will retain the current treatment of excess business loss carryforwards, which was previously set to expire in 2028.
• Increases employer-provided child care credit: The new law increases the credit to 40 percent of qualified expenses with a max credit of $500,000, and up to 50 percent with a $600,000 limitation for small businesses.
• Expands Section 1202 qualified small business stock (QSBS) exclusion: The new law increases the exclusion amount from $10 million to $15 million and the eligibility limit on a corporation’s aggregate gross assets at the time of issuance from $50 million to $75 million for exclusion, and further lowers the holding period requirements by implementing a tiered exclusion based on the number of years the taxpayer holds the QSBS: 50 percent exclusion if held for three years, 75 percent if held for four years and 100 percent if held for five or more years.
• Extends the opportunity zone program: The new law makes opportunity zones permanent by creating rolling 10-year periods for the program and includes several changes, such as narrowing the definition of “low-income community” and creating “qualified rural opportunity funds.” The changes would generally take effect January 1, 2027.
• Tightens enforcement related to 2021 employee retention credit (ERC) claims: The bill prohibits payments for ERC claims related to the third and fourth quarter of 2021 for claims made on or after January 31, 2024. The new law also targets aggressive promoters of ERC claims and extends the statute of limitations on enforcement for improper claims related to these quarters.

International Provisions

• Creates new remittance tax: The new law will introduce a new 1 percent federal excise tax on remittance transfers made after 2025 from individuals to foreign recipients where the sender provides cash, money order, cashier’s check or similar physical instruments.

• Changes names of global intangible low taxed income (GILTI) and foreign-derived intangible income (FDII): The new law changes GILTI to “net CFC-tested income” and FDII to “foreign-derived deduction eligible income” (FDDEI) as a result of changes in the formulas to arrive at these income bases.
• Decreases the GILTI effective tax rate: The new law will reduce the effective GILTI tax rate from 13.125 percent for 2026 to 12.6 percent by increasing the 250(a) deduction from 37.5 percent to 40 percent.
• Decreases the FDII effective tax rate: The new law will reduce the effective FDII tax rate from 16.406 percent for 2026 to 14 percent by increasing the 250(a) deduction from 21.875 percent to 33.34 percent.
• Decreases deductions allocated to net CFC-tested income for foreign tax credit purposes: The new law limits the deductions allocated to this category of income for purposes of the foreign tax credit, which will allow more taxpayers to claim the credit in larger dollar amounts.
• Increases the base erosion and anti-abuse tax (BEAT) rate: The new law increases the BEAT rate from 10 percent to 10.5 percent.

Clean Energy Incentives

The new law accelerates the termination of a large number of clean energy tax incentives, including:

Solar Panels

• Residential clean energy credit: The new law will terminate this credit for expenditures (including solar panels and solar water heating, as well as wind turbines, geothermal heat pumps, fuel cells and battery storage) made after December 31, 2025. Under old law, the credit equaled 30 percent of the cost of such facilities through the end of 2032, 26 percent in 2033, 22 percent in 2034 and zero percent in 2035 and thereafter.
• Commercial clean electricity investment credit: The new law will terminate this credit for solar and wind facilities placed in service after December 31, 2027. Under old law, the credit is 30 percent of the cost with no lifetime dollar limit and $500 for fuel cell property.

Vehicles

• Previously owned clean vehicles credit: The new law will terminate this credit on used electric cars worth up to $4,000 for vehicles acquired after September 30, 2025.
• Clean vehicle credit: The new law will terminate this credit on new electric cars worth up to $7,500 for vehicles acquired after September 30, 2025.
• Credit for qualified commercial clean vehicles: The new law will terminate this credit on new commercial clean vehicles worth up to $40,000 for vehicles acquired after September 30, 2025.
• Alternative fuel vehicle refueling property credit: The new law will terminate this credit on refueling property worth up to $100,000 for property placed in service after June 30, 2026.

Homes

• Energy efficient home improvement credit: The new law will terminate this credit on energy-efficient improvements worth up to $1,200 for property placed in service after December 31, 2025.
• New energy efficient home credit: The new law will terminate this credit for qualified new energy-efficient homes worth up to $5,000 acquired after June 30, 2026.
• Energy efficient commercial buildings deduction: The new law will terminate this deduction for property that begins construction after June 30, 2026, worth up to $5.81 per square foot.

Notable Omissions

While discussed, contemplated and debated, there are notable omissions from the new budget act. Will they find their way into future legislation?

• No changes to pass-through entity tax (PTET) as SALT deductions: The new law does not limit the deduction of state PTET by pass-through entities, so the many state “work-around” PTET regimes remain intact, though prior versions of the legislation looked to eliminate this loophole.
• No increases to top tax rate on millionaires.
• No changes to carried interest. Qualified carried interest, significant for individuals and businesses involved in hedge funds, private-equity, venture-capital funds and similar investment activities, remains taxable at favorable long-term capital gain rates.
• No changes to limit the amortization of sports franchises to 50 percent.
• No Health Savings Account (HSA) enhancements, which included increases to allowable contributions.
• No increase in the current 1.39 percent tax to a new 10 percent top excise tax on the net investment income of private foundations.
• No digital asset regulatory clarity and no removal of "double tax" on bitcoin miners—who are taxed both when they receive the block reward and again when they sell the bitcoin.
• No extension of work opportunity tax credit, a federal tax credit for employers who hire individuals from specific target groups who have faced significant barriers to employment.
• No changes to corporate tax rates.

TAG’s Perspective

Any time there is this significant of a change in the tax law, planning opportunities abound. With such complex and extensive tax changes, we expect more clarity to come, including regulations and guidance for implementation of the new provisions. However, we now have the most tax-horizon certainty and predictable tax landscape we have had in quite some time, and 60 days to six months to take advantage of many of these provisions before the current tax year comes to an end. Please keep an eye on our coming Alerts as we explore with greater granularity some of the planning opportunities the new law will provide. As always, we are available to discuss the impact on your specific personal or business situation.

For More Information

If you would like more information about this topic or your own unique situation, please contact John I. Frederick, Michael A. Gillen or any of the practitioners in the Tax Accounting Group, as well as trust and estate attorneys David S. Kovsky and Erin E. McQuiggan of the firm’s Private Client Services Practice Group. For information about other pertinent tax topics, please visit our publications page.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.