Important Client Notice: Key Tax Law Changes in the Beautiful Bill Act (BBA) 

July 2025

 
 

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act ("BBA"). Almost half of the nearly 900 pages is tax law.

Background

President Trump's first term Congress passed the Tax Cuts and Jobs Act (TCJA), one of the nation's largest-ever tax cuts, affecting most personal and business taxpayers. To comply with Congressional budget rules, most TCJA provisions were automatically set to expire on Dec. 31, 2025. This would return the U.S. to pre-TCJA taxation, in what would be the largest-ever tax increase, materially affecting Perelson Weiner clients at all income and wealth levels.

From 2018 until the BBA's passage, a central factor of financial decision-making was the economic uncertainty created by TCJA's looming expiration, with the major exception of its permanent 21% corporate tax rate. This finally ended with the passage of the BBA, whose primary goal was to prevent this massive tax increase by permanently extending most TCJA provisions, and bringing back some of the most taxpayer-friendly ones that had expired between 2018 and July 4, 2025.

For many clients, BBA creates new tax savings and planning opportunities. For some, especially those in capital or research-intensive businesses, there are major potential tax reductions. Clients invested in the Inflation Reduction Act's Green Energy construction projects may have to revise plans, as many of the related tax benefits have been significantly curtailed or repealed by the BBA. Some provisions have new near-term expiration deadlines. For example, the clean vehicle credit, previously set to expire in 2032, now expires September 30, 2025, for both individual and business vehicle buyers, leaving little time for decision making. One area facing significant tax increases involves individuals and companies subject to U.S. international tax provisions, which have undergone material reform under the BBA.

The new law contains major tax and major non-tax provisions. This notice addresses its key tax provisions affecting Estate and Gift, Individual, Business, and U.S. International taxation. It begins with the Part I overviews of the BBA's broad impact on clients in each area, followed by Part II summaries of key provisions.

PART I – ONE BIG BEAUTIFUL BILL ACT CLIENT IMPACT OVERVIEW

BBA ESTATE & GIFT TAX OVERVIEW

The BBA will encourage some clients to consider revising wills and trusts. Few areas were as sharply affected by TCJA's enactment and scheduled expiration as the law's unified estate and gift tax provisions. Before TCJA enactment, the exemption from estate tax was set at $5 million per person adjusted for inflation. In 2017, the adjusted exclusion amount was $5.49 million, or about $11 million per married couple.

The TCJA increased the unified exemption to a base amount of $10 million per person, inflation-adjusted for 2018 to $11.18 million. The current 2025 amount is $13.99 million per person, which was scheduled to revert to about $7 million in 2026 before BBA enactment.

Since TCJA's 2018 effective date, many estate planning discussions for clients with federally taxable estates centered around the amount of exemption that would be lost if large gifts weren't made or other steps taken to use up the TCJA exemption before it reverted to the $7 million amount.

The BBA ends the uncertainty with a single estate and gift tax provision that permanently bumps the base exemption to $15 million in 2026 or $30 million per couple, adjusted annually for inflation. The Generation Skipping Tax (GST) exemption is set separately at the same amount as the estate tax exemption.

Many clients no longer subject to federal estate taxation due to the size of the exemption will remain subject to state estate taxes. Related state estate tax planning and state estate and trust income tax planning will overshadow their need for federal estate tax planning.

BBA INDIVIDUAL INCOME TAX OVERVIEW

The primary impact of most BBA Individual tax provisions is ending the uncertainty of the TCJA sunset, by making the provisions and annual inflation adjustments permanent. The BBA continues the TCJA'S 7 tax rate brackets from 10% to 37%.

For those with incomes exceeding $500,000, there are few significant new individual tax benefits, though substantial lobbying succeeded in having the Senate exclude several harmful business measures included in the BBA House passed version, that affect LLC, S Corp., and other K-1's that pass through to individual tax returns. These include continuation of PTET deductions and credits, and excess business losses in noncorporate entities.

Some provisions, summarized below, may reduce deductions previously available under the TCJA, such as a new limitation on itemized deductions for those with taxable income exceeding $626,350 for single filers and $751,600 for joint filers. Several individual green energy deductions have been repealed or have had expiration dates accelerated.

Clients, children, and grandchildren may benefit from new provisions limiting taxes on tips and overtime, and a new senior deduction that reduces the amount of taxable Social Security.

Key individual income tax provisions are summarized in Part II below.

BBA BUSINESS INCOME TAX OVERVIEW

In addition to keeping TCJA business provisions from expiring this December 31st, the BBA brings back or creates several immediate 100% deductions for large capital, research, and other business expenses. It also creates major new opportunities for holders of new §1202 Small Business Stock. The BBA also significantly curtails or repeals several business green energy benefits.

You should be aware that New York and other states may require depreciation and amortization with much longer phase-in periods for the capital deductions, which should be discussed with your Perelson Weiner professional to take the best advantage of these new and expanded multimillion-dollar federal BBA tax benefits. Strategic coordination can help you take maximum advantage of both federal and state tax savings opportunities.

Key business income tax provisions are summarized in Part II below.

BBA U.S. INTERNATIONAL INCOME TAX OVERVIEW

The BBA created significant reform for the U.S. international tax laws. The rules regarding foreign transactions and foreign entities involving U.S taxpayers are extremely complex, and can come with significant, even treacherous, financial penalties for simple misunderstanding of rules and late filings. The rules are designed to plug loopholes and prevent U.S. individual and business taxpayers from shifting profits from high-tax to lower-tax jurisdictions to avoid U.S. income tax. If you are subject to any of these international tax issues, the BBA has made significant rule changes. This is one BBA area that is a revenue raiser. The International provisions are expected to raise between $350 billion and $400 billion over 10 years. The changes involve complicated and often interrelated calculations. The international provisions are almost all effective after Dec. 31, 2025

PART II – ONE BIG BEAUTIFUL BILL ACT KEY INCOME TAX PROVISION SUMMARIES

INDIVIDUAL INCOME TAX PROVISIONS

Continuing and Modified Individual Provisions

  • Tax Rates: The 7 TCJA rate brackets continue ─ 10%, 12%, 22%, 24%, 32%, 35% and 37%. Instead of continuing inflation adjustments from 2024 to 2025, four brackets, 10%, 12%, 35% and 37% will have one-time adjustments that favorably reset them for 2025 and future tax years.

  • Standard Deduction: The 2025 standard deduction gets a one-time bump of $750 for individuals and $1,500 for joint filers, with respective 2025 standard deductions of $15,750 Single and $31,500 Joint, with annual inflation adjustments in future years.

  • Itemized Deduction Limits: Itemizers in the top 37% tax bracket are subject to a new permanent limitation on itemized deductions. The reduction causes most clients in this bracket (starting at $626,359 of taxable income for Single filers and $751,600 for Joint filers) to get maximum tax savings of 35% of itemized deductions, rather than 37%. However, the calculation is not straightforward, and in certain circumstances can result in tax savings between 35% and 37%. The §199A Qualified Business Income Deduction is specifically excluded from this provision.

  • State and Local Tax Deduction: From 2025 to 2029, the deduction increases from the TCJA $10,000 to the BBA $40,000. During the five years, the deductible amount increases by 1% each year. There is a phaseout beginning at $500,000 of AGI that can bring the deduction back to $10,000. In 2030, the deduction again reverts to $10,000, unless Congress acts to increase it.

  • Child Tax Credit: BBA permanently increases the credit to $2,200 starting in 2025, with $1,400 refundable. Both the credit and the refundable amount will be inflation-adjusted.

  • Adoption Credit: BBA makes up to $5,000 of the adoption credit refundable.

  • Mortgage Interest and Insurance: The TCJA's $750,000 limitation on "acquisition indebtedness", eligible for the mortgage interest deduction on a main and second residence, is made permanent by the BBA. Mortgage insurance premiums are deductible as interest, with certain AGI limits.

  • Clean Energy Credits: The BBA terminates several of these credits. Among these are: the Clean Vehicle Credit terminating for new vehicles acquired after 9/30/2025; the Previously Owned Clean Vehicle Credit terminating for expenditures made after 9/30/2025; the Residential Clean Energy Credit terminating for expenditures made after 12/31/2025; and the Energy Efficient Home Improvement Credit terminating for homes acquired after 6/30/2026.

  • Qualified Opportunity Zones: The TCJA's Opportunity Zone Experiment ends Dec. 31, 2026. The BBA follows on by creating a permanent new rolling 10-year designation for Qualified Opportunity Zones (QOZ ) and strengthening eligibility requirements. New QOZ investments can begin in 2027 after the original program expires. The new QOZ's maintain the key benefit of tax-free capital gains on QOZ investments held for 10 years. There are new benefits for QOZ investments in rural areas. At this point, it is not clear how investments in the initial TCJA QOZ might coordinate with the new BBA provisions, but some believe that is a possibility.

    NEW INDIVIDUAL PROVISIONS

  • Senior Deduction: The Senate's Byrd Rule, which enables tax and budget bills to pass the Senate with only 51 votes instead of the normal 60, prohibits provisions affecting Social Security benefits to use the 51-vote rule, making the Trump proposal to repeal income taxes on Social Security undoable. To accomplish much of this objective, the BBA creates a new "Senior Deduction" of $6,000 per senior, which eliminates the amount of taxable Social Security for most Social Security recipients. The benefit phases out between Modified AGI of $75,000 and $175,000 for single filers and $150,000 and $250,000 for married ones. The provision is effective for 2025 and sunsets after 12/31/2028.

  • Tips Taxability: The BBA enables waiters and others typically receiving tip income, within the provision's complex definitions of eligible occupations, to take a deduction for up to $25,000 of tip income. This amount phases out for income thresholds between $150,000 and $400,000 for single filers and between $300,000 and $550,000 for joint returns. The benefit is effective for 2025 and sunsets after 12/31/2028.

  • Overtime Taxability: Overtime earners can exclude up to $12,500 ($25,000 joint) of overtime income. The benefit begins to phaseout and $150,000 Modified AGI for Single and $300,000 for Joint filers. This provision is effective for tax years 2025 through sunset at 12/31/2028.

  • Charitable Deduction for Itemizers: Effective for years after Dec. 31, 2025, the BBA creates a new .5% floor for itemized deductions. Only amounts above .5% of Adjusted Gross Income for most taxpayers are deductible as charitable contributions. There are complex carryover and other rules related to this provision.

  • Charitable Deduction for Non-itemizers: Beginning in 2026, individual donors who do not itemize deductions can take a permanent above-the-line deduction of $1,000 Single and $2,000 Joint.

  • Auto Loan Interest Deduction: For tax years 2025 through 2028, purchasers of new U.S.-made personal vehicles can get an above-the-line deduction for up to $10,000 of auto loan interest.

  • Trump Accounts: Starting in 2026, the law provides for a new type of non-Roth IRA savings vehicle for children under 18. For US citizens born between 2025 and 2028, the federal government will deposit $1,000 tax-free into the child's account. Up to $5,000 per year, adjusted for inflation, can annually be deposited into the child's account through age 18. Taxation of distributions will follow Non-Roth IRA rules, with deferred income taxable at ordinary rates. Some final details require IRS regulations.

  • Excise Tax on Foreign Remittances: Effective January 1, 2026, the BBA imposes a 1% excise tax on cash and similar instruments remitted as foreign transfers from the US to recipients in foreign countries.

    BUSINESS INCOME TAX PROVISIONS

  • Qualified Business Income Deduction - §199A: The BBA makes the 20% QBI deduction permanent and increases the phase-in threshold ranges from $50,000-$75,000 for single filers and $100,000-$175,000 for joint filers, smoothing out the wage/property limit "phase-in" over a broader range. Taxpayers with at least $1,000 of QBI will now get a deduction of at least $400 adjusted for inflation under the BBA.

  • §1202 Small Business Stock: For those acquiring §1202 stock after the July 4th date of the BBA's enactment, 3 major changes will make §1202 much more attractive, and may lead some to establish C corporations to obtain the benefit. First, there is a new tiered gain exclusion structure of 50% for those holding shares for more than 3 years, 75% for holding shares for more than 4 years, and 100% for shares held for more than 5 years. Second, the "Per Issuer Cap" has been raised from $10 million to $15 million. Third, the ceiling on corporate gross assets to be considered a "small business" has been raised from $50 million to $75 million. Both the cap and gross asset amounts are annually adjusted for inflation. Those whose §1202 stock was acquired before July 4, 2025, are not eligible for this provision.

  • Corporate Charitable Deductions: The BBA creates a new "1% of taxable income floor" for corporate charitable contributions. Only contributions above that floor are deductible up to 10% of the taxable income limit. There are potentially complex rules for tracking and calculating carryforward amounts under this provision.

  • Excess Business Losses §461(l) : Under BBA, excess business loss provisions pertaining to noncorporate taxpayers are made permanent. The disallowed losses in a given year can be used as Net Operating Losses in subsequent years.

  • Business Interest Limitation §163(j): The BBA makes the limitation permanent and returns the Adjusted Taxable Income calculation to the pre-2022 formula, calculated before deducting depreciation, depletion, and amortization. This increases deductible interest for capital-intensive industries. The provision also allows floor-plan interest to be deducted for certain trailers and campers.

  • Research and Experimental (R&E) Expenses: The BBA permanently restores the pre-TCJA option to immediately deduct US-based R&E. Sixty-month amortization can also be elected. For companies with less than $31 million of gross receipts, this provision can be retroactively applied for tax years beginning after December 31, 2021, enabling amended returns with potential refunds. Taxpayers currently on an amortization schedule can elect to accelerate remaining deductions. These benefits are not available to foreign R&E, which still must be amortized over 15 years.

  • Bonus Depreciation: First-year Bonus Depreciation is made permanent for eligible property placed in service after January 19, 2025.

  • Qualified Production Property: This is a new and complex provision allowing manufacturers of new first use "qualified production property" to claim 100% first-year depreciation if they are engaged in transformative manufacturing of a qualified product that cannot be a food or beverage prepared in the same retail building in which it is sold. Construction must begin after January 19, 2025, and before January 1, 2029. The property must be placed in service before January 1, 2031. There can be recapture of depreciation if the property ceases to be used for qualified production activity within 10 years of being placed in service.

  • §179 Depreciation: The BBA increases the maximum amount taxpayers may expense from $1,160,000 to $2,500,000. The phaseout threshold goes from $2,890,000 to $4,000,000. The provision is effective for the property placed in service after Dec. 31, 2024.

  • State Pass Through Entity Taxes: The PTET and similar deductions and personal tax credits remain unchanged by the BBA. The BBA version that originally passed the House of Representatives eliminated PTET for investment management, brokerage, many professional firms, and other entities defined as "Specified Service Businesses". Our CPA professional association put on a full-court press in DC, and the House provision was removed from the Senate version signed by the President.

  • Termination of Green New Deal Subsidies: The BBA terminates several tax subsidies for green energy. These include Alternative fuel vehicle refueling property credit; Energy efficient commercial buildings deduction; Cost recovery for energy property; Modifications of zero-emission nuclear power production credit; Clean hydrogen production credit, plus others.

    INTERNATIONAL TAX PROVISIONS (all effective for years after Dec 31, 2025)

  • Global Intangible Low-taxed Income (GILTI): GILTI, created by TCJA, is a tax on certain income of foreign corporations controlled by U.S. taxpayers ("Controlled Foreign Corporations"- CFCs), targeting earnings that had previously escaped U.S. taxation by being kept offshore. Because of BBA changes in the calculations, for 2026 and future years, the term "GILTI" has been replaced by "Net CFC Tested Income" (NCTI). The BBA both increases effective tax rates from about 10.5% to 12.6% and ends the 10% qualified business asset investment (QBAI) deduction that further increases the GILTI rate. The bill also decreases the Foreign Tax Credit haircut from 20% to 10%. This increases to 90% (previously 80%) the amount of taxes paid to foreign jurisdictions that will be available to offset US tax liability imposed on NCTI.

  • Foreign-derived Intangible Income (FDII): By raising the FDII effective rate from 13.125% to 14%, the BBA hopes to reduce foreign arbitrage opportunities and also bring in some much-needed revenue.

  • Base Erosion and Anti-abuse Tax (BEAT): BEAT is intended to discourage large US corporations from stripping earnings to low tax foreign countries by making deductible payments to foreign related parties. The BBA made a very minor tax increase from 10% to 10.5% but established other rules to make paying tax harder to avoid.

  • Look-through Rule for Foreign Corporations: The rule allows certain payments (like dividends, interest, rents, and royalties) received by a U.S. taxpayer from a controlled foreign corporation to be treated as having the same character as the underlying income of the CFC, preventing them from automatically being taxed as foreign personal holding company income under Subpart F. The BBA made this rule permanent, allowing favorable treatment of foreign-derived income.

    The BBA contains other, more narrowly targeted international provisions. These and those above have computational and complexity issues not addressed.

Several changes to permanently extended TCJA provisions in the BBA are effective for the 2025 tax year. If you have any questions, please contact your Perelson Weiner professional.