The One Big Beautiful Bill - A Summary

By Edward K. Zollars, CPA, Thomas, Zollars & Lynch, Ltd.

On July 4, 2025 the President signed into law HR 1 (Public Law 119-21), better known as the One Big Beautiful Bill Act (OBBBA). The law contained a number of tax provisions, some of which take effect immediately while others will take effect in the future.

Extended and Modified Expiring TCJA Provisions

A primary goal of the Act was to make permanent a number of provisions enacted as part of the 2017’s major tax bill generally referred to as the Tax Cuts and Jobs Act (TCJA). Many of these provisions were scheduled to expire at the end of 2025. Items were extended – some with minor changes, including:

•    Individual income tax rates, with a maximum rate of 37%.
•    The increased standard deduction is increased slightly more and made permanent.
•    The TCJA expanded version of the child tax credit.
•    The elimination of a deduction for dependent exemptions.
•    The increased AMT exemption amount.
•    The §199A qualified business income deduction.
•    Elimination of the deduction for miscellaneous itemized deductions.
•    Estate and gift tax exemption increased to $15,000,000 (adjusted for inflation) beginning in 2026.

The limitation on the deduction of most state and local taxes on Form 1040 is extended, but with a temporary increase in the deduction to $40,000, increased by 1% each year, for 2025-29. The increased deduction is phased out for taxpayers with modified adjusted gross income in excess of $500,000, eventually phasing down to the TCJA $10,000 limit. In 2030 the limit returns to its $10,000 limit for all individual taxpayers.

No changes were made to the deduction for state passthrough entity taxes, including the Arizona variant.

Business Income Tax Modifications

A number of changes were made to business income tax provisions. Some of the more significant are discussed below.

• Bonus Depreciation: Bonus depreciation is set at 100% for property acquired after January 19,  2025. Any property for which the  taxpayer had a binding agreement  to acquire on or before January  19, 2025 will be treated as  acquired before that date.
• Domestic Research & Experimental Expenses: The ability to expense research and experimental expenses returns to the law, partially repealing changes made by TCJA. For years beginning after December 31, 2024, the full costs incurred for domestic research and experimental  expenditures can be expensed  immediately, though foreign  research and experimental  expenditures will continue to be  amortized over 15 years. Special  rules apply to recover domestic  expenses incurred in prior years  that were required to be amortized over 5 years, with qualified small  businesses also having a limited  time option to amend returns for  prior years to expense these items  in those years in lieu of the  standard recovery options under  the law.
• Business Interest Deduction (§163(j)): For tax years beginning after December 31, 2024, the calculation of adjusted taxable income (ATI) for the deduction of business interest under IRC §163(j) goes back to a computation of income before interest, taxes, depreciation, amortization  and depletion. In recent years ATI had been calculated without  allowing the exclusion for  depreciation, amortization and depletion.
• 100% Depreciation Deduction for Qualified Production Property: A new 100% short term depreciation deduction for certain 39 year property was added by the OBBBA. The deduction is allowed for qualified production property which is defined using terms very similar to those that applied to the pre-TCJA qualified domestic production deduction under old IRC §199. Construction on such property must have begun after  January 19, 2025, and before  January 1, 2029, with the property placed in service before  January 1, 2031.

A number of other business provisions were also enacted as part of the Act.

New Individual Income Tax Benefits

Some key individual income tax benefits were added by the OBBBA.

A number of these benefits are implemented as deductions which can be claimed regardless of whether or not the individual itemizes deductions for years 2025-29. However, despite many erroneous reports to the contrary, these deductions will not reduce a taxpayer’s adjusted gross income. Thus, they don’t impact things like IRMAA for determining a taxpayer’s Medicare premiums or the amount of premium tax credit a taxpayer qualifies for. Rather these deductions will join the deduction for qualified business income under IRC §199A on the new 2025 Schedule 1A (Form 1040), deducted just above  the line now used solely for the §199A deduction on 2024 and earlier returns.

• Qualified tips: A maximum of $25,000 of qualified tips can be deducted on a tax return. The deduction begins to phase out as a taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 for a joint return). The tips must be earned by a taxpayer in an industry found on a list to be provided by Treasury and not earned in a business that is a specified service trade or business (SSTB). Married taxpayers can only claim this deduction if the couple files a joint return.
• Overtime: A deduction of up to $12,500 ($25,000 for joint returns) is allowed for the amount to a taxpayer in excess of their standard compensation rate for qualified overtime. Thus, someone normally paid $20 per hour who works qualified  overtime that is compensated at $30 per hour would exclude $10 (the excess). The overtime  must be paid under the Federal  Fair Labor Standards Act of 1938  at the rate required by that Act  and cannot include qualified  tips. The deduction phases out  beginning at the same income  levels as the qualified tips  deduction. Again, married couples must file a joint return for this  deduction to be claimed.
• Over 65 Deduction: The law does not contain an exclusion of social security benefits from a taxpayer’s income but rather gives a new deduction available for taxpayers over age 65 as of the end of the tax year, whether or not they are yet receiving social security benefits. That deduction is $6,000 per individual (so potentially $12,000 for a married couple filing a joint return). The deduction phases out beginning at income level of $75,000 ($150,000 for a married couple  filing a joint return). Married  taxpayers must file a joint return  to claim this deduction.
• New Car Interest Deduction: For cars with final assembly in the United States acquired after December 31, 2024, a deduction is allowed for up to $10,000 on interest paid on a loan secured by the car and used to acquire the car. The deduction phases out as the taxpayer’s income rises above $100,000 ($200,000 on a joint return). Married taxpayers must file a joint return to claim this deduction.

Also added for individuals are new Trump Accounts designed for savings for individuals under age 18. These accounts are generally based on traditional IRAs, but do not require the child to have earned income for contributions to be made to the account. The maximum contribution per year (aside from pilot program payments and those from employers under qualified programs) is $5,000. For children born in 2025-28 a pilot program provides for a $1,000 payment to be made to an account in their name.

This discussion only covers highlights of this bill—there are many other provisions that may impact your clients you will need to consider.

For more tax updates, sign up for the Arizona Tax Workshop (ATW) at www.ascpa.com/atwto learn about developments in federal, state and local taxes through court cases and legislation. For an in-depth look at tax issues through an interactive session with Ed Zollars sign up for Tax Tuesday at www.ascpa.com/taxtuesday.

Edward K. Zollars, CPA, is a partner in the Phoenix CPA firm of Thomas, Zollars & Lynch, Ltd. as well as writing and presenting continuing education programs for CPAs on tax matters.