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Key Individual Tax Provisions in H.R. 1

Key Individual Tax Provisions in H.R. 1

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Summary of Major Individual Provisions

On July 4, 2025, President Trump signed into law H.R. 1, dubbed the “One Big Beautiful Bill,” Public Law 119-21. The 940-page bill extends most of the 2017 TCJA tax provisions, adds new tax breaks, ends clean energy incentives, and substantially reduces federal spending on health care and food assistance. Most of the new tax breaks kick in this year, with the spending cuts delayed until after the mid-term elections. The price tag on the bill is largely deficit-financed, with the Congressional Budget Office estimating it will cost $3.4 trillion over the next 10 years.

Below is an overview of the major individual and miscellaneous provisions in the new law.

Individual Tax Rates and Inflation Adjustments

The new law makes the existing individual tax brackets and higher capital gains income break points permanent and adds an additional year of inflation in the cost-of-living adjustment for the 10% and 12% brackets. The rate brackets are:

Individuals: 10%, 12%, 22%, 24%, 32%, 35%, and 37%

Trusts and estates: 10%, 24%, 35% and 37%

Standard Deduction

The standard deduction is increased beginning in 2025 to:

  • $31,500 for joint filers and surviving spouses
  • $23,625 for heads of household
  • $15,750 for singles and marrieds filing separately.

The bill also makes 2024 the base year for inflation adjustments to the standard deduction, beginning in 2026.

New Senior Deduction

The bill does not eliminate taxes on social security, as reported by some sources. Instead, the personal exemption is eliminated permanently for all taxpayers except seniors. For those aged 65 or older, the new law adds a $6,000 per person deduction for the years 2025-2028. This benefit is reduced by 6% for modified adjusted gross income (MAGI*) that exceeds $75,000 for singles or $150,000 for joint filers and phases out completely for single taxpayers with incomes above $175,000 and married taxpayers with incomes over $250,000.

*Note that MAGI is generally calculated as adjusted gross income before applying the foreign income exclusion.

Estate and Gift Tax Exemption Increased

The law permanently extends the estate and lifetime gift tax exemption and increases it to $15 million for single filers ($30 million for married filing jointly) in 2026. That amount will be indexed for inflation thereafter. 

Under prior law, the 2025 estate tax exemption was the inflation-adjusted amount of $13.99 million per individual.

Individual AMT Exemption Increased

The legislation sets the exemption amounts for the individual alternative minimum tax (AMT) at the 2025 inflation-adjusted levels of $88,100 for single taxpayers and $137,000 for joint filers. However, the Act also resets the income levels for phaseout of the exemption back to the 2018 levels of $500,000 for single filers and $1 million for joint returns.

This change takes away the inflation adjustments made to phaseout levels between 2018 and 2025. Also, the AMT exemption phaseout rate has been increased from 25% to 50% for 2026 and beyond. The effect of this change is to reduce the exemption amount more rapidly for high-income taxpayers.

SALT Deduction Increased

The new law increased the TCJA $10,000 limitation on individual deductions for state and local taxes (SALT) to $40,000, effective in 2025. The cap will then be increased each year through 2029, with a limit of $40,400 in 2026 and an additional 1% in years 2027-2029.  Note that the $10,000 TCJA limit returns in 2030 without further action by Congress.

The allowable deduction is reduced for taxpayers whose modified adjusted gross income (MAGI) is over $500,000 in 2025 and $505,000 in 2026 (half for married filing separate). The MAGI threshold is increased 1% each year thereafter.

The deduction cap is reduced by 30% of the excess of the taxpayer’s MAGI over the threshold amount. However, it is not reduced below $10,000, so all itemizing taxpayers can still take a $10,000 SALT deduction.

Note that the final bill did not contain any restrictions on SALT deductions for passthrough entities.

Deduction for Tip Income

The new Act creates a temporary deduction for tips received up to $25,000 per year, per taxpayer, beginning in 2025. The deduction phases out by $100 for every $1,000 of modified adjusted gross income (MAGI) above $150,000 for single taxpayers (or $300,000 for joint returns). Married taxpayers must file jointly to get the deduction. The deduction expires after 2028.

The deduction is allowed for both employees and independent contractors, and also for both itemizers and non-itemizers. Qualified tips are defined as any cash tip received by an individual in an occupation which customarily and regularly receives tips. The IRS will publish a list of occupations that customarily receive tips. Income from specified service trade or businesses generally do not qualify for the tip deduction.

Tips must be voluntarily given and can be given in cash, by card, or in a tip-sharing arrangement. Tips received by a business owner are only deductible if the gross income from the business including the tips exceeds business deductions. Taxpayers who receive the deduction cannot take the QBI deduction for the same income.

Tips must be reported by employers separately on income reporting forms, such as the W-2 and the Form 1099 series. Also, the bill also extends the FICA tip credit to beauty service businesses.

Deduction for Overtime Pay

The new Act creates a temporary deduction for overtime compensation received up to $12,500 per year ($25,000 for joint filers), beginning in 2025. The deduction phases out by $100 for every $1,000 of modified adjusted gross income (MAGI) above $150,000 for single taxpayers (or $300,000 for joint returns). Married taxpayers must file jointly to get the deduction. The deduction is available for both itemizing and non-itemizing taxpayers and expires after 2028.

Qualified overtime compensation includes the amount that exceeds a taxpayer’s regular rate of pay, such as the “half” portion of “time-and-a-half” compensation, which is required by the Fair Labor Standards Act (FLSA).  Overtime compensation must be reported on a Form W-2, Form 1099, or other income statement furnished to the individual.

The IRS will update the withholding rules in 2026 to incorporate the new deduction.

Charitable Deductions for Nonitemizers, New Limits

The Act creates a permanent deduction for taxpayers who do not itemize beginning in 2025.  The deduction amount is $1,000 for single filers and $2,000 for married taxpayers filing jointly. The deduction is only allowed for cash contributions to public charities.

For itemizers, the law imposes a 0.5% floor on charitable contributions. For example, if an individual has AGI of $100,000, only the amount of contributions above $500 can be deducted. Also, the law permanently extends the 60% of AGI ceiling (an increased contribution limit) for cash gifts made to public charities.

Interest Deduction for Car Loans

The Act creates a new temporary deduction from 2025-2028 of up to $10,000 per year for passenger vehicle loan interest. The deduction begins to phase out when a taxpayer’s MAGI exceeds $100,000 ($200,000 in the case of a joint return). Qualified vehicles include new personal use vehicles assembled in the U.S. and secured by a first lien.  

Excess Business Loss Limitation Made Permanent

The Act makes the TCJA’s limitation on excess business losses of non-corporate taxpayers permanent, including for farmers. The limitation was set to expire after 2028. An excess business loss is the amount by which total deductions attributable to all of a taxpayer’s business interests exceed the total gross income and gains attributable to businesses plus a threshold amount of $250,000 for singles or $500,000 for a joint return, which have been adjusted for inflation.

For 2025, the threshold amount is $313,000 ($626,000 for taxpayers filing a joint return). The at-risk limits and the passive activity limits are applied before calculating the amount of any excess business loss.

Pease Limitation Repealed, 2% Reduction for Itemizers

The Act permanently repeals the Pease limitation on itemized deductions and instead applies a 2% reduction for taxpayers in the 37% tax bracket, effective after 2025. This limitation is not imposed on the QBI deduction and is a lower reduction than under the previous Pease limitation.

Limitation on Deduction for Mortgage Interest Extended

The Act permanently lowers the mortgage interest deduction to the first $750,000 in home mortgage acquisition debt. Also, the provision permanently treats mortgage insurance premiums as qualified residence interest.

Miscellaneous Itemized Deductions Ended, Educator Expenses Excepted

The deduction for miscellaneous itemized deductions is permanently repealed. The above-the-line deduction for educator expenses will become an itemized deduction after 2025, and the $300 limit is removed.

Modification of Moving Expense Deduction

The new law makes permanent the repeal of the moving expense deduction for all taxpayers except active-duty members of the U.S. military and employees and appointees of the U.S. intelligence community, effective after 2025.  

Limitation on Gambling Losses

The Act further limits the deduction for losses from wagering transactions to 90% of the amount of losses in the tax year and only allows it to the extent of the gains from these transactions. This provision takes effect after 2025.

Credit for Contributions to Scholarship-Granting Organizations

The law allows an income tax credit of up to $1,700 for contributions to a state-designated scholarship-granting organization. The credit must be reduced by any credit allowed on a state tax return.

Tax-Deferred Investment Accounts for Children

The Act creates a new tax-deferred investment account for children, called a “Trump account” that will be funded for 2025-2028 with a contribution from the federal government of $1,000 for newborns. There is no income limit to receive the federal contribution. Also, parents, family members and employers can contribute nondeductible, additional funds to the accounts, up to $5,000 a year, indexed annually for inflation.

Extension of Child Tax Credit

The new law permanently makes all TCJA changes to the child tax credit permanent and increases it to $2,200 per child beginning in 2025. This amount will be indexed for inflation going forward. The phase-out income ranges of $400,000 for joint filers and $200,000 for all other filers will continue without inflation adjustments.

529 and ABLE Accounts

The law makes several changes to Section 529 accounts and ABLE accounts, including expanding the expenses allowed for 529 accounts, increasing the K-12 distribution limit to $20,000 per year, and permanent extension of the accounts. The Act permanently provides for additional contributions to ABLE accounts.

Enhancement of Adoption Credit

The law amends the adoption credit to make up to $5,000 of the credit refundable, effective in 2025. The basic credit amount currently is $17,280 per child.

Disaster-Related Personal Casualty Losses

The new law extends the regular casualty loss limitation rules in TCJA and also the special 2020 rule allowing those affected by natural disasters to claim personal casualty losses even if they do not itemize deductions. The deduction for nonitemizers is allowed for specific disasters that occurred before passage of the OBBB on July 4th. That deduction is subject to a $500 floor, which means a taxpayer can only deduct losses in excess of that amount. This deduction is not subject to the 10% floor.

The regular, permanent casualty loss deduction now allows a deduction for state-designated disasters as well as federally-declared disasters (beginning in 2026) and has two limitations: $100 is subtracted from the loss amount; and then, the deduction is allowed only to the extent losses exceed 10% of AGI.

Other Provisions

The bill contains numerous miscellaneous provisions including:

  • Imposes a 1% excise tax on cash remittance transfers sent outside of the U.S., to be paid by the sender. The tax does not apply to transfers funded with a U.S.-issued debit or credit card.
  • Permanently extends the exclusion for employer payments of student loans and inflation adjusts the $5,250 amount after 2026.
  • Increases the dependent care assistance annual contribution limit from $5,000 to $7,500.
  • Permanently repeals the exclusion for employer-provided bicycle commuting reimbursements
  • New restrictions on premium tax credits under the Affordable Care Act
  • Imposes a tiered endowment tax on university endowment investment earnings, ranging from 1.4% to 8% depending on the amount of assets per student. Private colleges with fewer than 3,000 tuition-paying students are exempt.
  • Permanently extends the combat zone income exclusion for those serving in the Sinai Peninsula, beginning in 2026.

General Observations

The new law contains favorable tax benefits including retroactive provisions that will apply to the 2025 tax year. Qualifying income thresholds to receive tax benefits have been raised, which should result in taxpayers in higher-income categories being able to take advantage of these provisions. It is important to consult with your expert tax advisor to determine how the new law can benefit you, your business, and your investment strategy.

Contributors

Lucia Smeal, Attorney and Tax Professor, Georgia State University

Lucia Nasuti Smeal is a guest columnist on tax topics for Frazier & Deeter. She is an attorney, an adjunct tax professor with Georgia State University’s J. Mack Robinson College of Business and with Franklin University, and former editor of Tax Notes Today, published by Tax Analysts. In past years, Smeal worked for the Congressional Research Service and is a former member of the U.S. House Periodical Press Corps. She is a frequent speaker and writer on current tax developments.

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