One Big Beautiful Bill Act: Tax Changes to Review for 2025 and 2026

Start with the effective date

The law was enacted on July 4, 2025. Several individual deductions apply for tax years 2025 through 2028, some business provisions apply to costs incurred or property acquired after specific dates, and other changes begin in 2026 or later. A headline about the law may therefore describe a rule that does not apply to the year you are planning.

This overview highlights provisions likely to raise questions for individuals and owner-led businesses. It is not a complete summary of the law.

New temporary deductions for individuals

For 2025 through 2028, the law created deductions for certain qualified tips, qualified overtime compensation, interest on certain qualifying personal vehicle loans, and eligible individuals age 65 or older. The advertised labels do not mean all of that income is tax-free, and the vehicle rule is a deduction for qualifying interest rather than the vehicle's purchase price.

• Qualified tips: up to $25,000, with occupation, reporting, income, and filing-status requirements
• Qualified overtime: up to $12,500, or $25,000 on a joint return, generally based on the overtime premium required by federal labor law
• Qualifying vehicle-loan interest: up to $10,000 for certain new, U.S.-assembled personal-use vehicles and loans originated after 2024
• Enhanced senior deduction: up to $6,000 for each eligible person age 65 or older, subject to income and filing requirements

The SALT deduction changed, but not for everyone in the same way

For 2025, the federal itemized-deduction limit for state and local taxes increased to $40,000, or $20,000 for married taxpayers filing separately. For 2026, the limit is $40,400, or $20,200 for married taxpayers filing separately, before the applicable income-based phaseout.

The benefit depends on whether you itemize and on modified adjusted gross income. Property tax, state income tax, filing status, charitable giving, mortgage interest, and alternative minimum tax should be modeled together rather than treating the higher cap as an automatic deduction.

Business owners have several separate planning issues

The law made the Section 199A qualified business income deduction permanent under current federal law. Eligibility and the amount can still depend on taxable income, business type, W-2 wages, qualified property, and whether income is wages, reasonable compensation, or qualified business income.

It also restored a permanent 100% additional first-year depreciation deduction under current federal law for qualifying property acquired and placed in service after January 19, 2025. Section 179 limits increased, and qualifying domestic research or experimental expenditures paid or incurred in tax years beginning after 2024 may generally be deducted currently. Foreign research costs continue to follow different rules.

These provisions interact with taxable income, accounting-method procedures, entity-level elections, interest limits, passive-activity rules, state law, and future depreciation recapture. A larger current deduction is not always the best multi-year answer.

Real estate and equity compensation still need fact-specific analysis

Bonus depreciation does not make land or an entire 27.5-year residential or 39-year nonresidential building immediately deductible. Eligible shorter-life components may qualify when classification and basis are supportable, but passive-loss, at-risk, basis, business-interest, and state rules can affect the usable result.

The law did not replace the core federal treatment of RSUs, nonqualified stock options, or incentive stock options. An ISO exercise may still create an alternative-minimum-tax adjustment, and RSU or NSO income generally remains compensation under the applicable timing rules. Updated 2026 thresholds can change a projection without making the underlying transaction simple.

Withholding and estimated payments may need a fresh look

Because several changes applied beginning in 2025, amounts withheld during that year may not have reflected the final law. The IRS has since updated its Tax Withholding Estimator for key provisions. Business income, investment gains, rental activity, and equity-compensation events can still create estimated-tax needs even when a new deduction applies.

Review withholding and estimates after a major change in income, a property or business transaction, a stock vest or option exercise, or a large capital purchase. A projected refund or deduction does not automatically eliminate an underpayment issue during the year.

Questions to review before acting

• Which tax year and effective date apply to the provision?
• Is the benefit a deduction, credit, exclusion, deferral, or accelerated timing rule?
• Does income, filing status, business type, asset class, or state law limit the result?
• Will the decision affect withholding, estimated payments, payroll reporting, basis, or a future sale?
• What contracts, payroll records, invoices, grant documents, or other support should be retained?