Five Changes made by the “One Big, Beautiful Bill” Act (OBBBA)
- Alex Scott
- 3 days ago
- 4 min read
On July 4th, 2025, President Trump signed the “One Big, Beautiful Bill” Act (OBBBA) into law. While this new act extended many of the previous tax law changes set forth by the Tax Cuts and Jobs Act (TCJA) of 2017, there are also many changes made by the OBBBA. Below are five changes we think taxpayers ought to know.
Auto Loan Interest
This is an interesting topic because auto loan interest has not been deductible since the Tax Reform Act of 1986 when the personal interest deduction was eliminated. The OBBBA brings back a portion of this old law with new twists. Auto loan interest up to $10,000 per year is now deductible for new cars purchased between 2025 – 2028. To qualify, the new car must have its final assembly point somewhere in the United States and it cannot be an ATV, trailer or camper. There are income limits, however. The deduction phases out for single taxpayers starting at $100,000 of modified adjusted gross income (MAGI) and $200,000 for married individuals. The deduction is fully phased out at $150,000 and $250,000 for single and married taxpayers, respectively. So, while the idea of an auto loan interest deduction is welcome to most taxpayers, strict income and qualification requirements may make it difficult for many Americans to take advantage.
Overtime and Tip Pay
In both cases, a new deduction has been created that reduces adjusted gross income (“AGI”). For qualified tip income a deduction up to $25,000 is allowed and $12,500 is allowed for overtime pay. Like the auto loan interest above, these deductions are phased out for certain income brackets. For single taxpayers, both tip and overtime income deductions are phased out above $150,000. For married individuals, the phaseout for both types of income is $300,000. The deduction on tip income is available from 2025 and will sunset in 2028.
SALT Deduction
One of the major changes implemented by TCJA was the state and local income tax (SALT) deduction cap of $10,000 calculated on Schedule A of Form 1040, otherwise known as itemized deductions. Many business owners and other individuals with investments in other states were largely affected since the ability to deduct all state taxes paid was heavily limited. As a result, most states created a pass-through entity tax (PTET) regime that created a workaround to the federal cap on state tax deductions. For the uninitiated, the pass-through entity tax is a credit reported on an individual tax return for taxes paid by a pass-through entity, such as a partnership or an S-Corporation, on behalf of its partner or member. Those taxes paid are deductible at the business entity level which reduces the federal income related to the entity reported on the individual’s tax return. So, instead of taking a state tax deduction on Schedule A, partners and members can reduce their federal income via Schedule E instead.
The OBBBA temporarily increases the SALT cap from $10,000 to $40,000. $40,000 is phased out down to a minimum deduction floor of $10,000 for those individuals with income of more than $500,000. The deduction returns to $10,000 in 2030. Pass-through entity tax does not seem to be addressed by this new bill, and it is possible that those regimes that were due to sunset will be extended.
Charitable Contributions
Since TCJA came into existence, charitable contributions have been one of the few items that have made it possible for taxpayers to itemize their deductions. For 2024-2025, charitable contributions are deductible up to certain percentage limits. For example, cash is deductible up to 60% of AGI. OBBBA changes the way charitable contributions qualify for deduction. Starting in 2026, there will be an AGI floor instead of an applicable percentage. Charitable contributions must meet the 0.5% AGI floor before becoming deductible. For example, if you have an AGI of $300,000, you must contribute more than $300,000 x .005 = $1,500 before any contributions are deductible. Another way of looking at this is if you contribute $1,501, $1,500 is the nondeductible floor and $1 over the floor is deductible. The $1,500 doesn’t go as you can carry forward the unused amount to be used in future years.
Bonus Depreciation
One of the greatest tools to help businesses with reducing federal income is a deduction via accelerated depreciation. Bonus depreciation is a concept whereby business can take a certain amount of depreciation expense on newly purchased fixed assets (capital expenses) such as office furniture, machinery, and equipment, in the year purchased. Without bonus depreciation, businesses must depreciate these items over a certain period called a class life. Furniture, fixtures and equipment class life is 7 years, most autos are 5 years, software is 5 years, and so on. The OBBBA is implementing 100% bonus depreciation starting after January 19, 2025. That means, for qualifying assets, you can depreciate the entire amount in the year you purchase. So, if you purchase a $2,000 sofa for the office, you can take a bonus depreciation expense of $2,000 in the year of purchase instead of depreciating it over 7 years.
Conclusion
Above are only a few of the changes that have occurred with the signing of the new bill. We have provided a few sites that summarize the major changes so you can read about those that apply to you. If you have any questions or need clarification on part of the bill, please call us at 571-445-0201 or email to abs@westhighlandtax.com
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