Sunrise, Sunset, and the OBBBA

Taxpayers who worried about the expiration of several tax cuts from the Tax Cuts and Jobs Act of 2017 can now breathe easier. The One Big Beautiful Bill Act made most of those provisions permanent, which provides more stability for long-term tax planning.

While this is welcome news, the law also introduced new provisions, eliminated others from prior legislation and adjusted effective dates for certain deductions and credits. The result is a tax code that is even more detailed and complex.

Summary of Key Points

The OBBBA spans more than 800 pages, so what follows is only a summary of a few of its key provisions.

Deduction for overtime pay

For tax years 2025 through 2028, taxpayers may deduct up to $12,500 in overtime pay. Married couples filing jointly can claim up to $25,000. The deduction phases out once the modified adjusted gross income exceeds $150,000, or $300,000 for joint filers.

Deduction for tips

The law allows a new below-the-line deduction for "cash tips" of up to $25,000 annually for both itemizers and non-itemizers. Cash tips include those received directly from customers in cash or credit card payments, as well as tips distributed under a pooling arrangement. 

The deduction phases out at $150,000 in income, or $300,000 for joint filers, and applies to occupations that traditionally receive tips. It is available from 2025 through 2028.

Deduction for interest on qualified vehicle loans

Taxpayers may deduct up to $10,000 of interest paid on a personal-use vehicle loan if the vehicle meets eligibility requirements. The deduction phases out at $100,000 of income, or $200,000 for joint filers. Lease payments do not qualify. This provision is effective from 2025 through 2028.

Additional deduction for seniors

Beginning in 2025 and running through 2028, taxpayers age 65 and older may claim an extra $6,000 deduction. This amount is in addition to the current standard deduction for seniors. It phases out at $75,000 of income, or $150,000 for joint filers.

Employee retention credit restrictions

The OBBBA disallows any employee retention credit claims or refunds filed after Jan. 31, 2024, that had not been paid by July 4, 2025. The law also extends the statute of limitations for such claims to the later of April 15, 2028, or six years from the date of filing. Penalties apply to what the IRS determines are improper claims.

Elimination of miscellaneous itemized deductions

The law permanently eliminates the deductions for miscellaneous itemized expenses, which under prior law would have been reinstated beginning in 2026.

Changes to the SALT deduction

The OBBBA raises the cap on the deduction for state and local taxes from $10,000 to $40,000, with annual inflation adjustments. 

However, the deduction begins to phase out for taxpayers with incomes over $500,000 in 2025. The $40,000 cap applies through 2028, and beginning in 2030, the cap reverts to $10,000.

Bonus depreciation

The law permanently restores 100% bonus depreciation for eligible property acquired on or after Jan. 20, 2025. Property acquired before that date continues to follow the phase-out schedule established under the TCJA.

Temporary deduction for production property

The OBBBA introduces a temporary 100% expensing rule for "qualified production property," which is defined as nonresidential real property used directly in domestic production activities. 

This does not include property used for offices, lodging, parking, or administrative purposes. The provision applies to property placed in service before 2031, provided construction begins between Jan. 20, 2025, and Jan. 1, 2029.

R&E expenses

The law permanently repeals the mandatory amortization of domestic research and experimentation expenses for tax years beginning after 2024. Taxpayers may elect to amortize certain costs or deduct them over two years. 

For small businesses with under $25 million in gross receipts, R&E expenses may be deducted retroactively for years beginning after 2021. Rules for foreign R&E expenses remain unchanged.

Energy-related provisions

The OBBBA shortens the availability of certain clean energy credits. Production and investment credits for wind and solar apply only if construction begins before July 4, 2026, or if facilities are in service before 2028. 

For other facilities, including hydropower and nuclear, the credits begin phasing out in 2034. Restrictions also apply to advanced manufacturing credits for companies tied to prohibited foreign entities. 

Credits for electric vehicle charging stations and energy-efficient home improvements expire July 1, 2026. Credits for residential clean energy installations expire Jan. 1, 2026.

Business interest deduction

The law reinstates earnings before interest, taxes, depreciation, and amortization, rather than just earnings before interest and taxes, as the standard for calculating the business interest deduction starting in 2025. Additional provisions in the law address interest expense treatment in other contexts.

Provisions for real estate

The OBBBA also impacts the real estate sector. Opportunity zones are now permanent, but with changes. They operate in 10-year cycles, contiguous tracts are no longer eligible, and investors may defer recognized gains for up to five years if reinvested in a qualified fund. 

For taxable real estate investment trust subsidiaries, the percentage of securities a REIT may hold increases from 20% to 25%, beginning after January 1, 2026.

Final thoughts

This article highlights only a fraction of the OBBBA's changes. The law's length and complexity mean there are many additional provisions that may affect taxpayers differently depending on their circumstances. 

Because state laws may also affect these provisions, you should consult with qualified tax advisers, like our team, to determine how the new rules apply to their situation.