OBBBA
Permanent Tax Cuts in the OBBBA
The OBBBA makes several TCJA provisions permanent, preventing their scheduled expiration after December 31, 2025. These include:Lower Individual Income Tax Rates: The OBBBA permanently extends the TCJA’s reduced individual income tax rates (e.g., top rate of 37%, bottom rate of 10%) and thresholds, with an extra inflation adjustment for the bottom six brackets (excluding the top 37% bracket). This prevents a reversion to pre-TCJA rates, saving taxpayers from an estimated $2.2 trillion tax increase over 2025–2034.
Standard Deduction: The TCJA nearly doubled the standard deduction, and the Senate version of the OBBBA makes this increase permanent, though the House version only extends it through 2028. If the Senate version prevails, this would be permanent.
Child Tax Credit (CTC): The TCJA’s $2,000 per child credit is made permanent, preventing a reversion to $1,000 per child after 2025.
Estate and Gift Tax Exemption: The OBBBA permanently increases the estate, gift, and generation-skipping transfer tax exemption to $15 million per individual (from $13.99 million in 2025), indexed for inflation, compared to a scheduled drop to ~$7 million in 2026.
Small Business Deduction (Section 199A): The deduction for qualified business income is increased from 20% to 23% and made permanent, benefiting pass-through entities.
Excess Business Loss Limitation: The limitation on noncorporate taxpayers’ business losses is made permanent, with an inflation-adjusted threshold ($313,000 for single filers, $626,000 for joint filers in 2025).
Base Erosion and Anti-Abuse Tax (BEAT): The BEAT rate is made permanent at 10.5% (instead of increasing to 12.5% after 2025).
Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII): These TCJA provisions are modified and made permanent, with GILTI deduction rates set at 49.2% and FDII at 36.5%.
These permanent provisions ensure that significant portions of the TCJA’s tax cuts, particularly for individuals, estates, and businesses, remain in place indefinitely unless future legislation changes them.Temporary Tax Cuts in the OBBBASeveral new or enhanced tax cuts in the OBBBA are temporary, set to expire in 2028 (or other specified dates), including:No Tax on Tips and Overtime Pay: The OBBBA exempts tips and overtime pay from federal income taxes for workers earning less than $150,000 (Senate) or $160,000 (House), with the Senate capping the deduction at $25,000. This provision expires in 2028.
Auto Loan Interest Deduction: A deduction of up to $10,000 per year for interest on loans for U.S.-assembled cars, phasing out for individuals earning over $100,000 or couples over $200,000, is available from 2025 to 2028.
Child Tax Credit Increase: The CTC is temporarily boosted from $2,000 to $2,500 per child (House) or $2,200 (Senate) from 2025 to 2028, reverting to $2,000 (inflation-adjusted) thereafter.
Senior Deduction: A $6,000 deduction for seniors (for both itemizers and non-itemizers) phases out at $75,000 of modified adjusted gross income and is available from 2025 to 2028.
Additional Standard Deduction: The OBBBA adds $1,000 to the standard deduction for single filers and $2,000 for married couples from 2025 to 2028, costing $1.3 trillion over the decade.
State and Local Tax (SALT) Deduction Cap Increase: The SALT deduction cap is raised from $10,000 to $40,000 (House) or $40,400 (Senate) for taxpayers earning less than $500,000, but this increase is temporary, reverting to $10,000 after 2029.
Bonus Depreciation: 100% bonus depreciation for qualified property is extended for assets placed in service after January 19, 2025, and before January 1, 2030 (or 2031 for certain property).
Domestic Research and Development (R&D) Deduction: Taxpayers can deduct 100% of domestic R&D expenditures from 2025 to 2030, with an option to amortize over 60 months.
Qualified Production Property Deduction: A 100% depreciation allowance for certain U.S. nonresidential real property used in manufacturing, agriculture, or refining is available for property placed in service before January 1, 2033, if construction begins between January 19, 2025, and January 1, 2029.