Major New Tax Law Enacted
The major new federal tax law that is officially entitled “An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14” and is informally known as “The One Big Beautiful Bill Act” was enacted on July 4, 2025. The new law contains sweeping tax changes.
The following discussion highlights major provisions contained in the new law.
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State and Local Tax Deduction (SALT): The new law raises the $10,000 SALT limit for some taxpayers, starting in 2025. The higher limit of $40,000 will be subject to a phaseout for taxpayers with income higher than a threshold. The threshold will be $500,000 ($250,000 for married filing separately). The limit is scheduled to revert to $10,000 for all taxpayers after 2029.
Ending energy credits for new, used and commercial electric vehicles: The new law eliminates all of these credits for vehicles purchased after September 30, 2025.
Ending credits for solar and energy efficient home improvements: The new law eliminates all of these credits for improvements made after December 31, 2025.
New Deduction for Seniors: The new law provides for a maximum deduction of up to $6,000 for those who are 65 or older beginning in 2025. The deduction begins to be phased out when a taxpayer’s income exceeds $75,000 ($150,000 for joint returns). The deduction is scheduled to expire after 2028. The new law does not change the rules for the taxability of Social Security benefits.
Increase in Child Tax Credit: The new law increases the child tax credit from $2,000 per child per year to $2,200 beginning in 2025.
New Deduction for Tip Income: The new law creates a new deduction beginning in 2025 that is equal to qualified tip income included in gross income during the year. The deduction is available whether a taxpayer itemizes deductions or not. The maximum deduction is $25,000, and it is phased out when income exceeds $150,000 ($300,000 for a joint return). Qualified tip income only includes tips received by an individual in an occupation that customarily and regularly received tips prior to 2025. The deduction is scheduled to expire after 2028.
New Deduction for Overtime Income: The new law creates a new deduction beginning in 2025 that is equal to qualified overtime income included in gross income during the year. The deduction is available whether a taxpayer itemizes deductions or not. The maximum deduction is $12,500 ($25,000 for a joint return), and it is phased out when income exceeds $150,000 ($300,000 for a joint return). Qualified overtime income only includes compensation paid to an individual that is required by the federal Fair Labor Standards Act, and the overtime income must be separately reported on the Form W2 issued by the employer. The deduction is scheduled to expire after 2028.
New Deduction for Car Loan Interest: The new law creates a new deduction beginning in 2025 for car loan interest. The deduction is available whether a taxpayer itemizes deductions or not. The maximum deduction is $10,000, and it is phased out when income exceeds $100,000 ($200,000 for a joint return). Qualified passenger vehicle loan interest includes any interest which is paid or accrued by the taxpayer after 2024 for the purchase of a passenger automobile for personal use. The vehicle must be new when the taxpayer purchased it, and the vehicle must have had final assembly within the United States. Recipients of car interest must now report the amount of car interest received to payers on an annual informational return (similar to the existing Form 1098). The deduction is scheduled to expire after 2028.
Bonus Depreciation: The new law restores 100% bonus depreciation, effective for qualified property acquired after January 19, 2025, and makes 100% bonus depreciation permanent thereafter.
§179 Deduction: The new law increases the §179 dollar limit to $2,500,000 and increases the phaseout threshold to $4,000,000, both effective in 2025.
Extension of expiring provisions from the 2017 Tax Cuts and Jobs Act: The new law makes permanent many of the provisions that were scheduled to expire after 2025 from the Tax Cuts and Jobs Act of 2017. For example, this includes the lower individual income tax rates, higher standard deduction, elimination of personal deductions and miscellaneous itemized deductions. It also includes the higher lifetime exclusion for the gift and estate tax.
Qualified Business Income Deduction: The new law makes the 20% qualified business income deduction permanent and the phaseout of the deduction for a specified service trade or business will occur over a slightly longer range, beginning in 2026.
New Trump Accounts: The new law creates a new type of IRA (i.e., individual retirement account, which is not designated as a Roth IRA) for children under the age of 18. The new accounts are effective for the 2026 tax year, and no contributions can occur until July 4, 2026, or later. For children born between 2025 and 2028, there will be a one-time $1,000 contribution from the federal government to such an account. In addition to the one-time contribution from the federal government, the child or parent/guardian can contribute up to $5,000 per year until the child reaches age 18. No deduction is allowed for contributions made to the account. Generally, no distributions are allowed until the account beneficiary reaches age 18. Eligible investments must be mutual funds or exchange-traded funds that track a qualified index (such as the S&P 500 index), and investments must have annual fees of 0.1% or less. Once the child reaches 18, distributions are treated as ordinary income, but amounts that were contributed as regular annual contributions, if any, are treated as a tax-free return of capital, using a ratio of the regular contributions to the entire balance of the account.
Threshold for Form 1099K: The new law reinstates the old threshold for Form 1099-K, Payment Card and Third-Party Network Transactions, so payment processors are required to send the form to account holders when there are more than 200 transactions for the year, and the total of all such transactions exceed $20,000 for the year. This change is retroactive to the 2022 effective date contained in the law that originally lowered the threshold.