How the “One Big Beautiful Bill Act” Impacts You

The “One Big Beautiful Bill Act” has been signed into law, and it’s rewriting the tax rules in a meaningful way. Whether you’re an individual looking to maximize your savings—or a business owner aiming to optimize your investments—this sweeping legislation is set to redefine the financial landscape. Individuals can expect more deductions and credits, new savings accounts, and an enhanced estate tax exclusion. Business owners should prepare for enhanced depreciation and investment incentives, though they must navigate stricter limits on interest deductions and charitable contributions. Explore how these and other provisions could impact you and what steps you can take to navigate the new terrain.

Key Provisions for Individuals

• Estate and Gift Taxes: From 2026, the estate and gift tax exclusion and Generation-Skipping Transfer (GST) exemption increase to $15 million, indexed for inflation.
• Income Tax Rates and Standard Deduction: Permanently extends the Tax Cuts and Jobs Act (TCJA) tax brackets (top rate 37%) and maintains the higher standard deduction ($15,750 for single filers, $31,500 for married couples filing jointly, and $23,625 for heads of households, all indexed for inflation).
• Alternative Minimum Tax (AMT): Permanently extends TCJA’s increased individual AMT exemption amount but slightly reduces the phase-out thresholds to 2018 levels of $1,000,000 for married couples filing jointly and $500,000 for single filers, with inflation adjustments.
• Deductions Limitations: Revises itemized deductions, personal exemptions, SALT deductions, mortgage interest deductions, and excess business losses as detailed below:
  • Itemized Deductions: Permanently eliminates most miscellaneous itemized deductions and replaces the “Pease” limitation with an overall cap limiting the deduction benefit to 35%. The personal exemption is also eliminated.
  • SALT Deduction Cap: Beginning in 2025, the cap increases from $10,000 to $40,000, phasing out for taxpayers with modified adjusted gross income over $500,000 ($250,000 for married filing separately). It rises by 1% annually until 2029, then reverts to $10,000 in 2030.
  • Mortgage Interest Deduction: Maintains the TCJA’s limit on mortgage interest deductions for the first $750,000 of acquisition debt and disallows home equity debt deductions.
• Expanded Deductions and Credits: Broadens key deductions and credits as described below:
  • Dependent Care Assistance: Starting in 2026, the exclusion increases to $7,500 annually, or $3,750 for married individuals filing separately.
  • Child and Dependent Care Tax Credit: From 2026, the maximum credit rate rises from 35% to 50% of employment related care expenses, with reductions based on adjusted gross income (AGI).
  • Casualty Loss Deduction: Permanently limited to federally and state-declared disaster areas exceeding 10% of the taxpayer’s AGI.
  • Senior Deduction: From 2025 to 2028, seniors aged 65 or older can claim a $6,000 deduction, phasing out for modified AGIs over $150,000 for married couples filing jointly and $75,000 for single filers.
  • Child Tax Credit: Permanently increased to $2,200, indexed for inflation, with a maintained higher income phase-out threshold.
• Charitable Contributions: Beginning in 2026, taxpayers who do not itemize their deductions can deduct up to $1,000 ($2,000 for married couples filing jointly). However, the deduction for taxpayers itemizing is limited to contributions exceeding 0.5% of their adjusted gross income. Additionally, the 60% AGI limitation for cash contributions to qualified charities was made permanent, effective after December 31, 2025. Beginning in 2027, a new tax credit of up to $1,700 is available for cash contributions to scholarship-granting organizations.
• Temporary Deductions (2025–2028): Taxpayers can deduct up to $25,000 in tips and $12,500 ($25,000 for married couples filing jointly) for overtime pay, phasing out at $150,000 ($300,000 for married couples filing jointly) of modified adjusted gross income. Additionally, up to $10,000 in interest on loans for US-assembled personal-use vehicles can be deducted, phasing out at $100,000 ($200,000 for married couples filing jointly). Available to both itemizers and non-itemizers.
• Opportunity Zones: Starting in 2027, investment incentives in opportunity zones are permanently renewed, offering capital gain deferral for up to five years, a 10% basis step-up (30% for qualified rural funds) after five years, and permanent exclusion of gains held for 10 years or more.
• Trump Accounts: Tax-deferred savings accounts for US citizens under 18, similar to IRAs, can be set up 12 months post-enactment. Parents and taxable entities can contribute $5,000 annually, non-deductible, inflation-adjusted, while tax-exempt entities have no limits. Employers can add $2,500 (excluded from employee wages), inflation-adjusted. Investments are restricted to funds tracking a qualified index, with fees capped at 0.1%. Distributions are taxed like IRAs and prohibited until age 18. A pilot program offers $1,000 per child born between December 31, 2024, and January 1, 2029. Accounts can be opened by parents or guardians. The US Treasury will automatically establish accounts for children who do not have accounts established by the first tax return they are claimed as a dependent.
• 529 Provisions: Tax-exempt distributions now cover more costs for elementary and secondary education, including materials, tutoring, and educational therapies. Distributions are also allowed for “qualified postsecondary credentialing expenses.”
• ABLE Provisions: Enhancements to ABLE accounts allow greater savings for individuals with disabilities without losing benefits eligibility. Contribution limits are permanently increased with inflation adjustments. Beneficiaries can qualify for the Saver’s Credit, and tax-free rollovers from Section 529 programs to ABLE accounts are permitted.
• Renewable Energy Tax Credit: The Act modifies renewable energy tax credits from the Biden-era Inflation Reduction Act by phasing out many incentives. It accelerates the phase-out for “clean” electricity production and investment credits, specifically for wind and solar projects. Electric vehicle tax credits phase out by September 2025, and EV charging credits by June 2026.

Key Provisions for Businesses and Business Owners

• Qualified Small Business Stock (QSBS) Exclusion: Introduces tiered QSBS gain exclusions: 50% for stock held three years, 75% for four years, and 100% for five years. The per-issuer exclusion rises to $15 million and the corporate asset limit to $75 million, both inflation-adjusted. Effective for QSBS shares issued after July 4, 2025.
• Qualified Business Income Deduction (199A): The 20% deduction is permanent and the taxable income limitation phase-in amount is increased to $75,000 ($150,000 in the case of a joint return). A $400 minimum deduction is available for those with at least $1,000 in qualified business income, adjusted for inflation.
• Depreciation and Expensing Limitations: The Act aims to enhance business investment and innovation by refining depreciation and expensing rules:
  • Bonus Depreciation: Permanently extends 100% bonus depreciation for property acquired and placed in service after January 19, 2025.
  • Research and Experimental Expenditures: Allows full immediate expensing of domestic research expenses for tax years starting after December 31, 2024, while foreign expenses must be amortized over 15 years. Small businesses (annual gross receipts under $31 million) can apply this retroactively to tax years after December 31, 2021.
  • Business Interest Deduction: The Act modifies the calculation method by effectively allowing businesses to deduct a higher amount of interest expense, as the calculation excludes depreciation, amortization, and depletion, resulting in a higher base.
  • Advanced Manufacturing Investment Credit: Raises the credit rate to 35% for property in service after December 31, 2025.
• Corporate Charitable Contributions: Starting after December 31, 2025, corporations can only deduct contributions exceeding 1% of taxable income, capped at 10%.
• Excess Business Losses: The TCJA’s limitation on excess business losses for noncorporate taxpayers is permanently extended. Under the provision, excess business losses above a $250,000 threshold ($500,000 for Joint filers), indexed for inflation, are disallowed.. Disallowed losses are subject to net operating loss (NOL) carryover rules.

Tax-Exempt Organizations

• The Act modifies the excise tax on investment income of certain private colleges and universities. It imposes tiered excise tax rates of 1.4% on institutions with student adjusted endowments of $500,000 to $750,000, 4.0% where the student adjusted endowment is $750,000 to $2 million, and 8.0% where the student adjusted endowment is more than $2 million. The new tiers apply to “Applicable Educational Institution” which had at least 3,000 tuition-paying students during the preceding taxable year, of which more than 50% of the tuition-paying students are located in the United States, excluding state colleges and universities. Additionally, the tax on excess compensation is expanded to apply to any employee of an applicable tax-exempt organization receiving remuneration of more than $1 million.

A Comprehensive Overhaul

The “One Big Beautiful Bill Act” has far-reaching implications. As these changes take effect, individuals and businesses will need to rethink their financial strategies to keep up with the evolving tax landscape.

Which provisions are most salient for you? Your Bernstein Advisor can provide a personal consultation.