INSIGHT

OBBBA’s expected impact on individual taxpayers

Edmond Zhou, Kristie Carvalho • July 18, 2025

The One Big Beautiful Bill Act (OBBBA) has officially become law, bringing sweeping changes to the tax landscape that will affect millions of Americans. As you navigate these new provisions, understanding how they impact your personal financial situation is crucial for making informed decisions in the months ahead.

While the bill extends many popular Tax Cuts and Jobs Act provisions, it also introduces significant new deductions and eliminates several clean energy incentives. Let’s look at some of the more significant changes.

Major opportunities for business owners and investors

Sec. 1202 qualified small business stock exclusion enhancement

One of the most significant opportunities in OBBBA involves enhanced tax benefits for qualified small business stock investments. The bill substantially increases the Section 1202 exclusion, which allows you to exclude gains from the sale of qualifying small business stock from your taxable income.

For stock acquired after July 4, 2025 (stock acquired before 7/4/2025 remains under the old §1202 rules and you cannot rollover or exchange old stock into new stock to utilize this rule), the exclusion is now phased in by holding period (ranging from 3 to 5 years):

3 years, 50% of gain may be excluded
4 years, 75% of gain may be excluded
5 years or more, 100% of gain may be excluded
Exclusion amount is also increased from $10 million (life time) to the greater of $15 million (life time) or 10x basis.

The bill also increases the 1202 aggregate gross assets limit from $50 million up to $75 million, which will allow more small businesses to qualify their stock as eligible for the exclusion.

This enhancement makes investing in qualifying small businesses significantly more attractive from a tax perspective and could influence your investment strategy if you’re considering opportunities in emerging companies.

Core individual tax provisions

Individual income tax rates become permanent

OBBBA makes the individual tax rates established in 2017 permanent, providing long-term certainty for your tax planning. The entire tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37% remained.

Standard deduction increases take effect immediately

The enhanced standard deduction amounts are now permanent and apply retroactively to 2025. For this tax year, you can claim:

$15,750 if you’re single
$23,625 if you’re head of household
$31,500 if you’re married filing jointly

These amounts will continue to be adjusted annually for inflation, providing predictable increases in future years.

Auto interest deduction

Up to $10K incurred in 2025 through 2028 to buy a passenger vehicle. The phase out for taxpayers with MAGI exceeds $100K (or $200K MFJ).

Personal exemptions are eliminated, but seniors gain new deduction

While personal exemptions remain permanently set at zero, OBBBA introduces a temporary $6,000 deduction for taxpayers age 65 and older. This senior deduction phases out when your modified adjusted gross income exceeds $75,000 ($150,000 for joint filers) and will be available from 2025 through 2028.

Family-focused tax benefits

Child tax credit expansion

The child tax credit receives a meaningful boost under OBBBA. Starting in 2025, the non-refundable credit increases to $2,200 per child and will be indexed for inflation going forward. The $1,700 refundable portion becomes permanent and will also adjust for inflation, while income phaseout thresholds remain at the higher TCJA levels of $200,000 ($400,000 for joint filers).

Estate and gift tax exemption increases

OBBBA significantly raises estate and gift tax exemptions, permanently setting them at $15 million for individuals ($30 million for married couples) beginning in 2026. These amounts will be indexed for inflation, providing substantial estate planning opportunities for high-net-worth families.

Deduction and credit modifications

Alternative minimum tax exemption changes

The bill makes the TCJA’s increased AMT exemption amounts permanent but modifies the phaseout mechanism. While exemption thresholds revert to 2018 levels indexed for inflation ($500,000 for single and $1 million for joint filers), the phaseout rate increases from 25% to 50% of the amount by which your alternative minimum taxable income exceeds the threshold.

Mortgage interest deduction limitations become permanent

The $750,000 limit on home mortgage acquisition debt for the mortgage interest deduction is now permanent. Additionally, the exclusion of home equity indebtedness interest from qualified residence interest also becomes permanent, and certain mortgage insurance premiums will qualify as deductible interest.

Pease limitation replacement

OBBBA permanently eliminates the traditional Pease limitation on itemized deductions but replaces it with a new structure for those above the 37% tax bracket. Your itemized deductions will be reduced by 2/37 of the lesser of your total itemized deductions or the amount of taxable income exceeding the start of the 37% tax bracket.

Charitable deduction modifications

The bill creates new charitable giving incentives while imposing some limitations. Non-itemizers can now claim up to $1,000 ($2,000 for joint filers) for charitable contributions. However, a new floor applies for itemizers after 12/31/25. Taxpayers can only deduct charitable contributions in an amount in excess of .5% of their adjusted gross income (AGI). The Act also made the 60% AGI limit for cash gifts to public charities permanent.

$1,700 school choice credit

The OBBB creates a new tax credit which provides a nonrefundable credit for cash or marketable security donations made to 501(c)(3) organizations that provide scholarships for elementary and high school students.

The credit would be taken instead of a charitable contribution deduction and would be reduced by any amount allowed as a credit on a state tax return up to $1,700 per taxpayer. This credit is a “non – refundable” tax credit and can carry forward for up to 5 years.

New excise tax consideration

Remittance transfer tax implementation

OBBBA introduces a 1% tax on remittance transfers to foreign recipients, imposed on the sender for payments sent after 12/31/25. This affects transfers of cash, money orders, cashier’s checks, and similar instruments, though it excludes funds withdrawn from financial institution accounts or charged to credit/debit cards.

If you regularly send money transfers, particularly internationally, this new tax will add to your costs and should factor into your financial planning.

State and local tax developments

SALT cap temporary increase

One of the most anticipated provisions temporarily raises the state and local tax deduction limit to $40,000 (up from $10,000) with annual inflation adjustments through 2029. The cap reverts to $10,000 starting in 2030.

However, the deduction phases down for taxpayers with modified adjusted gross income over $500,000, reducing by 30% of the excess but never falling below $10,000.

PTET deduction preservation

Importantly, OBBBA doesn’t include the proposed limitations on passthrough entity tax (PTET) workarounds that appeared in earlier versions. This means existing state-level strategies for circumventing the SALT cap through entity-level tax payments remain viable.

Business-related provisions affecting individuals

Sec. 199A QBI deduction enhancement

The qualified business income deduction becomes permanent at the 20% rate and includes several improvements. The phase-in ranges for specified service businesses expand significantly ($75,000 non-joint, $150,000 joint), and a new minimum deduction of $400 applies for taxpayers with at least $1,000 of QBI from active trades or businesses where they materially participate.

Excess business loss limitation permanence

The limitation on excess business losses for non-corporate taxpayers, originally scheduled to expire after 2028, is now permanent. This affects your ability to use business losses to offset other income sources.

Bonus depreciation and Sec. 179 expensing

OBBBA makes 100% bonus depreciation permanent for property acquired and placed in service after January 19, 2025. Section 179 expensing limits increase to $2.5 million, reduced when qualifying property costs exceed $4 million.

Sec. 163(j) business interest limitation

The EBITDA limitation under Section 163(j) is reinstated for tax years beginning after December 31, 2024, which may affect your business interest deductions if you have significant debt-financed operations. After 12/31/2024, the Sec. 163j has modified the 30% of adjusted taxable income (ATI) calculation. ATI will be computed before the deduction for depreciation, amortization, or depletion, which increases the amount of business interest to be deducted.

Clean energy incentive eliminations

Residential clean energy credits

Several clean energy incentives face elimination or significant restrictions:

Sec. 25C energy efficient home improvement credit

This credit terminates after December 31, 2025, so if you’re planning qualifying home improvements, you should complete them by year-end.

Sec. 25D residential clean energy credit

The credit for residential clean energy expenditures terminates for costs incurred after December 31, 2025, affecting solar panels, wind turbines, and other qualifying systems.

Sec. 30D clean vehicle credit

The popular electric vehicle credit terminates for vehicles acquired after September 30, 2025, significantly impacting the economics of EV purchases.

Commercial clean energy impacts

Sec. 45L new energy efficient home credit

This credit for homebuilders terminates after June 30, 2026, which may affect new home pricing and availability of energy-efficient options.

Sec. 45W commercial clean vehicle credit

The credit for commercial clean vehicles terminates after September 30, 2025, affecting business vehicle purchase decisions.

Planning considerations and next steps

OBBBA’s provisions create both opportunities and challenges that require careful consideration of your individual circumstances. The temporary nature of some benefits, particularly the enhanced SALT deduction and senior deduction, suggests the importance of strategic timing for certain financial decisions.

The elimination of clean energy credits may accelerate your timeline for qualifying purchases, while enhanced business provisions could influence investment and business structure decisions. The significant improvements to the Section 1202 exclusion particularly merit attention if you’re involved with or considering small business investments.

Given the complexity of these changes and their interaction with your unique financial situation, working with qualified tax professionals becomes increasingly valuable for optimizing your tax position under the new law.

Ready to navigate OBBBA’s impact on your tax situation? Contact BPM today to discuss how these changes affect your specific circumstances and develop strategies to maximize the opportunities while managing the challenges ahead. Our team can help you understand the implications and make informed decisions for your financial future.