On July 4th, President Donald J. Trump signed the "One Big Beautiful Bill Act", H.R. 1, 119th Cong., just one day after the House passed it on a 218-214 vote.
The bill permanently extends the 2017 Tax Cuts and Jobs Act's individual tax provisions that were set to expire at the end of the year, such as the lower individual income tax rates and a larger standard deduction. It also raises the cap on the state and local tax deduction from $10,000 to $40,000.
The legislation also makes permanent a series of business tax breaks covering interest expensing, research and development spending and bonus depreciation of certain assets, including machinery and factories.
The legislation also fulfills several campaign pledges Trump made during the 2024 presidential race, including provisions to eliminate taxes on tip income and overtime pay for certain workers and a new deduction for seniors. The bill also includes a deduction for car loan interest payments.
As a result, some workers will receive an extra tax break through 2028.
Employees who work in jobs that traditionally receive tips could deduct up to $25,000 in tip income from their federal income taxes, while workers who receive overtime could deduct up to $12,500 of that extra pay subject to income limitations.
In addition, the legislation phases out most of the clean energy tax credits introduced in the Inflation Reduction Act, enacted during former President Biden's presidency.
The $7,500 consumer tax credit for electric vehicles is eliminated for purchases made after Sept. 30, 2025.
The Act increases the estate tax exemption from $13.99 million to $15 million for individuals and from $27.98 million to $30 million for a married couple for 2026.
Significant changes to Section 1202 of the Internal Revenue Code excluding gain from sales of qualified small business stock (QSBS) are contained in the One Big Beautiful Act encouraging investment in start-up companies. The enhancements to this tax incentive include raising thresholds and allowing investors to enjoy its tax benefits in as little as three years with a tiered exclusion based on the applicable holding period. Taxpayers should consider whether there are any advantages to postponing the issuance of QSBS until after the effective date of the Act or whether there are planning opportunities by selling such stock prior to the effective date.
Lastly, it has been reported that in anticipation of the bill's enactment, Treasury and the IRS have already assembled teams to address implementation of the new provisions. To no one's surprise, it seems that most of these provisions will have limitations and restrictions on applicability.
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