05/24/2025
On May 22, 2025 The U.S. House of Representatives passed the "One Big Beautiful Bill Act" (H.R. 1), a comprehensive tax and spending package. The bill now moves to the Senate, where further debates and modifications are expected.
Below is a detailed outline of the bill’s major income tax provisions:
1. Extension and Modification of 2017 Tax Cuts
The bill seeks to make permanent the reduced individual income tax rates established by the TCJA and the large standard deduction introduced by the TCJA would be permanently extended. The high rate of 37% would become permanent as would be the elimination of the personal exemption as would the AMT exemption and phase-out provisions of TCJA.
For tax years 2025 through 2028, the standard deduction would receive an additional temporary increase: $1,000 for single filers, $1,500 for heads of household, and $2,000 for married couples filing jointly.
Itemized deductions and the “Pease rule”, which limited itemized deductions, is replaced by a rule that reduces itemized deductions by 2/37 of the lesser of 1) the amount of itemized deductions and 2) the amount of taxable income of the taxpayer for the taxable year that exceeds the dollar amount at which the 37% bracket begins with respect to such taxpayer (the 37% bracket begins at $751,600 for married couples filing joint returns in 2025). Effectively, this rule creates an additional 39% tax bracket equal to itemized deductions in excess of the 37% bracket threshold. This rule would be effective starting in 2026
The $750,000 limitation on deductions for qualified residence interest is made permanent.
The disallowance of personal casualty loss deductions would be made permanent as would the disallowance of 2% miscellaneous itemized deductions. However, qualified casualty loss deductions (pre-AGI) would be allowed for declared disasters beginning 1/1/2020 and ending 60 days after the date of enactment of the bill for disasters from 12/28/2019 through 30 days after enactment.
The regular itemized deduction allowing gambling losses only up to the amount of winnings would be made permanent.
The individual deduction for state and local taxes would be limited to $40,000. The full $40,000 SALT deduction cap applies to households with a modified adjusted gross income (MAGI) up to $500,000. For incomes between $500,000 and $600,000, the deduction phases out, and for those earning above $600,000, the cap reverts to $10,000.
2. Exemptions for Tips and Overtime Pay
A new deduction before AGI of up to $25,000 annually would be allowed for taxpayers working in traditionally tipped industries (not including specified services), who earned tips before 12/31/2023. The income limit is $160,000 for 2025 and would be inflation adjusted and the deduction would apply for 2025-2028, limited to the amounts included as tip income on the employee’s W-2 or 1099.
A new unlimited pre-AGI deduction for overtime pay (not counting tips) would apply beginning in 2025 to workers earning up to $160,000 annually and would also be inflation adjusted. This exclusion would apply for 2025-2028 to overtime required under Sec. 7 of the FLSA.
3. Child Tax Credit Changes
The $2,000 credit amount, initially set to expire after 2025, is now made permanent. The maximum CTC is raised from $2,000 to $2,500 per qualifying child for tax years 2025 through 2028. Starting in 2029, it reverts to $2,000 and will be indexed to inflation based on 2024 levels.
To claim the credit, children must have valid Social Security numbers. Additionally, both parents in joint filings are required to have Social Security numbers. The credit begins to phase out for single filers with incomes over $200,000 and for married couples filing jointly with incomes over $400,000.
4. State and Local Tax (SALT) Deduction Business Changes
Pass-through entity tax (“PTET”) deductions are denied for individuals who perform services in the fields of health, law, accounting actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing services, investment management services, and trading or dealing in securities, partnership interests, or commodities, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees.
5. "Trump" Savings Accounts for Newborns (Previously “MAGA”)
Children born in the U.S. between January 1, 2025, and January 1, 2029, with a valid Social Security number, are eligible. At least one parent must also have a valid Social Security number.
Eligible children will be automatically enrolled in the program, ensuring broad participation, especially among families who might be unaware of such financial tools. Each account will receive a one-time $1,000 deposit from the U.S. Treasury. Funds will be invested in low-fee, diversified U.S. equity portfolios without leverage, aiming for long-term growth.
Families and third parties can contribute up to $5,000 annually per child, with the limit adjusted for inflation. Contributions from tax-exempt entities, like private foundations, are not subject to this cap.
At age 18, beneficiaries can withdraw up to 50% of the account balance for qualified expenses, such as education, first-time home purchases, or starting a business and earning would be taxed at long-term capital gains rates. Full access to the account is granted at age 25 for approved purposes. After age 30, funds can be used for any purpose, though earnings will be taxed at ordinary rates. Withdrawals for non-qualified expenses before age 30 may incur penalties and be taxed as ordinary income.
6. 529 Accounts & Charity Deductions
Qualified 529 expenses would now include most home school expenses.
The pre-Agi charity deduction of up to $300 for non-itemizers would be reinstated beginning in 2025.
7. Auto Loan Interest Deduction
The bill calls for an above-the-line deduction of up to $10,000 in car loan interest during a given taxable year. But the deduction would phase out by $200 for every $1,000 of modified adjusted gross income above $100,000 for single filers and $200,000 for joint filers and would apply to loans taken out in 2025-2028. The law does not specify new cars only but requires final assembly in the United States.
8. Additional Standard Deduction for Seniors
The Bill adds a new $4,000 per individual senior (65 and over) standard deduction from 2025-2028 but phases out for taxpayers with income over a threshold amount of $150,000 for taxpayers filing jointly and $75,000 for all other taxpayers.
9. Individual Energy Tax Credits
The Bill provides for the repeal of the electric vehicle (EV) credits attributable to new EVs, used EVs, commercial EVs and credit for charging stations. The Bill similarly provides for the repeal of the Energy Efficiency Home Improvement Credit for windows, doors, insulation and furnaces and the Residential Clean Energy Credit for solar electric and solar hot water heaters as well as batteries. The repeal of these EV and home-based efficiency credits would generally be effective for property placed in service after December 31, 2025, except for the new EV credit under Section 30D, which would become effective for EVs placed in service after December 31, 2026.
10. Depreciation
The amended bonus depreciation provisions reinstate 100% first-year depreciation for qualified property acquired and placed in service after January 19, 2025, and before January 1, 2030.
There would also be a special bonus depreciation allowance for nonresidential real property that is "qualified production property." Qualified production property does not include the portion of any nonresidential real property used for offices, administrative services, lodging, parking, sales activities, software engineering activities, or other functions unrelated to manufacturing, production, or refining of tangible personal property.
A qualified production activity is the manufacturing, production, or refining of a qualified product.
The Section 179 deduction cap is also extended from $1 million to $2.5 million, with phase-outs beginning at $4 million for property placed in service after December 31, 2024.
The proposal suspends required capitalization of domestic research or experimental expenditures for amounts paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030. Under the proposal, taxpayers may (1) deduct domestic research or experimental expenditures,548 (2) elect to capitalize and recover domestic research or experimental expenditures ratably over the useful life of the research (but in no case less than 60 months)549 beginning with the midpoint of the taxable year in which such expenditures are paid or incurred, or (3) elect to capitalize and recover domestic research or experimental expenditures over 10 years beginning with the taxable year of the expenditure.
11. Qualified Business Income (QBI)
The 20% deduction for qualified business income for pass-through entities would be made permanent. The deductible amount for each qualified business would increase to 23%, with adjustments to phase-in thresholds. All amounts would be effective for years beginning after 12/31/2025.
12. Estate Tax
The Bill would permanently increase the unified estate exemption credit and GSST exemption to $15,000,000 plus inflation adjustments for tax years beginning after 12/31/2025.
13. Health Savings Accounts
The Bill would enable Medicare-eligible individuals who are only enrolled in Medicare Part A to maintain HSA contributions beginning after 12/31/2025 and permits those with a spouse enrolled in an FSA to also have an HSA. Furthermore, bronze-level and catastrophic plans under the ACA will qualify as HDHPs for HSA eligibility. Additionally, two types of health plans, otherwise considered disqualifying health coverage, will become compatible with HSA enrollment: (1) direct primary care arrangements (with a cap on fees that may be paid using HSA funds); and (2) qualified discounted health services available through an employer’s on-site clinic (provided the services meet certain requirements).
The Bill proposes to double the HSA contribution limits (currently $4,300 for self-only coverage and $8,550 for family coverage) for individuals making up to $75,000, or $150,000 for joint filers with family coverage. These increased contribution limits will be indexed for inflation and will phase out with income between $75,000 and $100,000 (or up to $200,000 for joint filers with family coverage).
14. Method of Accounting
The proposal increases the $25 million threshold of the gross receipts test to $80 million (indexed for inflation) for a manufacturing taxpayer (other than a tax shelter).
A “manufacturing taxpayer” means a corporation or partnership if, during the three taxable year period ending with the taxable year preceding such taxable year, substantially all of the gross receipts of the taxpayer are derived from the lease, rental, sale, license, exchange, or other disposition of “qualified products.”
For purposes of the gross receipts test, a qualified product means a product that is (1) any tangible personal property, except any food or beverage prepared in the same building as a retail establishment in which substantially similar property is sold to the public, and (2) produced or manufactured by the taxpayer in a manner that results in a substantial transformation (within the meaning of proposed section 168(n)(2)(D)) of the property comprising the product.
