The Big Beautiful Bill Delivers Significant Changes to Individual Taxation

By Kimberly Pecora July 11, 2025

Co-authored by Jean McDevitt Bullens

Note:  This article is one of many that BNN is publishing to cover the tax features of the so-called “Big Beautiful Bill.”  Each one is authored by one of BNN’s own tax professionals.  Our coverage includes a summary article that briefly describes many of the bill’s features and many more that are deeper dives into specific areas of interest to our clients.  A topical list of those in-depth articles may be found at the front of our summary article.

The 2017 Tax Cuts and Jobs Act (“TCJA”) introduced sweeping changes to individual tax returns, such as a higher standard deduction, lower income tax rates, and the 199A pass-through deduction, with those features set to expire at the end of 2025. As a result, tax planning for 2025 came with a cloud of uncertainty, as taxpayers and advisors awaited clarity on whether these provisions would be extended or allowed to lapse.

That clarity has now arrived. On July 4, 2025, the President signed the One Big Beautiful Bill (“BBB”) into law, delivering long-awaited answers and ushering in a new era of tax policy.

In addition to extending and modifying key TCJA provisions, the BBB also revises parts of the Inflation Reduction Act of 2022, particularly in the areas of clean energy incentives and electric vehicle tax credits.

Let us break down what these changes mean for your individual tax return—and how you can plan with confidence.

Individual Tax Rates: Permanently Locked In

The BBB brings long-term certainty to individual tax planning by making permanent the current tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Additionally, the 10% to 22% brackets will now be adjusted for inflation, helping to preserve purchasing power over time.

Without this provision, the expiration of the TCJA would have reinstated the pre-TCJA top marginal rate of 39.6%, increasing the tax burden for many high-income earners.

Understanding your tax bracket, and the income range it covers, is essential for effective tax planning. For example, if you are married filing jointly and fall into the 32% tax bracket, your 2025 taxable income will be between $394,600 and $501,050. If you have flexibility in the timing of income or deductions (such as retirement distributions or capital gains transactions), and you are nearing the upper end of your bracket, it may be wise to strategically time those events. This can help you stay within your current bracket and avoid unintentionally moving into a higher one, which could increase your tax liability.

Standard Deduction: Bigger and Indexed for Inflation

The BBB delivers a permanent boost to the standard deduction, offering continued tax relief to millions of Americans. These updated amounts will also be indexed for inflation, helping to preserve their value over time.

Beginning in 2025, the standard deduction amounts are:

• Single or married filing separately: $15,750
• Head of household: $23,625
• Married filing jointly: $31,500

The additional standard deduction for taxpayers sixty-five and older (or blind) remains in place ($2,000 for single filers, and an extra $1,600 per qualifying spouse in a married filing joint return).

This increase simplifies filing for many taxpayers and reduces taxable income across the board, especially for those who do not itemize deductions.

With the higher standard deduction, fewer taxpayers are itemizing deductions. However, the SALT cap (discussed next) may still make itemizing worthwhile in some cases.

One strategy to consider is bunching deductions (grouping deductible expenses into a single year to exceed the standard deduction threshold). This allows you to itemize in that year and take full advantage of those deductions.

For charitable giving, donor advised funds (DAFs) can be especially useful. You can make a larger contribution in one year (boosting your deduction), then use the DAF to distribute funds to charities in future years when you may not exceed the standard deduction.

Smart timing and planning can help you maximize your tax benefits.

State and Local Tax (SALT) Deduction: A Temporary Boost with Guardrails

The $10,000 cap on the SALT deduction, originally introduced by the TCJA, has been a point of contention for taxpayers in high-tax states. This deduction includes items such as state and local individual income taxes, real estate taxes, personal property taxes, excise taxes, state composite income tax payments, and either state and local sales or general sales taxes.

The BBB offers temporary relief by raising the cap to $40,000 for tax years 2025 through 2029 (after which it reverts back to $10,000).

However, this relief comes with income-based limitations:

• The full $40,000 cap begins to phase out for taxpayers with adjusted gross income (AGI) over $500,000 (joint filers) or $250,000 (single or married filing separately)
• The cap is reduced by 30% of the excess AGI above the threshold (but not reduced below $10,000)
• Both the cap and the phase-out thresholds will increase by 1% annually through 2029
• Unless extended by future legislation, the cap will revert to $10,000 starting in 2030

Good news for business owners: Earlier versions of the bill proposed restrictions on pass-through entity tax (PTET) workarounds, which help bypass the SALT cap. These restrictions were removed in the final version of the BBB, preserving this valuable planning strategy.

Itemized Deductions: A New Cap Replaces the Pease Limitation

The BBB officially repeals the Pease limitation, which had previously reduced itemized deductions by 3% of AGI above a certain threshold. While this repeal offers some relief, it comes with a new limitation for high-income taxpayers starting in 2026.

New Cap for Top Earners

Beginning in 2026, taxpayers in the top marginal tax bracket (currently 37%) will face a hard cap on itemized deductions. The rule reduces allowable deductions by:

2/37 of the lesser of:

(1) total itemized deductions, or

(2) the amount by which taxable income (plus deductions) exceeds the 37% bracket threshold.

In effect, this limits the value of itemized deductions to no more than thirty-five cents on the dollar for top-bracket taxpayers instead of thirty-seven.

Miscellaneous Deductions

The BBB also permanently eliminates miscellaneous itemized deductions, with the sole exception of educator expenses, which remain deductible ($300 per eligible educator, $600 if filing jointly and both are eligible educators).

If you are approaching deduction caps, it is worth considering whether you have any flexibility to defer income or accelerate deductions to stay below those thresholds.

For example, you might delay capital gain transactions (consider installment sales, opportunity zones, 1031 exchanges) or retirement distributions (other than required minimum distributions) until a future year, or accelerate deductible expenses into the current year. Consider maxing out retirement contributions, health savings accounts or harvesting capital losses to offset gains. These strategies can help you optimize your tax position and avoid losing valuable deductions.

Charitable Giving: New Benefits for All Taxpayers

The BBB introduces new incentives to encourage charitable giving, whether or not you itemize your deductions.  However, it implements a new floor that will reduce overall deductions.

For non-itemizers: A Charitable Contribution Deduction

Starting in 2026, taxpayers who take the standard deduction can claim a charitable deduction of up to:

• $1,000 for single filers
• $2,000 for joint filers

This universal deduction provides a benefit for most taxpayers who do not itemize.

For itemizers: A New 0.5% Floor

Beginning in 2026, itemizers will face a 0.5% AGI floor on charitable deductions. This means:

• Only the portion of charitable contributions that exceed 0.5% of your AGI will be deductible.
• For example, a taxpayer with $200,000 AGI would only be able to deduct contributions above $1,000.

The 60% AGI limit for cash contributions is now permanent.

How does this affect your contribution carryover if you are not able to deduct the full amount in one taxable year? If total contributions do not exceed the 0.5% AGI floor, there is no carryover of that disallowed amount. If total contributions exceed 0.5% AGI floor but have been limited by the 60% AGI limitation noted above, the excess can be carried forward for up to five years.

As more taxpayers begin to claim these above-the-line charitable contribution deductions, it is important to keep detailed receipts and proof of contributions. Also, remember that current year charitable contributions are applied first, followed by any carryover amounts from prior years. If you have carryovers, it is a good idea to track them closely as they expire after five years if they are unused.

For individuals who are inclined to continue giving to charity and receive distributions from their Individual Retirement Account (IRA) throughout the year, you might consider making cash charitable contributions directly from the IRA distributions, also known as a Qualified Charitable Distribution (QCD). This path could be more beneficial to the taxpayer if they no longer itemize their deductions due to the large increase to the standard deductions, or if their 0.5% AGI floor is larger than the benefit. By making a QCD from your IRA, the taxpayer is directly lowering taxable income dollar-for-dollar.

To avoid losing valuable deductions, review your charitable giving strategy annually. This ensures you are maximizing your tax benefit and not letting any carryover amounts go to waste.

Qualified Residence Interest Deduction: Permanently Defined

The BBB brings clarity to the rules surrounding the mortgage interest deduction, a key benefit for many homeowners.

What’s Made Permanent:

• The $750,000 cap on mortgage interest deduction (originally introduced by the TCJA) is now permanent. This applies to acquisition indebtedness (i.e., loans used to buy, build, or substantially improve a primary or secondary residence).
• The pre-TCJA limit of $1 million will not be returning for loans obtained December 15, 2017, or later. However, the $1 million limit is grandfathered for those loans originating before December 15, 2017, or on a refinanced mortgage relating to that initial mortgage acquired prior to December 15, 2017.

Home Equity Loan Interest

• The disallowance of interest on home equity loans has been made permanent unless the loan proceeds are used to buy, build, or substantially improve the home securing the loan.

Mortgage Insurance Premiums

• The BBB also makes mortgage insurance premiums (MIPs) on acquisition indebtedness permanently deductible.

These changes provide long-term certainty for homeowners and real estate investors planning around mortgage-related tax benefits.

You can deduct mortgage interest on both a primary and a secondary residence, but keep in mind that the combined mortgage debt must stay within the applicable IRS limit (currently $750,000 for most taxpayers).

For high-income earners, the Alternative Minimum Tax (AMT) can reduce or eliminate the benefit of certain deductions, including mortgage interest and state and local taxes (SALT).

Careful planning can help you make the most of these deductions.

Personal Exemptions & Senior Deduction: A Shift in Focus

The BBB permanently eliminates the personal exemption deduction, continuing the policy introduced under the TCJA. However, in place of broader exemptions, the bill introduces a targeted benefit for seniors. To provide relief for older Americans, the BBB creates a temporary “Senior Bonus” deduction available from 2025 through 2028:

• $6,000 for each individual age 65 or older
• $12,000 for married couples filing jointly if both spouses are 65+

This deduction is available to single filers with an AGI of $75,000 or less and joint filers with AGI of $150,000 or less. Above these levels, the benefit begins to phase out.

While the President had pledged to eliminate taxes on Social Security benefits entirely, this did not come to fruition, however this provision offers a temporary reduction in overall taxable income for many retirees.

Seniors (age 65 and older) are eligible for an additional standard deduction of $2,000 if filing as single or head of household or $1,600 per qualifying individual if filing married jointly or separately.

If you are nearing income thresholds where deductions or benefits begin to phase out, consider strategies like deferring income or accelerating deductions (for example medical expenses) to stay under those limits. Depending on other sources of income, it could be possible that one year the senior deduction is received, and the next it is not. Connecting with your tax preparer during year-end planning should be able to provide a sense if the senior deduction is going to be applicable in the coming tax year or not, and to help you make the most of available deductions.

Child Tax Credit: A Boost for Families

The BBB delivers a permanent enhancement to the Child Tax Credit, increasing the nonrefundable credit from $2,000 to $2,200 per child starting in tax year 2025. The Additional Child Tax Credit (ACTC), which is the refundable portion of the child tax credit, has been permanently set to $1,400 (down from the previous $1,700). The age requirement for children remains the same; to qualify for the credit the child must be under seventeen years of age at the end of the tax year.

In addition, the credit will now be indexed for inflation, ensuring that its value keeps pace with the cost of living over time.

The BBB retains the $500 credit for other dependents, which is not refundable and not indexed for inflation.

The Bill also makes permanent the income phaseout thresholds, which remain at $200,000 for single filers and $400,000 for married joint filers.

A new requirement for this benefit is that both the child and the parent(s) have valid Social Security Numbers to claim the credit.

In a lower tax year, one might not be able to utilize the full amount of the CTC because that portion serves only to reduce otherwise-imposed tax (it can bring your tax down to zero, but stops there). The ACTC, though, might be fully used because it can offset all tax and more -essentially creating a negative tax that is payable to the individual – a “refund” of money that was never remitted.

Ensuring that both you and your dependent have a valid SSN is crucial to the eligibility on claiming CTC and ACTC.

Child & Dependent Care Credit: More Support for Working Families

The BBB delivers a permanent boost to the Child and Dependent Care Tax Credit, helping families offset the rising costs of care.

What’s New:

• The credit rate increases from 35% to 50% of qualifying care expenses
• This enhancement is permanent to support working parents and caregivers

Income-Based Phaseout:

• Begins when adjusted gross income (AGI) exceeds $15,000
• The credit is reduced by 1% for every $2,000 of AGI above that threshold, but not below 35%
• A second phaseout applies for AGI over:
  • $75,000 for single filers
  • $150,000 for joint filers
• At this level, the credit is reduced by an additional 1% for every $2,000 (or $4,000 for joint filers)

This two-tiered phaseout structure ensures that the most generous benefits go to lower- and middle-income families, while still preserving a credit for many others.

To claim the Child and Dependent Care Credit, be sure to keep detailed records and track all eligible expenses. You will need to report the care provider’s name, address, tax identification number (EIN or SSN) on your tax return, as well as the total amount paid to each provider for which child. Many providers can supply you with a payment summary for the calendar year with the information needed.

You (and your spouse, if filing jointly) must have earned income, and the care must be necessary for you to work or actively look for work.

If your employer pays or incurs dependent care benefits on your behalf, this amount will also play a role in calculating your eligible credit since you have already reaped the benefits of having your employer assistance take these funds pre-tax.

Also, consider applying the income-limiting strategies mentioned in earlier sections—such as deferring income or accelerating deductions—to help you stay under phaseout thresholds and maximize your credit.

Federal Wealth Transfer Tax

Federal law provides for a per person exemption against transfers during lifetime and at death, allowing taxpayers to gift or bequest a certain amount of wealth without incurring gift, estate, or generation skipping transfer tax.  Prior to the TCJA, the exemption was a base amount of $5 million plus annual inflation adjustments.

TCJA increased the base amount to $10 million (indexed to $13,990,000 for 2025) but made the provision applicable only to tax years 2018 through 2025.  As of January 1, 2026, the exemption amount was scheduled to sunset to $5 million, or as indexed for inflation, roughly $7.14 million.

The 2026 sunset is prevented, though, by the BBB.  With its passage, the exemption base amount will increase to $15,000,000 for 2026 with further increases occurring annually as indexed for inflation starting in 2027.  Perhaps of the greatest impact, the BBB makes the increased exemption amount permanent.

Permanency in the tax exemption amount will allow for those engaged in estate planning and lifetime wealth transfers to commit to plans with more certainty about the outcome.  Rather than continually reacting to legislation, individuals may make plans comporting with both their life circumstances and the law. 

This permanency, however, should not negate active and engaged planning.  Instead, taxpayers and their advisors must recognize that transferring wealth out of their estates earlier – through lifetime gifting – will remove all future appreciation from their estates.  Furthermore, wealth transfers that utilize the GST exemption in funding dynasty trusts have the added advantage of preserving assets for multiple generations.  Estate planning freeze techniques and multi generation planning should still be considered as timely and necessary planning for high net worth taxpayers.  The changes discussed above, however, will help reduce the urgency to complete such planning before the end of 2025.

It should be noted that the permanency could be undone by a future Congress.  However, in recent years, such progressive acts were unlikely given the political leanings across the majority of both political parties.

Alternative Minimum Tax (AMT): Relief Made Permanent, With a Twist

Alternative Minimum Tax (AMT) represents an alternative method of computing individual income tax that removes many deductions that are allowed when computing “regular” income tax.  If AMT exceeds regular income tax, the AMT must be paid.  AMT is in place to ensure that high-income earners pay at least a minimum level of tax, regardless of deductions or credits.

In computing AMT, some exemption amounts are allowed as deductions against otherwise taxable income, and the TCJA increased those exemption amounts, although somewhat modestly.  At higher income levels, the exemptions are phased out, and the TCJA raised those thresholds as well, but these amounts were increased significantly, allowing higher income before the exemptions were phased out.  Both of these moves, but primarily the latter, dramatically reduced the number of taxpayers subject to AMT, and these amounts were adjusted each year for inflation.  But the increased exemptions and phaseout thresholds both were scheduled by TCJA to sunset after 2025.

Both of these provisions were salvaged before sunsetting by the BBB, but in a somewhat odd manner, with the phaseout threshold and exemption treated differently:  The exemption bump in 2017 is made permanent, and the amounts continue along their inflation-adjusted trajectory, moving seamlessly from 2025 into 2026 much like they moved between any two years from 2017 to the present. The 2025 exemptions are $137,000 for married taxpayers filing jointly, $88,100 for unmarried filers, and $68,500 for married taxpayers filing separately.  The phaseout threshold also is made permanent, but instead of continuing on its existing inflation-adjusted trajectory, it resets to early TCJA levels and then becomes eligible for inflation adjustments. (The inflation increases from 2017 through 2025 are ignored with this “factory reset.”) The result is a phaseout level of $1,000,000 for joint returns and $500,000 for all others.

Another change arriving with the BBB is an acceleration in the phaseout rate.  It increases from 25% to 50% in 2026, meaning that for every dollar of income above the threshold, fifty cents of the AMT exemption is lost. This is a much steeper reduction than in the past that will impact high-income taxpayers more significantly.

If the sunset of the increased AMT exemptions and heightened phaseout thresholds has been allowed to occur, far more people would again by paying AMT. The BBB adjustment will cause a few more people to fall into AMT’s grasp, but primarily those in the upper-income range.

Certain deductions such as state and local income taxes, real estate taxes, and personal property taxes, are not allowed under AMT. If you are at risk of triggering AMT, consider deferring these deductions to a year when you are not subject to it.

Also be cautious with incentive stock options, as exercising them can create an AMT liability. With the high AMT exemption, the goal may be to exercise enough options to fill the gap between the AMT tax and the regular tax without triggering AMT.

Some credits, like the child and dependent care and adoption credits, can help reduce your AMT liability, so be sure to maximize these where eligible.

While tax-exempt municipal bonds are generally AMT-safe, be aware that private activity bonds may still be subject to AMT.

When a taxpayer is subject to AMT due to timing differences such as incentive stock options, you may be eligible for the AMT credit in future years. This non-refundable credit allows you to recapture some or all of the AMT you previously paid, but only if your regular tax liability exceeds your AMT in the current year. The credit is applied against your regular tax, not AMT, and can be carried forward indefinitely until fully used.

Federal Income Tax on Qualified Tips

The IRS is giving tipped workers a break: Qualified tips are now exempt from federal income tax up to $25,000 per year. To qualify, you must work in an occupation in which it was customary to receive tips before December 31, 2024 (think restaurants, hotels, salons, and spas), and the tips must be cash-based and reported on a W-2 (typically reported in Box 8). The recipient must have a valid SSN.

The benefit is reduced by $100 for every $1,000 over the income thresholds, as follows:

• Phased out if modified adjusted gross income (MAGI) exceeds:

• • $150,000 (single filers)
  • $300,000 (joint filers)

Important Notes

• Unreported tips do not qualify.
• Payroll taxes (like Social Security and Medicare) still apply.
• This exemption is in effect 2025 through 2028.

These tips are included as a component of gross income, including AGI, but are then backed out (along with a handful of other potential deductions) when converting AGI to taxable income. As a result, earned tips can impact AGI-based limitations, some of which are discussed elsewhere in this article.

Overtime Pay Gets a Tax Break

Qualified overtime compensation is now deductible from federal taxable income up to $12,500 for single filers and $25,000 for joint filers.

Note that the exclusion from income applies to a category of income defined narrowly in the law as “qualified overtime compensation.”  It means that the entirety of overtime pay is not excludable from income; only the pay differential (the difference in pay rate between regular hours and overtime hours) is excluded.  If someone normally is paid $16 per hour, but earns $24 per hour during overtime, only the incremental $8 per hour qualifies for this new exclusion.

Eligibility requires the overtime pay be:

• Separately reported on your W-2 or 1099
• Paid for hours worked beyond 40 hours/week
• Applied to non-exempt employees under the Fair Labor Standards Act (FLSA)

The deduction begins to be phased out if modified adjusted gross income (MAGI) exceeds:

• • $150,000 (single filers)
  • $300,000 (joint filers)

Important Notes

• Effective tax years 2025 through 2028
• This is a federal income tax deduction—payroll taxes still apply

• You do not need to itemize to benefit from this deduction

This overtime pay is included in your gross income, which means it is counted before calculating your AGI. In other words, overtime income is included in your AGI, not excluded from it. As a result, it can impact other AGI-based limitations discussed elsewhere in this article.

Since federal withholdings will continue to be applied to 100% of compensation, this deduction will benefit individuals not just by reducing taxable income, but also by having additional withholdings present on the income that is now being deducted and not taxed. This additional withholding will help cover other tax liabilities from other income, investment income, rental income, business income.

199A Pass-Through Deduction: Permanently Locked in with Expanded Access

The BBB delivers long-term certainty for small business owners and self-employed individuals by making the 199A pass-through deduction permanent. A deduction is allowed, below the adjusted gross income calculation, of up to 20% of qualified business income (QBI) from partnerships, S corporations, sole proprietors, and certain trusts/estates.

Key Enhancements Under BBB:

• The phase-in range for service-based businesses is expanded beginning 2025:
  • From $50,000 to $75,000 for non-joint filers (beginning at taxable income of $197,300)
  • From $100,000 to $150,000 for joint filers (beginning at taxable income of $394,600)
• For taxpayers with at least $1,000 of QBI from one or more sources in which they materially participate, the bill allows for a minimum QBI deduction of $400.

These updates make the deduction more accessible to a broader range of small business owners, especially those with modest income or multiple business activities.

Keeping taxable income below the SSTB phase-out thresholds will help you maximize the 199A benefits. Consider the strategies discussed above to help keep you under those thresholds.

Qualified Small Business Stock (QSBS): More Generous, More Accessible

The BBB enhances the benefits of investing in Qualified Small Business Stock (QSBS) under Section 1202, making it even more attractive for entrepreneurs and early-stage investors.

Shorter Holding Periods, Bigger Tax Breaks

The required holding period for tax-free gain exclusion has been reduced from 5 years to 3 years, with a tiered benefit structure:

• 3 years: 50% exclusion
• 4 years: 75% exclusion
• 5 years: 100% exclusion

Note: For the stock to qualify for the exclusion, the holder generally must acquire the stock directly from the issuing corporation itself and the corporation issuing the stock must be a C corporation.

Higher Gain Exclusion Cap

• The maximum gain exclusion increases from $10 million to $15 million for stock acquired after July 4, 2025.
• The “10x basis” rule still applies, meaning the exclusion is the greater of $15 million or ten times the taxpayer’s basis in the stock.

Expanded Eligibility for Startups

• The gross assets threshold for a company to qualify as a QSBS issuer increases from $50 million to $75 million, applying both before and immediately after the stock issuance (meaning that the aggregate basis of gross assets of the company cannot exceed $75 million at the time of stock issuance and immediately thereafter, previously set at $50 million).
• This threshold will be indexed for inflation starting in 2027, allowing more growing businesses to qualify.

These enhancements make QSBS a more powerful tool for startup investors and founders looking to build (and exit) tax-efficiently.

The timing of QSBS acquisitions can significantly impact the percentage of income exclusion you may be eligible for. Consider the following strategies:

• Plan Grants Strategically: Acquiring QSBS earlier can help you meet the 5-year holding period sooner and potentially qualify for higher exclusion caps.
• Leverage Gifting Opportunities: Each individual or non-grantor trust is entitled to its own $15 million exclusion cap. Gifting QSBS to family members or non-grantor trusts may allow you to multiply the total exclusion across recipients. Original issuance qualification is not tainted if transferred via a gift, at death, or as a distribution from a partnership.
• Reinvest to Preserve Benefits: If you sell QSBS before satisfying the holding period, reinvesting the proceeds into a new QSBS within 60 days may allow you to defer gains and preserve the original holding period.
• Track Pre- and Post-BBB Shares Separately: QSBS acquired before July 4, 2025, remains subject to the $10 million cap and 5-year holding period. Maintain clear records to distinguish between shares acquired before and after this date.

Proper planning and documentation are key to maximizing QSBS benefits.

Casualty Loss Deduction: Permanently Limited to Federally Declared Disasters

The BBB makes permanent a key restriction first introduced by the TCJA: Personal casualty losses are now deductible only if they result from a federally or state declared disaster.

This means that losses from events such as theft, fire, storm damage, or accidental destruction are no longer deductible unless the incident is officially recognized as part of a federal or state disaster declaration.

This change reinforces the IRS’s focus on limiting deductions to large-scale, government-recognized events, and may significantly impact taxpayers who experience personal property losses outside of those circumstances.

Keep detailed records of your casualty loss, including photos, appraisals, repair estimates, and insurance claim documentation. These records are essential to maximize your deduction and support your claim if audited.

Auto Loan Interest: A Temporary Deduction for U.S.-Assembled Vehicles

The BBB introduces a new, temporary deduction for auto loan interest—offering a unique tax break for those purchasing new vehicles assembled in the United States.

Key Details:

• Available to both itemizers and non-itemizers
• Applies to new vehicles with final assembly in the U.S.
• Applies to a car, minivan, SUV, pickup truck, van, motorcycle, all-terrain or recreational vehicle used for personal purposes
• The vehicle must serve as collateral for the loan
• Covers vehicles purchased in tax years 2025 through 2028
• Deduction is capped at $10,000

Income-Based Phaseout:

• Begins to phase out at a 20% rate when:
  • AGI exceeds $100,000 for single filers
  • AGI exceeds $200,000 for joint filers

This provision is designed to support domestic manufacturing while offering tax relief to middle-income car buyers, especially those financing their next vehicle purchase.

The auto loan interest deduction is an “above-the-line” deduction, meaning it is subtracted before calculating adjusted gross income (AGI). This allows taxpayers to claim a deduction even if they do not itemize. This treatment contrasts with exclusions like those for tips and overtime income, which are managed differently under the tax code.

While one should not purchase a care solely based on the various tax credits/deductions that may be available, this temporary deduction will provide a benefit to those individuals who have purchased new vehicles assembled in the United States.

Moving Expense Deduction: Permanently Eliminated

The BBB permanently eliminates the moving expense deduction for most taxpayers.
The only exceptions are for:

• Active-duty members of the U.S. Armed Forces
• Certain members of the intelligence community

For everyone else, moving costs remain non-deductible, regardless of job-related relocation.

Check state tax rules, as some states may still allow these deductions.

Adoption Credit: Now Partially Refundable

In a win for growing families, the BBB makes up to $5,000 of the adoption credit refundable, meaning eligible taxpayers can receive the benefit even if they owe little or no federal income tax.
This refundable portion will also be adjusted for inflation, helping to offset the rising costs of adoption.

Timing expenses and understanding when to claim the credit can help maximize your tax benefit, as the credit can be claimed either in the year the adoption is finalized, or the year after qualified expenses are paid for adoptions not finalized.

In combination with the child tax credit and additional child tax credit, taxpayers could receive a total credit of $8,600 (subject to the income limitations).

Energy Credits: Several Clean Energy Incentives Phased Out

The BBB marks a significant shift in federal energy policy by eliminating several clean energy tax credits, many of which were introduced or expanded under the Inflation Reduction Act.

These changes come with staggered sunset dates, so timing is critical for taxpayers planning energy-related purchases or improvements.

Credits Scheduled for Elimination:

• Previously Owned Clean Vehicle Credit – eligible for a tax credit of up to $4,000 (exclusions apply): Eliminated for vehicles purchased after September 30, 2025
• Clean Vehicle Credit (New EVs) – eligible for a tax credit of up to $7,500 (exclusions apply): Eliminated for vehicles purchased after September 30, 2025
• Alternative Fuel Vehicle Refueling Credit – eligible for a tax credit of 30% of the cost of the property not to exceed a maximum credit of $1,000 per item (exclusions apply): Eliminated after June 30, 2026
• Energy-Efficient Home Improvement Credit – eligible for a tax credit of 30% of the cost of the property not to exceed a maximum credit of $1,200 for certain items, and $2,000 for others (exclusions apply): Eliminated after December 31, 2025
• Residential Clean Energy Credit – eligible for a tax credit of 30% of the cost of the property/installation (exclusions apply): Eliminated for expenditures made after December 31, 2025
• New Energy-Efficient Home Credit – eligible for a tax credit of up to $3,200 (exclusions apply): Eliminated after June 30, 2026

The credit eligibility for these items ahead of their sunset dates could still play a significant impact with planning for tax years 2025 and 2026.

Excess Business Loss Limitation: Permanently Extended

The BBB makes permanent a key provision affecting non-corporate business owners: the limitation on excess business losses.

Originally set to expire after 2028, this rule now remains in place indefinitely, restricting the ability of individuals to deduct large business losses against non-business income.

Key Details:

• Applies to non-corporate taxpayers (e.g., sole proprietors, partners, S corporation shareholders)
• Limits the amount of business losses that can offset other income each year
• Excess losses are treated as net operating losses (NOLs) and carried forward, but are not subject to Section 461(l) limitations

For married couples, filing jointly doubles the cap on excess business losses, allowing you to preserve more deductions.

Wagering Losses: A New Cap on Deductibility

The BBB introduces a new limitation on the deductibility of wagering losses, tightening the rules for taxpayers who report gambling activity.

What’s Changed:

• Wagering losses are now deductible only up to 90% of the amount of those losses
• Losses are deductible only to the extent of gains from wagering transactions in the same tax year

Example:
If a taxpayer has $10,000 in gambling winnings and $11,000 in losses, their actual net losses are $1,000.  However, for tax purposes they may deduct only $9,900 (90% of the losses), rather than the full amount, leaving taxable net winnings of $100.

Keeping detailed records of each gambling session is essential to substantiate deductions and ensure compliance with the 90% wagering loss cap under the BBB. Records should include:

• Date and type of wager
• Amount won or lost
• Location and method (e.g., casino, online)

Also, be sure to check your state’s tax rules, as some states may not conform to the federal 90% limitation.

529 Plans Get a Boost Under the BBB Act

The BBB has expanded the flexibility of 529 savings accounts, making them more powerful tools for families planning for education.

Traditionally, 529 plans could be used for:

• College tuition and fees
• Room and board
• Books and supplies
• K–12 tuition (up to $10,000/year)

Now, under the BBB, qualified expenses have been broadened to include:

• Expanded K-12 expenses (to include curriculum materials, books, online education resources, tutoring services, standardized test fees.
• Homeschool expenses such as educational software and dual enrollment program fees.
• Educational therapies for students with disabilities.
• Postsecondary credentialing programs (trade schools, certificate programs)

These updates reflect a growing recognition of diverse educational paths and aim to support students whether they are headed to college, trade school, or beyond.

Super funded 529 contributions remain a powerful strategy. By contributing up to five years’ worth of annual gift tax exclusions at once, families can jumpstart college savings and potentially reduce future gift tax exposure. This approach maximizes tax-free growth and takes advantage of expanded 529 plan flexibility under recent legislation.

While there is no federal deduction for making contributions to a 529 plan, some states allow a subtraction to taxable income for these types of contributions. Ensure you are providing your tax preparer with the total amount of contributions made to the 529 plan(s) during the calendar year, and from which state that plan is based (for example Massachusetts allows a deduction for 529 contributions made to a Massachusetts based plan).

Trump Accounts: A New Savings Opportunity for Minors

The BBB introduces a new tool for early financial planning: Trump Accounts. These are a special type of custodial individual retirement account (IRA) designed to encourage savings and investment for children.

Who’s Eligible?

• Children under age 18 with a valid Social Security Number.
• Contributions can begin 12 months after the bill’s enactment and be made in any year before the beneficiary turns eighteen.
• Accounts must be explicitly designated as Trump Accounts at setup.

Contribution/Distribution Rules

• Annual contribution limit: $5,000 (indexed for inflation after 2027). Contributions can be made only for calendar years before the beneficiary turns eighteen.
• Distributions are allowed, starting in the calendar year the beneficiary turns eighteen.
• Qualifying distributions are subject to the reduced long-term capital gains tax rate if used for higher education, first-time home purchase, or starting a small business. Distributions taken for any other reason will be taxed as ordinary income. (In either case, it is the increase in value over the amounts contributed that are taxable, not the full amount of the distribution.)
• The remaining balance of the account should be withdrawn by the time the beneficiary turns thirty-one to avoid the funds being taxed as income.

Tax Credit Bonus

• Taxpayers with children born in calendar years 2025 through 2028 can make an election (using a yet-to-be-prescribed method) that will set in motion the influx of $1,000 to the Trump accounts of those children, funded by the U.S. Treasury.

Employer Contributions

• Employers can contribute to Trump Accounts.
• These contributions are not included in the employee’s taxable income.

Contributions to Trump Accounts must be made in cash and are restricted to investments in U.S. equities or index-tracking mutual funds. While this limits investment flexibility, it encourages stable, long-term growth.

1099 Reporting Thresholds: Reporting Relief

The BBB rolls back and updates key reporting requirements that were set to impact freelancers, small business owners, and online sellers.

1099-K (Payment Card and Third-Party Network Transactions) Threshold Reinstated: The IRS had planned to reduce the 1099-K reporting threshold to $600 for third-party network small business owners and online sellers. The BBB terminates this change, restoring the previous threshold of $20,000 in payments and two hundred transactions per year, a major win for casual sellers and gig workers.

1099-MISC (Miscellaneous Income) and1099-NEC (Nonemployee Compensation): Threshold Increased: For businesses making payments to independent contractors or vendors, the 1099 reporting threshold increases from $600 to $2,000 per calendar year (beginning in 2025) and this new threshold will be indexed for inflation annually.

Reminder: If you file a Schedule C and pay freelancers or service providers, this change affects when you are required to issue a 1099.

These updates reduce administrative burdens and reporting obligations for many small businesses and part-time earners.

The change to 1099 reporting thresholds will directly affect many small businesses and sole proprietors. With the increase to $2,000 being the new reporting threshold, the IRS will see fewer 1099s being filed for payments related to independent contractors. As a reminder, you are not relieved of your duty to report income that you earned simply because the payor did not provide you with a Form 1099. You also are not excused from reporting income you earned that is below the $2,000 reporting threshold. You must report that income whether or not you receive a 1099.

Conclusion

The individual provisions of the BBB dominate much of the space in the new legislation. The bill rolls out several new features, but in great part extends the lives of features that were introduced eight years ago with the TCJA. In addition to extending, it also modifies many of the rules, and the combination of those changes yields planning opportunities for many taxpayers. We encourage you to contact your tax advisor to see what these changes mean for your own financial planning.

For more information, please contact your BNN tax service provider at 800.244.7444.