Whitley Penn Tax Alert:
President Trump Signs Reconciliation Bill into Law
July 9, 2025
In a ceremony at the White House on Friday, July 4, President Trump signed into law the Republicans’ tax and spending package that was passed last week along a near party line vote. The legislation, also referred to as the “One Big Beautiful Bill Act,” makes permanent or extends a number of provisions enacted in the Tax Cuts and Jobs Act (“TCJA”) of 2017 that were scheduled to expire starting at the end of 2025. Continue reading to discover some of the key tax provisions that passed and how they could impact you.
Business Provisions:
Depreciation Expense
Bonus Depreciation – The law permanently reinstates the 100% first-year bonus depreciation deduction for qualifying property placed in service on or after January 19, 2025.
Qualified Production Property Depreciation – The legislation implements a new provision that allows bonus depreciation to be claimed for “qualified production property.” Qualified production property (“QPP”) includes nonresidential real property that is an integral part of qualified manufacturing, agricultural, or chemical production or is used in the refinement of qualified products. The 100% first-year bonus depreciation allowance is available for QPP with construction beginning after January 19, 2025, and before January 19, 2029, that is placed in service before January 1, 2031.
Section 179 Expense – The law increases the maximum allowable Internal Revenue Code (“IRC”) Section 179 depreciation deduction from $1,250,000 to $2,500,000 and increases the beginning phase-out threshold amount from $3,130,000 to $4,000,000.
July 9, 2025
In a ceremony at the White House on Friday, July 4, President Trump signed into law the Republicans’ tax and spending package that was passed last week along a near party line vote. The legislation, also referred to as the “One Big Beautiful Bill Act,” makes permanent or extends a number of provisions enacted in the Tax Cuts and Jobs Act (“TCJA”) of 2017 that were scheduled to expire starting at the end of 2025. Continue reading to discover some of the key tax provisions that passed and how they could impact you.
Depreciation Expense
Bonus Depreciation – The law permanently reinstates the 100% first-year bonus depreciation deduction for qualifying property placed in service on or after January 19, 2025.
Qualified Production Property Depreciation – The legislation implements a new provision that allows bonus depreciation to be claimed for “qualified production property.” Qualified production property (“QPP”) includes nonresidential real property that is an integral part of qualified manufacturing, agricultural, or chemical production or is used in the refinement of qualified products. The 100% first-year bonus depreciation allowance is available for QPP with construction beginning after January 19, 2025, and before January 19, 2029, that is placed in service before January 1, 2031.
Section 179 Expense – The law increases the maximum allowable Internal Revenue Code (“IRC”) Section 179 depreciation deduction from $1,250,000 to $2,500,000 and increases the beginning phase-out threshold amount from $3,130,000 to $4,000,000.
Pass-Through Entity Deductions
Qualified Business Income Deduction – Before the passage of the new law, the IRC Section 199A deduction for pass-through income was set to expire at the end of 2025. The new law makes the pass-through income deduction permanent and increases the phase-out amounts for pass-through income of certain specified service trades or business (“SSTB”). The IRC Section 199A deduction remains at 20% of qualified business income for tax years beginning after December 31, 2025.
Excess Business Loss Limitation – Under the prior law, the IRC Section 461(l) excess business loss (“EBL”) limitation was set to expire at the end of 2028. The new law makes the EBL limitation permanent and retains the existing rule that a disallowed EBL is converted to a net operating loss carryforward and is subject only to the more liberal NOL carryforward rules in future tax years.
Pass-Through Entity SALT Deduction – After considerable debate and negotiations regarding various limitations that should apply to the state and local income tax (“SALT”) deduction for pass-through entities, the new law retains a pass-through entity’s ability to deduct the full amount of its state and local income taxes without regard to the type of business conducted by the entity.
IRC Section 163(j) Interest Expense Limitation
Under prior law, interest expense was limited to 30% of earnings before interest and taxes for tax years after 2021. The new law restores the increased limitation to 30% of earnings before interest, taxes, amortization and depreciation, the base amount that was applicable for tax years before 2022.
Research and Experimental Expenses
Under prior law, research and experimental (“R&E”) expenditures were required to be capitalized and amortized over 5 and 15 years for domestic and foreign expenditures, respectively. The new law allows for full expensing of domestic R&E expenditures for tax years beginning after December 31, 2024. The capitalization and 15-year amortization requirements for foreign R&E remain intact.
Certain small business taxpayers with average annual gross receipts under $31 million for the 2022-2024 tax years may elect to apply the expensing provisions retroactively by filing amended 2022, 2023, and 2024 income tax returns. If a taxpayer has not yet filed its 2024 income tax return, it can deduct R&E expenditures on its originally filed return.
A taxpayer with average annual gross receipts in excess of $31 million can elect to deduct any unamortized R&E expenditures in its first tax year beginning after December 31, 2024, or may deduct those unamortized costs over a 2-year period beginning with its first tax year after December 31, 2024.
Employee Retention Credit
The new law prohibits the payment of Employee Retention Credit (“ERC”) claims for the third and fourth quarters of 2021 that were filed after January 31, 2024. In addition, the legislation extends the statute of limitations for assessment with respect to an ERC claim for the third and fourth quarters of 2021 to six years from the later of April 15, 2022, or the date on which the claim was filed. The law also makes the 20% penalty for excessive refund claims applicable to employment tax refund claims.
Section 1202 Qualified Small Business Stock
IRC Section 1202 provides certain noncorporate taxpayers an exclusion for the capital gain on the sale of qualified small business stock (“QSBS”) held more than five years. The exclusion amount ranges from 50% to 100% depending on the date the stock was acquired by the shareholder. The new law modifies IRC Section 1202 to provide a tiered exclusion based on the shareholder’s holding period of the stock.
If the shareholder holds the QSBS for three years, the exclusion is 50% of the gain realized on the sale. If the stock is held for four years, the exclusion is increased to 75% and if held for five years or more, the exclusion is increased to 100%. For purposes of determining whether a corporation is a qualified small business for purposes of IRC Section 1202, the new law raises the limitation of the corporation’s aggregate gross assets at the time of the shareholder’s acquisition of stock from $50 million to $75 million.
Opportunity Zones
Opportunity zones (“OZs”) allow investors to defer and, in certain cases, exclude capital gains invested in Qualified Opportunity Funds (“QOFs”) that fund and support development in certain low-income communities. Under prior law, OZs established under the TCJA were to remain in effect only until December 31, 2028. Beginning January 1, 2027, the new law makes the OZ investment provisions permanent and establishes 10-year rolling OZ designations.
International Tax
Effective for tax years after December 31, 2025, the new law makes modest changes related to the U.S. taxation of foreign operations including an increase in the base-erosion and anti-abuse tax (“BEAT”) rate from 10% to 10.5%. In addition, the law also makes changes to the taxation of income derived from controlled foreign corporations (“CFC”). Changes to the calculation methodologies for foreign-derived intangible income (“FDII”) and global intangible low-tax income (“GILTI”) creates an increased effective tax rate for both taxes from 13.125% to 14%. The changes to FDII and GILTI will result in those taxes being renamed “foreign-derived deduction eligible income” and “net CFC tested income”, respectively.
Individual Provisions:
Estate and Gift Tax Exemption
The law permanently increases the estate and gift tax exemption to $15 million. The exemption will be indexed for inflation each year beginning in 2026.
Individual Income Tax Rates
The legislation makes permanent the individual, trust, and estate income tax rates enacted in the TCJA. The seven-bracket graduated rate structure ranges from 10% to 37% and each respective bracket will be indexed for inflation beginning in 2026.
Standard Deduction
Effective January 1, 2025, the law permanently increases the standard deduction for single and married separate filers from $12,000 to $15,750, heads of household from $18,000 to $23,625, and married joint filers from $24,000 to $31,500. The standard deduction will be indexed for inflation in future tax years.
Beginning in 2026, the law also adds an additional above the line charitable contribution deduction for taxpayers claiming the standard deduction. The maximum deduction for certain cash contributions is $2,000 for married joint filers and $1,000 for all other filers.
Personal Exemptions
The deduction for personal exemptions that had been suspended from 2018 to 2025 was scheduled to be reinstated beginning in 2026. Effective January 1, 2025, the deduction for personal exemptions is permanently terminated.
Itemized Deductions
State and Local Tax Deduction (SALT) – The individual SALT deduction limitation is increased from $10,000 to $40,000 for 2025 and $40,400 for 2026. The limitation will be increased by 1% each year from 2027 to 2029 before reverting back to $10,000 beginning in 2030. The maximum allowable deduction is subject to a phase-out for taxpayers with modified adjusted gross incomes greater than $500,000, down to an amount of no less than $10,000. Note that this limitation does not apply to SALT taxes paid by a pass-through entity (see previous discussion in “Business Provisions”).
Home Mortgage Interest -The new law makes permanent the TCJA provision that limits deductible home mortgage interest to the amount that is attributable to a maximum $750,000 of acquisition indebtedness. The disallowance of interest attributable to home equity debt is also made permanent.
Charitable Contributions – Under the new legislation, the charitable contribution deduction for a taxpayer who itemizes deductions is allowable only to the extent that the contributions exceed 0.5% of the taxpayer’s contribution base (See the previous discussion in “Standard Deduction” related to charitable contributions for taxpayers who do not itemize deductions).
Miscellaneous Itemized Deductions – The new law permanently terminates the deduction for miscellaneous itemized deductions.
Overall Itemized Deduction Limitation – For tax years beginning after December 31, 2025, the law permanently repeals the PEASE limitation (itemized deduction phase-out) and replaces it with a uniform limitation for taxpayers in the 37% rate bracket.
Miscellaneous Individual Provisions
Alternative Minimum Tax – The legislation makes permanent the TCJA’s alternative minimum tax (“AMT”) exemption amounts and reinstates the pre-TCJA exemption phase-out threshold amounts of $500,000 for single filers and $1,000,000 for married joint filers. The new law also increases the phase-out of the exemption amount from 25% to 50% of the amount that alternative minimum taxable income exceeds the threshold amount.
Enhanced Deduction for Seniors – For tax years 2025 to 2028, taxpayers aged sixty-five and older are allowed a $6,000 above the line deduction, subject to a phase-out beginning at $75,000 for single filers and $150,000 for joint filers.
No Tax on Overtime Wages – For tax years 2025 to 2028, the new law adds an above the line deduction for qualified overtime compensation of up to $12,500 for single filers and $25,000 for married joint filers. The deduction excludes wages paid to highly compensated employees and is subject to a phase-out beginning at $150,000 for single filers and $300,000 for married joint filers.
No Tax on Tips – For tax years 2025 to 2028, the new law adds an above the line deduction of up to $25,000 for qualified tip income received in certain occupations defined by the Treasury Department. The deduction excludes highly compensated employees and is subject to a phase-out beginning at $150,000 for single filers and $300,000 for married joint filers.
Automobile Interest Expense – The new law adds a deduction for up to $10,000 of interest on a new car loan attributable to a U.S. assembled passenger vehicle that serves as security for the loan. The provision is available for qualified interest paid during 2025 to 2028. The deduction is subject to a phase-out for taxpayers with modified adjusted gross income of $100,000 for single filers and $200,000 for married joint filers.
Child Tax Credit – Beginning in 2025, the new law increases the amount of the nonrefundable child tax credit to $2,200 per qualifying child. The credit amount will be indexed for inflation in future tax years. The law also makes permanent the refundable $1,400 child tax credit and indexes that credit for inflation in future tax years. The availability of the credit is subject to a phase-out beginning at $200,000 for single filers and $400,000 for married joint filers.
Estate and Gift Tax Exemption
The law permanently increases the estate and gift tax exemption to $15 million. The exemption will be indexed for inflation each year beginning in 2026.
Individual Income Tax Rates
The legislation makes permanent the individual, trust, and estate income tax rates enacted in the TCJA. The seven-bracket graduated rate structure ranges from 10% to 37% and each respective bracket will be indexed for inflation beginning in 2026.
Standard Deduction
Effective January 1, 2025, the law permanently increases the standard deduction for single and married separate filers from $12,000 to $15,750, heads of household from $18,000 to $23,625, and married joint filers from $24,000 to $31,500. The standard deduction will be indexed for inflation in future tax years.
Beginning in 2026, the law also adds an additional above the line charitable contribution deduction for taxpayers claiming the standard deduction. The maximum deduction for certain cash contributions is $2,000 for married joint filers and $1,000 for all other filers.
Personal Exemptions
The deduction for personal exemptions that had been suspended from 2018 to 2025 was scheduled to be reinstated beginning in 2026. Effective January 1, 2025, the deduction for personal exemptions is permanently terminated.
Itemized Deductions
State and Local Tax Deduction (SALT) – The individual SALT deduction limitation is increased from $10,000 to $40,000 for 2025 and $40,400 for 2026. The limitation will be increased by 1% each year from 2027 to 2029 before reverting back to $10,000 beginning in 2030. The maximum allowable deduction is subject to a phase-out for taxpayers with modified adjusted gross incomes greater than $500,000, down to an amount of no less than $10,000. Note that this limitation does not apply to SALT taxes paid by a pass-through entity (see previous discussion in “Business Provisions”).
Home Mortgage Interest -The new law makes permanent the TCJA provision that limits deductible home mortgage interest to the amount that is attributable to a maximum $750,000 of acquisition indebtedness. The disallowance of interest attributable to home equity debt is also made permanent.
Charitable Contributions – Under the new legislation, the charitable contribution deduction for a taxpayer who itemizes deductions is allowable only to the extent that the contributions exceed 0.5% of the taxpayer’s contribution base (See the previous discussion in “Standard Deduction” related to charitable contributions for taxpayers who do not itemize deductions).
Miscellaneous Itemized Deductions – The new law permanently terminates the deduction for miscellaneous itemized deductions.
Overall Itemized Deduction Limitation – For tax years beginning after December 31, 2025, the law permanently repeals the PEASE limitation (itemized deduction phase-out) and replaces it with a uniform limitation for taxpayers in the 37% rate bracket.
Miscellaneous Individual Provisions
Alternative Minimum Tax – The legislation makes permanent the TCJA’s alternative minimum tax (“AMT”) exemption amounts and reinstates the pre-TCJA exemption phase-out threshold amounts of $500,000 for single filers and $1,000,000 for married joint filers. The new law also increases the phase-out of the exemption amount from 25% to 50% of the amount that alternative minimum taxable income exceeds the threshold amount.
Enhanced Deduction for Seniors – For tax years 2025 to 2028, taxpayers aged sixty-five and older are allowed a $6,000 above the line deduction, subject to a phase-out beginning at $75,000 for single filers and $150,000 for joint filers.
No Tax on Overtime Wages – For tax years 2025 to 2028, the new law adds an above the line deduction for qualified overtime compensation of up to $12,500 for single filers and $25,000 for married joint filers. The deduction excludes wages paid to highly compensated employees and is subject to a phase-out beginning at $150,000 for single filers and $300,000 for married joint filers.
No Tax on Tips – For tax years 2025 to 2028, the new law adds an above the line deduction of up to $25,000 for qualified tip income received in certain occupations defined by the Treasury Department. The deduction excludes highly compensated employees and is subject to a phase-out beginning at $150,000 for single filers and $300,000 for married joint filers.
Automobile Interest Expense – The new law adds a deduction for up to $10,000 of interest on a new car loan attributable to a U.S. assembled passenger vehicle that serves as security for the loan. The provision is available for qualified interest paid during 2025 to 2028. The deduction is subject to a phase-out for taxpayers with modified adjusted gross income of $100,000 for single filers and $200,000 for married joint filers.
Child Tax Credit – Beginning in 2025, the new law increases the amount of the nonrefundable child tax credit to $2,200 per qualifying child. The credit amount will be indexed for inflation in future tax years. The law also makes permanent the refundable $1,400 child tax credit and indexes that credit for inflation in future tax years. The availability of the credit is subject to a phase-out beginning at $200,000 for single filers and $400,000 for married joint filers.
The legislation terminates several clean energy tax provisions including:
- IRC Section 25C energy-efficient home improvement credit (terminates after 12/31/25)
- IRC Section 25D residential clean energy credit (terminates for expenses paid after 12/31/25)
- IRC Section 25E previously owned vehicle credit (terminates after 9/30/25)
- IRC Section 30C alternative fuel vehicle refueling credit (terminates after 6/30/26)
- IRC Section 30D clean vehicle credit (terminates for vehicles acquired after 9/30/25)
- IRC Section 45L new energy-efficient home credit (terminates after 6/30/26)
- IRC Section 45V clean hydrogen production credit (terminates after 1/1/28)
- IRC Section 45W qualified commercial clean vehicle credit (terminates after 9/30/25)
- IRC Section 179D energy-efficient commercial buildings deduction (terminates for property for which construction begins after 6/30/26)
The IRC Section 45Y clean electricity production credit and the IRC Section 48E clean electricity investment credits are both terminated for wind and solar facilities placed in service after December 31, 2027. In addition, the new law places restrictions on the availability of certain credits for foreign entities and facilities owned or controlled by certain foreign entities.
Whitley Penn is continually monitoring tax and economic developments and will send out additional alerts in the future. In the interim, please contact your Whitley Penn tax advisor if you have any questions or require any additional information.
This tax alert is designed only to provide general information regarding its subject matter and should not be construed as tax, accounting, or legal advice to any specific person or entity. The statutes, authority, or other law discussed or cited in the alert are subject to change and Whitley Penn assumes no obligation to update the reader of any changes. Any advice or opinion regarding the application of the subject matter for a specific person or entity should be provided by a competent professional tax advisor based on the application of the appropriate law and authority to the facts and circumstances applicable to that person.
Clean Energy Incentives:
The legislation terminates several clean energy tax provisions including:
- IRC Section 25C energy-efficient home improvement credit (terminates after 12/31/25)
- IRC Section 25D residential clean energy credit (terminates for expenses paid after 12/31/25)
- IRC Section 25E previously owned vehicle credit (terminates after 9/30/25)
- IRC Section 30C alternative fuel vehicle refueling credit (terminates after 6/30/26)
- IRC Section 30D clean vehicle credit (terminates for vehicles acquired after 9/30/25)
- IRC Section 45L new energy-efficient home credit (terminates after 6/30/26)
- IRC Section 45V clean hydrogen production credit (terminates after 1/1/28)
- IRC Section 45W qualified commercial clean vehicle credit (terminates after 9/30/25)
- IRC Section 179D energy-efficient commercial buildings deduction (terminates for property for which construction begins after 6/30/26)
The IRC Section 45Y clean electricity production credit and the IRC Section 48E clean electricity investment credits are both terminated for wind and solar facilities placed in service after December 31, 2027. In addition, the new law places restrictions on the availability of certain credits for foreign entities and facilities owned or controlled by certain foreign entities.
Whitley Penn is continually monitoring tax and economic developments and will send out additional alerts in the future. In the interim, please contact your Whitley Penn tax advisor if you have any questions or require any additional information.
This tax alert is designed only to provide general information regarding its subject matter and should not be construed as tax, accounting, or legal advice to any specific person or entity. The statutes, authority, or other law discussed or cited in the alert are subject to change and Whitley Penn assumes no obligation to update the reader of any changes. Any advice or opinion regarding the application of the subject matter for a specific person or entity should be provided by a competent professional tax advisor based on the application of the appropriate law and authority to the facts and circumstances applicable to that person.