What’s in the Latest Tax Bill? Credits, Deductions, and Business Changes

The One Big Beautiful Bill Act, signed into law on July 4, 2025, is the biggest federal tax legislation since 2017, and if you are wondering what’s in the latest tax bill, the short version is this: the 2017 individual tax rates are now permanent, the Child Tax Credit rises to $2,200, tipped and overtime workers get new deductions through 2028, the SALT cap jumps to $40,000, businesses regain full expensing for equipment and domestic research, and most clean energy credits are being phased out fast.

What Stays the Same for Individual Filers

The 2017 Tax Cuts and Jobs Act cut individual income tax rates and nearly doubled the standard deduction, but those changes were set to expire after 2025. Without new legislation, the top rate would have jumped from 37% back to 39.6%, and standard deduction amounts would have dropped. The new law makes those lower rates and higher deductions permanent.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments from the One Big Beautiful Bill

For the 2026 tax year, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers or married filing separately, and $24,150 for heads of household. The law also gives a minor inflation adjustment to the income taxed at the 10% and 12% brackets, trimming the bill slightly for lower earners.

A Bigger Child Tax Credit

The Child Tax Credit rises from $2,000 to $2,200 per qualifying child under age 17, and the higher amount is permanent. Starting with the 2026 tax year, the $2,200 base adjusts for inflation.2Office of the Law Revision Counsel. 26 USC 24 – Child Tax Credit

The refundable portion, which matters most for families who owe little or no federal income tax, stays capped at $1,400 per child. To qualify for a refundable amount, you need at least $2,500 in earned income. For every dollar you earn above that threshold, 15% of the excess becomes available as a refundable credit, up to the $1,400 ceiling.2Office of the Law Revision Counsel. 26 USC 24 – Child Tax Credit

The credit phases out at $400,000 of modified adjusted gross income for joint filers and $200,000 for everyone else. Each qualifying child must be a U.S. citizen, national, or resident with a Social Security number.

New Deductions for Tipped and Overtime Workers

Two headline provisions create above-the-line deductions for tip income and overtime pay, effective for tax years 2025 through 2028. They expire unless Congress extends them.

Tip Income

Employees and self-employed workers in occupations that customarily receive tips can deduct qualified tips from taxable income, up to $25,000 a year. Qualified tips are voluntary cash or charged tips from customers, including tip-sharing amounts, and they must be reported on a W-2, 1099, or other required form. Self-employed workers can’t deduct more than their net income from the tipped business.3Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors

The deduction phases out once modified adjusted gross income exceeds $150,000, or $300,000 for joint filers. The IRS determines which occupations qualify based on whether they were listed as customarily tipped on or before December 31, 2024. If your line of work wasn’t traditionally tipped by that date, you don’t qualify.

Overtime Pay

Workers can deduct the premium portion of overtime compensation. If you earn time-and-a-half, the deductible amount is the “half” above your regular hourly rate. The overtime must be required under the Fair Labor Standards Act and reported on a W-2 or similar form. The annual cap is $12,500 for individual filers and $25,000 for joint filers, with the same $150,000/$300,000 income phase-out.3Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors

One catch: both deductions reduce federal taxable income but not Social Security or Medicare wages. You still owe payroll taxes on the full amount of tips and overtime.

A Higher SALT Deduction Cap

The state and local tax deduction cap, held at $10,000 since 2017, rises to $40,000 for 2025 and increases 1% annually through 2029. For 2026, the cap is $40,400. That is a real change for filers in high-tax states who had been leaving thousands of dollars of state income and property taxes on the table.

Higher earners lose part of the benefit. The 2026 cap phases down at a 30% rate once income exceeds $505,000. For every dollar above that threshold, the cap shrinks by 30 cents until it hits $10,000. The income threshold also rises 1% a year through 2029. After 2029, the cap resets to $10,000 for everyone regardless of income unless Congress acts again.

Estate and Gift Tax Exemption

The basic exclusion amount for estate and gift taxes rises to $15,000,000 per person for 2026. Under the 2017 law, that exemption had been scheduled to revert to about half that amount after 2025. The new law prevents the cliff and continues inflation adjustments in future years.4Internal Revenue Service. What’s New – Estate and Gift Tax

For married couples using portability, up to $30 million can pass free of federal estate tax. Anyone whose estate plan was built around the old expected reversion should revisit their documents; the planning assumptions have changed.

What Changed for Businesses

QBI Deduction Made Permanent

The 20% deduction for qualified business income under Section 199A, which was set to expire after 2025, is now permanent. Pass-through owners, sole proprietors, and certain rental property owners can continue deducting up to 20% of qualified business income.

The law also widens the phase-in range where income limits start restricting the deduction. Single filers now have a $75,000 window above the income threshold (up from $50,000) and joint filers get $150,000 (up from $100,000). A new $400 minimum deduction applies for taxpayers with qualified active business income. The existing restrictions on service businesses and the W-2 wage and property limitations remain unchanged.

Immediate Expensing for Domestic Research

For tax years beginning after December 31, 2024, businesses can fully deduct domestic research and experimental costs in the year they are incurred, reversing the 2017 rule that spread those deductions over five years. The change is permanent under new Section 174A.5Office of the Law Revision Counsel. 26 US Code 174 – Amortization of Research and Experimental Expenditures

Foreign research costs still must be amortized over 15 years, so the benefit is targeted at domestic activity.5Office of the Law Revision Counsel. 26 US Code 174 – Amortization of Research and Experimental Expenditures

Businesses that capitalized domestic research costs in 2022 through 2024 have transition options: keep amortizing on the original five-year schedule, deduct all unamortized costs in the first tax year beginning after December 31, 2024, or spread the remaining costs evenly over two tax years. Small businesses with average annual gross receipts of $31 million or less can apply immediate expensing retroactively to costs incurred back to 2022.

100% Bonus Depreciation Restored

The 100% bonus depreciation rate under Section 168(k), which had been dropping 20 percentage points a year since 2023, is restored for most qualifying business property bought and placed in service after January 19, 2025.6Internal Revenue Service. One, Big, Beautiful Bill Provisions

Qualifying property generally includes tangible assets with a recovery period of 20 years or less, such as machinery, equipment, vehicles meeting certain weight thresholds, and certain computer software. A company that buys $200,000 of manufacturing equipment can deduct the full amount in the year it goes into service.

Section 179 expensing remains available separately, with a 2026 deduction limit of $2,560,000 and a phase-out threshold starting at $4,090,000 in total equipment purchases.

Business Interest Deduction Loosened

The limit on deducting business interest expense under Section 163(j) got more favorable for tax years after December 31, 2024. Businesses can once again add back depreciation, amortization, and depletion when calculating adjusted taxable income for the interest cap, returning the calculation to an EBITDA basis and letting businesses deduct more interest.7Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense

The change is significant for real estate, manufacturing, and any sector carrying large depreciation balances alongside substantial debt. Small businesses that meet the gross receipts test under Section 448(c) remain exempt from the limitation entirely.7Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense

For tax years beginning after December 31, 2025, U.S. shareholders of controlled foreign corporations can no longer include income from those foreign subsidiaries when calculating adjusted taxable income, tightening the deduction for multinationals that had used foreign income inclusions to expand their capacity to deduct domestic interest.

Clean Energy Credits Ending Soon

The law accelerates the phase-out or outright elimination of several clean energy credits the Inflation Reduction Act created or expanded in 2022. If you were counting on any of these, the windows are tight:

  • New clean vehicle credit (Section 30D): available only through September 30, 2025. Maximum credit was $7,500 for vehicles meeting both critical mineral and battery component sourcing requirements.
  • Used clean vehicle credit (Section 25E): also expired September 30, 2025.
  • Energy efficient home improvement credit (Section 25C): improvements must be placed in service by December 31, 2025.
  • Residential clean energy credit (Section 25D): also available only through December 31, 2025.
  • Alternative fuel vehicle refueling property credit (Section 30C): property must be placed in service on or before June 30, 2026.
  • Energy efficient commercial buildings deduction (Section 179D): eliminated for buildings where construction begins after June 30, 2026.
  • Clean electricity production and investment credits (Sections 45Y and 48E): eliminated for wind and solar facilities placed in service after 2027, unless construction began on or before July 4, 2026.

Property purchased or installed before its cutoff date can still be claimed on the return for the year it was placed in service.

When Each Change Takes Effect

The staggered timeline matters for planning:

If you missed a 2025 provision on an original return, you generally have three years from the filing date to submit an amended return on Form 1040-X. The IRS typically processes amended returns in 8 to 12 weeks, though delays of up to 16 weeks are possible.8Internal Revenue Service. Amended Return Frequently Asked Questions