The One, Big, Beautiful Bill Act (Pub. L. 119-21), signed into law on July 4, 2025, is the largest federal tax overhaul since the 2017 Tax Cuts and Jobs Act, and the new tax bill contains a mix of permanent tax cuts for families, restored deductions for businesses, expanded affordable housing incentives, and a hard stop on pandemic-era Employee Retention Credit claims.1Congress.gov. H.R. 1 – 119th Congress (2025-2026) Below is what changed, who it affects, and when each provision takes effect.
A Bigger, Inflation-Indexed Child Tax Credit
The law permanently raises the Child Tax Credit to $2,200 per qualifying child, up from the $2,000 level that was set to expire under the TCJA. Families with little or no federal income tax liability can claim up to $1,700 per child through the refundable Additional Child Tax Credit. The credit begins phasing out once your modified adjusted gross income exceeds $200,000, or $400,000 if you file jointly.2Internal Revenue Service. Child Tax Credit
Starting in 2026, the full credit amount is indexed for inflation for the first time. Earlier versions of the CTC only indexed the refundable portion, so the base credit slowly lost value as prices rose. The refundable portion still uses the earned-income phase-in: 15% of earned income above $2,500, capped at $1,700 per child.
Immediate Expensing for Domestic R&D Costs
Since 2022, businesses have had to spread domestic research and development costs over five years instead of deducting them immediately. The new law creates Section 174A of the Internal Revenue Code and restores immediate expensing for domestic research costs incurred in tax years beginning after December 31, 2024.3Internal Revenue Service. Revenue Procedure 2025-28
Businesses that capitalized domestic R&D costs during the 2022 through 2024 gap years have two transition options: deduct the full remaining unamortized balance in the first tax year beginning after December 31, 2024, or spread that balance equally over two years. Small businesses with average annual gross receipts below a specified threshold can elect to apply the new expensing rules retroactively to tax years beginning after December 31, 2021, though that requires amending prior returns.3Internal Revenue Service. Revenue Procedure 2025-28
Foreign research is treated differently. Costs attributable to research conducted outside the United States must still be capitalized and amortized over 15 years, starting at the midpoint of the tax year the expenses were incurred. Abandoning or disposing of property tied to that foreign research does not accelerate the deduction; the 15-year schedule continues.4Office of the Law Revision Counsel. 26 U.S. Code 174 – Amortization of Research and Experimental Expenditures
Permanent 100% Bonus Depreciation
Under the TCJA’s original schedule, bonus depreciation was phasing down toward zero by 2027. The new law scraps that phase-down. Businesses can claim a permanent 100% additional first-year depreciation deduction for qualified property acquired after January 19, 2025, meaning the entire cost of qualifying equipment, machinery, and other short-lived assets can be written off in the year they are placed in service.5Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
The law also creates a new elective 100% bonus depreciation for certain newly constructed “qualified production property” used in qualifying production activities. Construction must begin between January 20, 2025, and December 31, 2028, and the property must be placed in service before January 1, 2031. Taxpayers who prefer a smaller first-year deduction can elect 40% instead, or 60% for certain property with longer production periods and certain aircraft.5Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
Business Interest Deduction Back to EBITDA
The Section 163(j) cap on business interest deductions is returning to its more generous form. The TCJA originally set the cap at 30% of earnings before interest, taxes, depreciation, and amortization, but starting in 2022 the formula tightened to exclude depreciation and amortization. The switch squeezed capital-intensive industries like manufacturing, real estate, and energy, where depreciation is a large share of expenses.
The new law reverts to the EBITDA-based calculation, letting businesses deduct a larger share of their interest costs. One caveat starting in tax years after December 31, 2025: any business interest expense a company electively capitalizes to property still counts as interest and remains subject to the 163(j) limit. Companies with disallowed interest carryforwards from the tighter EBIT years should look at whether those carryforwards can now be used.
Low-Income Housing Tax Credit Expansion
Affordable housing developers get two meaningful changes. Starting in 2026, states receive a permanent 12% increase in their 9% LIHTC allocations, raising both the per-capita allocation and the small-state minimum. Because the 9% credit is oversubscribed in every state, even a modest bump translates into thousands of additional units.
The larger change may be the drop in the bond financing threshold for 4% LIHTC deals. Prior law required at least 50% of a project’s costs to be financed with tax-exempt bonds to qualify. The new law cuts that to 25% for bonds issued after December 31, 2025, on buildings placed in service after that date, provided at least 5% of the project’s aggregate basis is financed by the qualifying bond issue. With construction costs and interest rates high, meeting the old 50% test had become a real barrier.
Casualty Loss Rules for Disaster Victims
Personal casualty losses are generally only deductible when they result from a federally declared disaster, and those that qualify get better treatment than ordinary casualty losses. You do not have to itemize to claim a qualified disaster loss; the deduction is added on top of the standard deduction. The loss also does not need to exceed 10% of your adjusted gross income, which is the threshold for other personal casualty losses. Instead, each qualifying event carries a $500 floor after accounting for insurance reimbursements and salvage value.6Internal Revenue Service. Topic No. 515, Casualty, Disaster, and Theft Losses
A “qualified disaster” is one the President declared a major disaster or emergency under federal disaster relief law. If your area received that designation after a hurricane, wildfire, flood, or similar event, keep detailed records: photographs, contractor estimates, and documentation of any insurance payments. The difference between your unreimbursed loss and the $500 floor is your deductible amount. You can also elect to claim the loss on the prior year’s return, which may speed up your refund.6Internal Revenue Service. Topic No. 515, Casualty, Disaster, and Theft Losses
Employee Retention Credit: Closed and Enforced
The Employee Retention Credit is effectively finished. The new law bars the IRS from allowing or refunding any ERC claims for the third and fourth quarters of 2021 that were filed after January 31, 2024.7Internal Revenue Service. IRS Frequently Asked Questions (FAQs) Address Employee Retention Credits Under ERC Compliance Provisions of the One, Big, Beautiful Bill If you missed that deadline, the credit is gone even if you otherwise met the eligibility rules.
Enforcement against promoters who marketed the credit to unqualified businesses is significantly tougher. Penalties for intentionally understating a tax liability for financial gain from ERC activities are now the greater of $200,000 or 75% of the promoter’s gross income derived from ERC work for organizations, and up to $10,000 for individuals.7Internal Revenue Service. IRS Frequently Asked Questions (FAQs) Address Employee Retention Credits Under ERC Compliance Provisions of the One, Big, Beautiful Bill The IRS’s window to investigate and assess amounts tied to Q3 and Q4 2021 ERC claims runs six years from the later of the original return filing date or the date the ERC claim was filed. Businesses that received the credit but may not have qualified should expect that longer enforcement window to apply.
Watch Your State Return Separately
How fast these federal changes flow into your state return depends on where you live. Rolling-conformity states adopt federal changes automatically. Static-conformity states require the legislature to affirmatively adopt each federal change before it takes effect at the state level, and some states selectively decouple from specific provisions.
This matters most for the business items. In a static-conformity state, you might claim immediate R&D expensing and 100% bonus depreciation on your federal return while still having to amortize those same costs on your state return until your legislature acts. Corporate and individual filers in those states should watch for legislative updates and plan for a mismatch between federal and state deductions on 2025 and 2026 returns. State-level R&D credits, which vary widely, may also interact differently with the new federal expensing rules.