The One Big Beautiful Bill Act: Decoding the Landmark Changes to US Income Tax

One Big Beautiful Bill (OBBB)

On July 4, 2025, the "One Big Beautiful Bill Act" (OBBB) [Pub. L. No. 119-21] was signed into law, finalizing a comprehensive set of US tax cuts and changes. These changes affect a wide range of taxpayers, from individuals to large corporations. The following is a breakdown of some of the income tax modifications impacting individuals and noncorporate businesses under the new law.

Key Changes for Individual Taxpayers

The OBBB introduces several permanent changes and modifications to major provisions that were set to expire:

Income Tax Rates and Deductions

• Permanent TCJA Rates: The bill makes permanent the temporary income tax rate and threshold decreases that were enacted by the Tax Cuts and Jobs Act (TCJA). Specifically, it applies the inflation adjustment to the 10%, 12%, and 22% tax brackets for individuals, estates, and trusts. This applies to tax years beginning after December 31, 2025.

• State and Local Tax (SALT) Deduction Cap: The limitation on the deduction for state and local taxes is increased. The new limits are $40,000 for 2025 and $40,400 for 2026. The limit will continue to increase annually through 2029 before reverting to $10,000 in 2030 and beyond. A phaseout based on Modified Adjusted Gross Income (MAGI) begins at $500,000 for 2025 and $505,000 for 2026.

• Itemized Deduction Limitation (Pease): The temporary suspension of the Pease limitation on itemized deductions is replaced with a new, permanent calculation. This new rule reduces itemized deductions by 2/37 of the lesser of (i) the total itemized deduction amount or (ii) the amount of taxable income that exceeds the 37% tax bracket threshold. This new limit does not apply to the Section 199A Qualified Business Income deduction.

• Personal Exemptions Eliminated: The deduction for personal exemptions, which was temporarily set to zero, is permanently eliminated. This applies to taxable years beginning after December 31, 2024.

New Deductions and Exclusions

• Auto Loan Interest Deduction: A new deduction is created for non-itemizers for interest on qualified loans used to purchase an applicable passenger vehicle (excluding RVs and campers) that had its final assembly in the U.S. The interest deduction is limited to $10,000 and is phased out for taxpayers with modified AGI over $100,000 for single filers or $200,000 for joint filers.

• Dependent Care Exclusion: The exclusion for dependent care services paid or incurred by an employer under a qualified assistance program is increased from $5,000 to $7,500 ($3,750 for married filing separately).

• Student Loan Discharge: The exclusion from gross income for student loans and private education loans discharged due to the taxpayer’s death or disability is made permanent.

• Employer Student Loan Payments: The temporary exclusion from gross income for certain employer payments of student loans is made permanent, with a $5,250 annual exclusion limit.

  
  

Changes for Noncorporate Businesses and Owners

The OBBB makes significant changes for owners of pass-through businesses and those dealing in small business stock:

• Qualified Business Income (QBI) Deduction (Section 199A): The temporary 20% QBI deduction for noncorporate taxpayers is made permanent. The bill also increases the phase-in income limitations and adds a new inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 of qualifying income from active trades or businesses.

• Small Business Stock (QSBS) Gain Exclusion: For Qualified Small Business Stock (QSBS) acquired after July 4, 2025, the gain exclusion thresholds are adjusted based on the holding period: 50% for stock held at least 3 years, 75% for at least 4 years, and 100% for at least 5 years. The per-issuer limitation on the exclusion is increased from $10M to $15M.

• Limitation on Excess Business Losses (EBL): The disallowance of a deduction for excess business losses of noncorporate taxpayers is permanently extended²³. The threshold for EBL—currently $250,000 (doubled for a joint return)—will be indexed for inflation.

Conclusion

The OBBB finalizes several key tax provisions, providing both permanence in areas like individual tax rates and substantial changes in areas like the SALT cap and new deductions. Taxpayers are advised to consult with a tax professional to fully understand how these specific changes may impact their financial planning and filing obligations for the upcoming and future tax years.

Disclaimer

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor. Stratos Wealth Advisors and Synergy Wealth Management are separate entities. 

Neither Stratos nor Synergy Wealth Management provides legal or tax advice. Please consult legal or tax professionals for specific information regarding your individual situation.