Tax Law Proposals: What Passed and What Didn’t

The One Big Beautiful Bill Act, signed into law on July 4, 2025, is the largest federal tax overhaul since the Tax Cuts and Jobs Act of 2017, and its tax changes reach nearly every filer. It permanently extends the TCJA rate structure that was set to expire at the end of 2025, creates new deductions for tips, overtime pay, and auto loan interest, raises the Child Tax Credit, quadruples the state and local tax deduction cap, expands the pass-through business deduction, locks in a higher estate tax exemption, and repeals most of the clean energy credits enacted in 2022.

Rates, Brackets, and the Standard Deduction

The seven-bracket TCJA rate structure is now permanent. Before the new law passed, those rates were scheduled to revert on January 1, 2026, which would have pushed the top marginal rate from 37% back to 39.6% and compressed the middle brackets. The reversion did not happen, and the bottom two brackets received an additional inflation adjustment.¹

For tax year 2026, single filers face these brackets:

10% on income up to $12,400
12% from $12,401 to $50,400
22% from $50,401 to $105,700
24% from $105,701 to $201,775
32% from $201,776 to $256,225
35% from $256,226 to $640,600
37% above $640,600

Married couples filing jointly hit the 37% rate above $768,700, and the other joint thresholds roughly double the single-filer amounts.²

The standard deduction was also made permanent and given an inflation bump. It rises to $16,100 for single filers and $32,200 for married couples filing jointly in 2026. Without the new law, those figures would have dropped to roughly half their current levels.²

The Alternative Minimum Tax kept its higher TCJA-era exemption. For 2026, the AMT exemption begins phasing out at $500,000 for single filers and $1,000,000 for married joint filers, so most taxpayers who escaped AMT liability after 2017 will keep avoiding it.²

New Deductions for Tips, Overtime, and Auto Loan Interest

The law creates three deductions that never existed before in federal tax law. All three are above-the-line, so you can claim them whether you itemize or take the standard deduction. All three phase out at higher incomes, and all three are capped.

Tips

Workers in qualifying occupations who receive cash or charged tips can deduct up to $25,000 in qualified tips per year. Self-employed people can deduct tips up to their net income from the business where the tips were earned. The deduction phases out once modified adjusted gross income exceeds $150,000 for single filers or $300,000 for joint filers.³

Overtime

Employees who earn overtime required under the Fair Labor Standards Act can deduct the premium portion, which is generally the “half” in time-and-a-half. The annual deduction caps at $12,500 for single filers and $25,000 for joint filers, and the same $150,000/$300,000 phaseout applies. Only overtime reported on a W-2 or 1099 counts.³

Auto Loan Interest

From 2025 through 2028, you can deduct up to $10,000 in interest paid on a loan used to buy a personal-use vehicle that underwent final assembly in the United States. The vehicle must weigh under 14,000 pounds, and the loan must have originated after December 31, 2024. Lease payments don’t qualify. The phaseout starts at $100,000 in modified adjusted gross income ($200,000 for joint filers). If you refinance a qualifying loan, interest on the refinanced amount generally still qualifies.⁴

Child Tax Credit

The Child Tax Credit was made permanent and increased. The maximum credit rises to $2,500 per qualifying child through 2028, up from the $2,000 the TCJA had set. Starting in 2029, the credit will be indexed for inflation. The income phaseout thresholds stay at $200,000 for single filers and $400,000 for joint filers.¹

The new amount is smaller than some lawmakers had pushed for. During the pandemic, the American Rescue Plan had temporarily expanded the credit to $3,600 for children under six and $3,000 for older children, and made it fully refundable so families with no tax liability received the entire amount.⁵ The new law did not restore those higher amounts or full refundability, though it did make a portion of the adoption credit refundable for the first time.

State and Local Tax Deduction Cap

The $10,000 SALT cap that the TCJA imposed was set to expire at the end of 2025, which would have returned the deduction to unlimited status. The new law raised the cap instead of removing it.

For 2026, the SALT limit is $40,400, or $20,200 for married filing separately. That is four times the old cap. The limit phases down for higher earners: it shrinks by 30 cents for every dollar of modified adjusted gross income above $505,000 ($202,500 for married filing separately). At incomes above roughly $606,333, the cap settles back to a $10,000 floor.¹ Upper-middle-income households in high-tax states benefit most; very high earners still effectively face the old limit.

Business Tax Changes

The corporate income tax rate stays at 21%. Proposals to raise it to 28% did not make the final bill.⁶

The Section 199A deduction for pass-through business income was made permanent and expanded. Owners of sole proprietorships, partnerships, and S-corporations can now deduct 23% of qualified business income, up from 20%.¹ Without the new law, this deduction would have disappeared after 2025. Existing limits based on business type and taxpayer income still apply, though the phase-in thresholds were adjusted.⁷

Full expensing for domestic research and development is back permanently, retroactive to tax years beginning after December 31, 2024. The 2022 change that had forced businesses to spread domestic R&D costs over five years is gone. Foreign research costs remain on the five-year amortization schedule. Businesses that already capitalized R&D during 2022 through 2024 have several options for recovering those costs, including deducting the full unamortized balance in 2025 or spreading it across 2025 and 2026.

Full 100% bonus depreciation for qualifying business assets is also back and permanent. The new law restores 100% first-year expensing for property acquired and placed in service on or after January 20, 2025, with no scheduled phasedown.

Estate and Gift Tax

The federal estate tax exemption was raised rather than cut. The basic exclusion amount is $15,000,000 per individual for deaths after 2025, up from $13,610,000 in 2024, and it will be indexed for inflation going forward.⁸ For married couples using portability, the combined exclusion tops $30 million.

Without the new law, the exemption was scheduled to drop to roughly $5 million (adjusted for inflation) on January 1, 2026, which would have exposed hundreds of thousands of additional estates to the 40% federal estate tax rate.⁹

The annual gift tax exclusion for 2026 is $19,000 per recipient, up from $18,000 in 2024.¹⁰ The step-up in basis rule, which resets an inherited asset’s tax basis to its fair market value at the date of death, was preserved. Earlier proposals to eliminate or limit step-up did not make the final law.

Clean Energy Credit Repeals

The sharpest cuts in the new law target the clean energy credits the Inflation Reduction Act created in 2022. Most of them are either terminated outright or phased out on timelines far shorter than the IRA originally set.

The clean vehicle credit, used clean vehicle credit, and commercial clean vehicle credit all ended for vehicles acquired after September 30, 2025.¹¹
The residential clean energy credit for solar panels, battery storage, and similar equipment is repealed for installations completed after December 31, 2025. The energy efficient home improvement credit ends for property placed in service after 2025.¹¹
The credit for installing EV charging stations and other alternative fuel infrastructure terminates for property placed in service after June 2026.
The energy efficient commercial buildings deduction and the credit for constructing energy-efficient new homes both terminate for projects beginning construction after June 30, 2026.
Qualifying clean hydrogen facilities must begin construction before 2028, five years earlier than the IRA’s original 2033 deadline.¹¹

If you were planning a solar installation, an EV purchase, or a home efficiency upgrade with one of these credits in mind, the completed-by-2025 deadline for residential work is already the operative one; anything finished after that date will not qualify.

What the Law Did Not Change

Long-term capital gains and qualified dividends still receive preferential rates of 0%, 15%, or 20%, depending on taxable income. The 3.8% net investment income tax also stayed put, applying to individuals with modified adjusted gross income above $200,000 ($250,000 for joint filers).¹²

Two proposals in this area were debated but rejected. One would have taxed long-term capital gains at ordinary income rates for taxpayers earning more than $1 million, effectively raising the top rate on those gains from 20% to 37% or higher. Another would have increased the net investment income tax from 3.8% to 5% for earners above $400,000. Neither made it into the final legislation.

Proposals That Did Not Pass

Several major ideas floated during the debate were left out. A push to raise the corporate rate from 21% to 28% did not have the support to advance. A proposed minimum tax on unrealized capital gains for taxpayers with net wealth above $100 million was never introduced as formal legislation during the reconciliation process. A House Ways and Means Committee proposal that would have treated all assets in a grantor trust as part of the grantor’s taxable estate, made distributions taxable gifts, and treated sales between a grantor and their trust as taxable transactions did not advance; intentionally defective grantor trusts remain available as a planning tool. And a proposal to extend the wash sale rule to cryptocurrency, projected to raise $5.4 billion over 10 years, was left out, so crypto investors can still harvest losses and immediately rebuy the same token.

1
Library of Congress. Tax Provisions in H.R. 1, the One Big Beautiful Bill Act
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
4
Internal Revenue Service. One, Big, Beautiful Bill Provisions – Individuals and Workers
5
U.S. Department of the Treasury. Child Tax Credit
6
Library of Congress. Marginal Effective Tax Rates – Changes in P.L. 119-21
7
Internal Revenue Service. Qualified Business Income Deduction
8
Internal Revenue Service. Whats New – Estate and Gift Tax
9
Economic Research Service. Federal Tax Issues – Federal Estate Taxes
10
Internal Revenue Service. Frequently Asked Questions on Gift Taxes
11
Library of Congress. IRA Tax Credit Repeal in the FY2025 Reconciliation Law
12
Internal Revenue Service. Questions and Answers on the Net Investment Income Tax