One Big Beautiful Bill Act: Key Tax Provisions

The One Big Beautiful Bill Act (the “OBBBA”) was signed into law by the President on July 4, 2025. This newsletter provides a high-level summary of the key tax provisions of the OBBBA affecting individuals, businesses, tax-exempt organizations, international operations and more.

Key Provisions for Individuals

1. Tax Brackets. The OBBBA makes the existing individual income tax brackets and rates from the 2017 Tax Cuts and Jobs Act (the “TCJA”) permanent (including the top individual rate of 37%), subject to inflation adjustments for the 10%, 12% and 22% brackets for tax years beginning after December 31, 2025.
2. Standard Deduction. The OBBBA permanently increases the standard deduction, which doubled under the TCJA, to $15,750 (to $31,500 for joint filers) (indexed annually for inflation) for tax years beginning after December 31, 2024.
3. Itemized Deduction Limit. The OBBBA adds a new overall limitation on the tax benefit of itemized deductions, which effectively caps the value of allowable itemized deductions at 35% beginning in 2026.
4. State and Local Tax Deduction. The OBBBA increases the state and local tax (“SALT”) deduction from $10,000 to $40,000 (which deduction cap increases by 1% each year through 2029) for the years 2025 through 2029. The higher SALT cap phases out for incomes above $500,000 ($250,000 in the case of a married individual filing separately), with such phaseout thresholds increasing by 1% for each year through 2029. The OBBBA left the pass-through entity SALT deduction workaround unchanged.
5. Qualified Small Business Stock Exclusion – Section 1202 of the Internal Revenue Code of 1986, as amended (the “Code”). The OBBBA increases the gain exclusion for qualified small business stock (“QSBS”) from $10 million to $15 million (subject to annual inflation adjustments) for QSBS issued after July 4, 2025. Further, the gross asset limit of the corporations eligible to issue QSBS has been increased from $50 million to $75 million. Finally, the required holding period to begin to be eligible for tax benefits from the disposition of QSBS issued after July 4, 2025 was shortened from five years to three years (with a phased in exclusion amount if the holding period is between three and five years).
6. Transfer Taxes. The OBBBA permanently sets estate, gift and generation-skipping transfer tax exemptions at $15 million per individual beginning in 2026 (indexed annually for inflation). For a more expansive discussion of the transfer tax provisions of the OBBBA, see Manatt Trust & Estate’s previous newsletter “” dated July [21], 2025. 
7. Tip Income. The OBBBA provides for a new temporary maximum above-the-line deduction (expires after 2028) in the amount of up to $25,000 for tip income received by workers in certain traditionally and customarily tipped industries. The deduction would begin to phase out for persons with an income of over $150,000 ($300,000 for joint filers).
8. Overtime Pay. The OBBBA adds a new temporary deduction (for tax years 2025 through 2028) in the amount of $12,500 ($25,000 for joint filers) for overtime pay. The deduction would begin to phase out for persons with an income of over $150,000 ($300,000 for joint filers).
9. Car Loan Interest. The OBBBA provides for a new temporary deduction (expires after 2028) in the amount of up to $10,000 for car loan interest associated with vehicles, the final assembly of which occurred in the U.S. The deduction would begin to phase out for taxpayers with modified adjusted gross income in excess of $100,000 ($200,000 for joint filers).
10. Mortgage Interest Expense. The OBBBA makes permanent the $750,000 limit ($375,000 in the case of a married individual filing separately) on acquisition indebtedness eligible for deduction.
11. Child Tax Credit. The OBBBA makes permanent the child tax credit and increases such credit from $2,000 to $2,200 per child starting in tax year 2025. A social security number is required for each child for which a credit is claimed.
12. Senior Deduction. The OBBBA provides a new temporary (expires after 2028) $6,000 deduction for people who are age 65 or older, which begins to phase out for taxpayers with modified adjusted gross income in excess of $75,000 ($150,000 for joint filers). This new deduction is in addition to the standard deduction or itemized deductions already available to people who are 65 or older.

Key Provisions for Businesses

1. Deduction for Qualified Business Income – Code Section 199A. The OBBBA makes permanent the deduction for 20% of qualified business income available to qualifying business owners of pass-through entities.
2. Bonus Depreciation. The OBBBA makes permanent the 100% first-year bonus depreciation for qualified property acquired and placed into service before January 1, 2031.
3. Research and Experimental Expenditures – Code Section 174. The OBBBA restores the ability to elect to immediately deduct domestic research and experimental expenditures paid or incurred after December 31, 2024. Small businesses ($31 million or less in revenues) can apply this change retroactively to expenditures paid or incurred after December 31, 2021.
4. Modified Adjusted Taxable Income Calculation for Business Interest Expense – Code Section 163(j). The OBBBA increases the amount of business interest expenses that taxpayers are allowed to deduct, by removing depreciation, amortization and depletion deductions from the calculation of adjusted taxable income.
5. Qualified Film, Theatrical and Sound Recording Production Expenses – Code Section 181. The OBBBA adds qualified sound recording costs to the list of deductions that have been offered to film, TV and live theatrical productions, allowing artists and producers to deduct 100% of qualified sound recording expenses (capped at $150,000 per taxable year) in the year that they occurred in taxable years ending after July 4, 2025. (Note that the Code Section 181 deduction is limited to qualified productions that commence before January 1, 2026.)

Key Provisions for International Operations

1. Global Intangible Low-Taxed Income (GILTI). The OBBBA renames the GILTI regime as the “Net CFC Tested Income” regime, and removes the 10% net deemed tangible income return from the calculation. The deduction percentage is also reduced from 50% to 40%, resulting in an effective tax rate of 12.6% beginning in 2026.
2. Constructive Ownership & Attribution Rules. The OBBBA reinstates Code Section 958(b)(4), undoing the TCJA’s repeal of that Section and preventing certain U.S. entities from being treated as owning stock held by foreign affiliates. This change eliminates Controlled Foreign Corporation (“CFC”) status that previously resulted from “downward attribution” of foreign-owned stock to U.S. persons.
3. New Ownership Attribution Regime. With Code Section 958(b)(4) reinstated, the OBBBA introduces a new rule in Code Section 951B that effectively reintroduces downward attribution in a way that is intended to target de-controlling transactions. This rule expands the Subpart F and Net CFC Tested Income regimes to apply to “foreign-controlled U.S. shareholders” and “foreign-controlled foreign corporations.” A U.S. person is treated as a foreign-controlled U.S. shareholder if they would own more than 50% of a foreign corporation if downward attribution applied. That foreign corporation, in turn, is treated as a foreign-controlled foreign corporation—subject to the Subpart F and Net CFC Tested Income regimes—even if it’s not a CFC under the regular definitions. Treasury is authorized to issue regulations to implement and enforce these provisions.
4. Subpart F and Pro Rata Share Inclusions. The OBBBA provides that, starting in 2026, 10% U.S. shareholders must now include their share of a CFC’s subpart F income if they owned the stock at any time during the taxable year—regardless of whether they held the stock on the last day of the year.
5. Foreign-Derived Intangible Income. The OBBBA renames Foreign Derived Intangible Income to “Foreign-Derived Deduction Eligible Income” (“FDDEI”) and eliminates the deemed intangible income concept and simplifies the calculation. The deduction rate is reduced from 37.5% to 33.34%, resulting in a 14% effective tax rate beginning in 2026.

Key Provisions for Tax-Exempt Organizations

1. Excise Tax – Code Section 4960. The OBBBA expands application of the Code Section 4960 excise tax (21%) on employee compensation in excess of $1 million, to now apply to all employees and former employees (receiving deferred compensation) of an applicable tax-exempt organization (“ATEO”), instead of just an ATEO’s top 5 highest-paid employees in any tax year. For information about tax-free retirement savings plans for executives of tax-exempt organizations, see Manatt Tax’s previous newsletter “” dated June 16, 2025.
2. Excise Tax – Code Section 4968. The OBBBA increases the Code Section 4968 excise tax on colleges and universities, depending on the overall size of the “student adjusted endowment” (i.e., investment assets per student), as follows:

This tax will apply to colleges and universities with at least 3,000 tuition-paying students, where at least 50% of the tuition-paying students are located in the United States, and which are not state colleges or universities.

For purposes of the above, the number of students of an institution is based on the daily average number of full-time students; part-time students are considered on an FTE basis.

Key Provisions for Qualified Opportunity Zones

1. Extension of Program. The qualified opportunity zone (“QOZ”) program provides federal tax incentives for investment in economically distressed communities. Under the OBBBA, existing tax incentives under the current QOZ program will expire unchanged, and a new version of the incentive will begin in 2027, including designation of new opportunity zones (with regular intervals for redesignation), the criteria for which is narrower with additional incentives for rural areas. Also, for non-rural investments, the possible reduction in the original capital gain is limited to 10% for investments held for at least 5 years. The additional 5% for investments held for 7 years under the original incentive will not be available under the version of the incentive that begins in 2027.

Key Provisions for New Markets Tax Credit

1. Extension of Program. The OBBBA permanently extends the New Markets Tax Credit, which provides federal income tax incentives to encourage investment in low-income communities and allows for a five-year carryover of unused limitation for calendar years beginning after December 31, 2025.

Key Provisions for Clean Energy Tax Credits and Incentives

1. Wind and Solar Tax Credits. The OBBBA shortens the deadlines for wind and solar projects to qualify for the Investment Tax Credit (“ITC”) or Production Tax Credit (“PTC”). Projects must either begin construction within 12 months of the OBBBA’s enactment or be placed in service by the end of 2027 to qualify. The administration also has released an Executive Order that indicates that requirements for beginning construction may be modified or subject to increased scrutiny.
2. Residential Credits. The OBBBA eliminates the Code Section 25D residential clean energy credit and the Code Section 25C energy efficient home improvement credit. The residential clean energy credit is eliminated for expenditures made after December 31, 2025. The energy efficient home improvement credit is eliminated for property placed in service after December 31, 2025.
3. Electric Vehicles. The OBBBA terminates the Code Sections 20D and 25E tax credits for new and used clean vehicles and the Code Section 45W commercial clean vehicle credit. The new and used EV credits, and commercial EV credit, terminate on September 30, 2025.
4. Alternative Fuel Vehicle Charging. The Code Section 30C alternative fuel vehicle refueling property credit is set to expire on June 30, 2026.
5. Foreign Entity Restrictions. The OBBBA introduces restrictions on foreign entities of concern (“FEOC”) for certain clean energy credits, including the technology-neutral ITC and PTC. Taxpayers who receive “material assistance” from FEOCs may be ineligible for these tax credits. The definition of FEOC and the specific restrictions vary depending on the credit and the type of assistance provided.
6. Manufacturing Credits. The OBBBA makes changes to the Code Section 45X advanced manufacturing tax credit, including terminating the credit for wind components sold after 2027.
7. Transferability of Credits. The OBBBA preserves the ability to transfer or sell tax credits, a feature that was introduced in the Inflation Reduction Act.
8. Domestic Content. The OBBBA adjusts the domestic content requirements for qualified facilities and energy storage technology.
9. Clean Hydrogen. The OBBBA terminates the Code Section 45 clean hydrogen production tax credit by the end of 2025.

How Manatt Can Help: Manatt’s tax practice is keeping abreast of the various tax changes resulting from the OBBBA. We are here to help clients navigate these new and changing requirements. 

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