The One Big Beautiful Bill Act: What Changes Taxpayers Should Know

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law after it narrowly passed both chambers of Congress. The Senate approved the bill by a 51–50 vote on July 1, with Vice President J.D. Vance casting the deciding vote. And the House quickly followed, agreeing to the Senate’s revised version on July 3.

The final law introduces sweeping tax and fiscal changes. Beyond tax policy, it includes permanent business tax breaks, Medicaid funding cuts, and removal of a proposed federal moratorium on AI regulation. The Congressional Budget Office estimates the law will add $2.8-$3.3 trillion to the federal deficit over the next decade. One significant social impact: roughly 11 million people could lose Medicaid coverage by 2034 due to new work requirements and reduced funding.

R&D Deduction Changes for Businesses

Businesses can now fully deduct U.S.-based research and development (R&D) costs right away starting in 2025. This replaces the previous rule (from the 2017 tax law) that required companies to spread those deductions out over five years. R&D done outside the U.S. still has to be deducted slowly over 15 years.

If you’re a small business (making $31 million or less per year), you can also apply this immediate deduction rule retroactively to R&D spending dating as far back as 2022. And for companies that already started deducting R&D costs between 2022 and 2024, the law lets you speed up the remaining deductions — either all in one year or split over two years.

While the legislation includes several business-focused changes, the most immediate impact for individuals lies within the tax code. From adjustments to the standard deduction and child tax credit to changes in deductions for tips and more, here are eight key provisions worth reviewing.

1. Standard Deduction Increases and Permanency

Previous Law: TCJA-level deductions were set to expire after 2025.

• $15,000 for Single

• $30,000 for Married Filing Jointly

• $22,500 for Head of Household

New Law: The TCJA standard deduction amounts are made permanent, with additional increases of $1,000 (single), $2,000 (Married Filing Jointly), and $1,500 (Head of Household) annually through 2028.

2. Child Tax Credit (CTC) Adjustments

New Law: The CTC increases to $2,500 per qualifying child for tax years 2025 through 2028, with inflation indexing beginning in 2027.

** Note: The Parent/Guardian and the dependent must have Social Security numbers to claim will remain in effect.

3. SALT Deduction Cap Expansion

Previous Law: SALT’s $10,000 cap will expire after 2025.

New Law: SALT Cap is increased to $40,000 for taxpayers with modified AGI under $500,000, beginning in 2025. The higher cap phases out over five years, providing potential relief for residents in high-tax states.

4. Tax Treatment of Tips and Overtime Pay

Original Proposal: The President proposed full federal income tax exemption for tips and overtime through 2028.

Final Law: Instead, an above-the-line deduction will be available for tip income and overtime wages from 2025 through 2028. This deduction will begin to phase out at MAGI of $150,000 for singles and $300,000 for married filing jointly, with a full phaseout at $275,000 and $550,000 respectively.

5. New Deduction for Seniors

Final Law: Seniors aged 65 and older may claim a $6,000 deduction per individual ($12,000 per couple) from 2025 through 2028.

** Note: MAGI must be below $75,000 for singles or $150,000 for married filing jointly.

6. Estate and Gift Tax Exemption

Previous Law: Estate and gift tax exemptions were approximately $14 million per individual.

Final Law: Exemption limits have increased to $15 million per person (or $30 million per couple) beginning in 2026, with indexing for inflation continuing thereafter.

7. Auto Loan Interest Deduction

A new above-the-line deduction allows taxpayers to deduct up to $10,000 in interest paid on qualified auto loans annually. Phaseouts will begin at $100,000 MAGI (single) and $200,000 (MFJ).

Eligible vehicles must have final assembly completed in the United States, and this deduction is applicable through 2028.

8. Electric Vehicle (EV) Tax Credit Sunset

Previous Law: Clean vehicle credits amounted up to $7,500 for new vehicles and $4,000 for used, with an expiration scheduled for 2032.

New Law: Credits will end for purchases made after December 31, 2025. No extensions or replacements were included in the final bill.

Final Thoughts

The One Big Beautiful Bill Act locks in several Trump-era tax policies, introduces new deductions for seniors and auto loan interest, expands the SALT deduction for many, and phases out incentives for electric vehicles. While many of these changes provide short to mid-term benefits, others raise long-term concerns about fiscal sustainability and social safety net programs.

If you are a high-net-worth individual, older taxpayer, or residing within a high-tax states, proactive plan to optimize deductions and estate strategies under the updated provisions. For all taxpayers, year-end and multi-year tax planning will become even more essential heading into 2026 and beyond.