Insight The One Big Beautiful Bill Revisited

On July 4, 2025, “The One Big Beautiful Bill Act” (the “Act”) was signed into law. Buried in a bill that touches on a wide range of subjects, the 119th Congress set forth current and future tax reform.

As we approach the commencement of the 2026 Idaho Legislative Session, it is timely to review the provisions of the OBBBA. The Legislature will be faced with the question of whether to conform the Idaho tax code to all or only part of the OBBBA’s provisions.

Because no one (except tax attorneys) wants to read an 870-page bill to find out how, if at all, their taxes will change in the coming years, this article sets out an easy-to-digest explanation of the tax provisions in the Act affecting individuals and businesses.

Tax Provisions Affecting Individuals

Starting off, several tax credits that can be claimed by an individual have been modified under the Act. First, the Child Tax Credit has been increased from $2,000 to $2,200, with this amount being adjusted for inflation in future years. IRC § 24. In addition to the Child Tax Credit, the Child and Dependent Care Credit has also been increased under the Act. The percentage of child and dependent care expenses that can be taken as a tax credit has been increased from 35 percent to 50 percent. IRC § 21(a)(2). However, the percentage of expenses is to be reduced (but not below 35 percent) by one percentage point for each $2,000 of which the taxpayer’s adjusted gross income for the tax year exceeds $15,000, and further reduced (but not below 20 percent) by one percentage point for each $2,000 of which the taxpayer’s adjusted gross income for the tax year exceeds $75,000. Continuing the trend of increased credits, the amount of the Employer-Provided Childcare Tax Credit has been increased from 25 percent of qualified childcare expenditures to 40 percent (50 percent in the case of an eligible small business). IRC § 45F. The credit cannot exceed $500,000 ($600,000 in the case of an eligible small business). The credit limit will be adjusted for inflation each year.

The Adoption Credit has been modified to provide a refundable credit of up to $5,000, whereas previously the Adoption Credit was a nonrefundable credit for qualified adoption expenses. IRC § 23. Additionally, no portion of the Adoption Credit can be carried forward.

The American Opportunity and Lifetime Learning credits have been amended to require the individual claiming the credit to include their social security number on their tax return. IRC § 25A(g) and 6213(g)(2)(J). Additionally, the American Opportunity Tax Credit will be disallowed unless the taxpayer includes the employment identification number of the institution they are paying tuition to, or paying qualified expenses for, on their return.

A tax credit for the Estate Tax is available for the estate of every person who has died. There is an exclusion for the Estate Tax that provides that a certain amount of assets of the deceased individual can be transferred free from federal estate or gift tax. Prior to the Tax Cuts and Jobs Act of 2017 (the “TCJA”), the exclusion amount was $5,000,000. It was increased to $10,000,000 under the TCJA for tax years beginning after December 31, 2017, and, under the Act, the exclusion amount has been permanently increased to $15,000,000 for tax years beginning after December 31, 2025. IRC § 2010. For each calendar year after 2026, the exclusion amount will be adjusted for inflation. So to make things easy for your executor, if you die after December 31, 2025, please do so with less than $15,000,000 worth of assets.

In addition to modifications to existing credits, a new credit has been created for U.S. citizens or residents who make contributions to an organization that provides scholarships to eligible students located in the same state as the organization. IRC § 25F. The credit is capped at $1,700 per tax year but will be reduced by the amount allowed as a credit on any state return for other qualified contributions. On a related note, the amount of a scholarship for qualified elementary or secondary education expenses that an individual receives will not be included in the individual’s gross income. IRC § 139K.

As well as changes to the tax credit realm, several deductions for individuals have been created, amended, or terminated under the Act. Starting off, the amount of the standard deduction has been increased from $12,000 to $15,750 for individuals and from $18,000 to $23,625 for head of household for the 2025 tax year. For those who are married filing jointly, the standard deduction has been increased from $24,000 to $31,500. IRC § 63(c)(7). This increase applies to tax years beginning after December 31, 2024. For future years, the amount of the standard deduction will be adjusted for inflation.

Next, the cap on the deduction an individual can claim for state and local taxes has been temporarily increased to $40,000 for 2025, $40,400 for 2026, and by a percentage increment for 2027-2029. The cap will then decrease to $10,000 for tax years beginning on or after January 1, 2030. IRC § 164(b).

The suspension of the deduction for personal exemptions that was originally enacted as part of the TCJA has been made permanent. IRC § 151(d)(5). However, the Act created a new personal exemption deduction specifically for seniors. IRC § 151(d)(5)(C). The maximum amount of the senior deduction is $6,000 and will be reduced by a percentage for the amount of modified adjusted gross income the individual has in excess of $75,000. This deduction is only good for tax years beginning before January 1, 2029, and will require the individual to provide their social security number on the return.

The limitation on itemized deductions for individuals has been modified and now states that the amount of allowable itemized deductions for the taxable year shall be reduced by 2/37 (seriously, two thirty-sevenths) of the lesser of such amount of itemized deductions or so much of the taxable income of the taxpayer that exceeds $500,000. IRC § 68. This limitation does not apply to the qualified business income deduction provided under section 199A of the Code.

The TCJA temporarily suspended the deduction for miscellaneous items. The Act has permanently terminated the miscellaneous itemized deduction with the exception of a deduction for educator expenses. IRC § 67(g). This change will go into effect on January 1, 2026. Additionally, any deductions for moving expenses have been permanently disallowed except for members of the armed forces and members of the intelligence community. IRC § 217(k).

The limit on the deduction for home equity indebtedness, also known as the mortgage interest deduction, has been permanently capped at $750,000 ($375,000 for married individuals filing separately). IRC § 163(h)(3)(F).

The deduction allowed for casualty losses has been expanded to now include state-declared disasters in addition to federally declared disasters. IRC § 165(h)(5). For purposes of this deduction, the term “state” will include the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands.

Individuals who do not claim itemized deductions will continue to be allowed to take a charitable contribution deduction. IRC § 170(p). The maximum amount of the deduction has been increased from $300 to $1,000 (from $600 to $2,000 for joint returns).

Furthermore, the Act has amended the Code so that when an individual makes a charitable contribution, they are allowed to take a deduction for that charitable contribution, but only if the amount of the deduction exceeds 0.5% of the taxpayer’s contribution base for that tax year. IRC § 170(a)(1)(I). This provision is referred to as the 0.5% floor on deductions of charitable contributions by individuals.

For noncorporate taxpayers, the disallowance of a deduction for excess business losses has been made permanent beginning January 1, 2027. IRC § 461(l). Disallowed losses can still be treated as net operating losses for the tax year for purposes of determining any net operating loss carryover. IRC § 461(l)(2).

Under the Act, the qualified business income deduction for noncorporate taxpayers with pass-through business income has been permanently extended. IRC § 199A. This means that 20 percent of qualified business income can be deducted from an individual’s gross income. Furthermore, the Act creates a minimum deduction of $400 if an individual has at least $1,000 of qualified business income and would otherwise qualify for the deduction, even if the standard 20 percent deduction would result in a deduction amount less than $400.

Two brand new deductions under the Act include a deduction for tips and a deduction for overtime compensation. Individuals can take up to a $25,000 deduction for qualified tips, but this amount will be decreased if the taxpayer’s modified adjusted gross income exceeds $150,000 (or $300,000 in the case of a joint return). IRC § 224. “Qualified tips” means “cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024.” Turning to overtime compensation, individuals can deduct up to $12,500 ($25,000 in the case of a joint return) for qualified overtime compensation. The amount of the deduction will be decreased if the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return). IRC § 225. Both deductions require the taxpayer to provide their social security number on their tax return to receive the deduction and both deductions will expire for tax years beginning after December 31, 2028.

There is also a new deduction for interest paid on a car loan. This deduction is effective for tax years 2025-2028 and has an annual cap of $10,000. However, the maximum deduction amount will phase-out for taxpayers whose adjusted gross income exceeds $100,000 for individuals or $200,000 for joint filers. To qualify for the deduction, the interest must be paid on a loan that originated after December 31, 2024, the vehicle cannot be previously used prior to the taxpayer’s acquisition of it (new cars only), the vehicle must be for personal use, and the interest must be secured by a lien on the vehicle. Lease payments do not qualify for this deduction. IRC § 163(h)(4).

Turning to exclusions from an individual’s gross income, the exclusion of qualified small business stock has been modified to now exclude such stock from the taxpayer’s income in varying percentages, ranging from 50 percent to 100 percent depending on when the stock was acquired. There are also certain limitations for the stock depending on when the stock was acquired. IRC § 1202.

Next, the amount of the alternative minimum tax exemption for noncorporate taxpayers has been permanently increased under the Act from $50,600 to $70,300 for individuals, from $78,750 to $109,400 for joint filers and surviving spouses, and from $39,375 to $54,700 for married individuals filing a separate return. Additionally, the inflation adjustment method has been slightly modified. IRC § 55(d)(4).

Additionally, the Act creates a new income exclusion for interest received on qualified loans that are secured by rural or agricultural real estate. IRC § 139L. This means that up to 25 percent of interest received by a qualified lender on any qualified real estate loan (a loan secured by rural or agricultural real estate or a leasehold mortgage on rural or agricultural real estate) will not be included in gross income. IRC § 139L(c).

The temporary exclusion from gross income of certain employer payments of employee student loans has been made permanent. The exclusion is capped at $5,250, but the cap will be adjusted for inflation starting in tax year 2027.

On top of tax credits, deductions, and exclusions from gross income, there are several more tax provisions that affect individuals and are important to touch on. First, the definition of “business interest” has been amended to state that any interest that is capitalized under § 263(g) (which relates to certain interest and carrying costs in the case of straddles) or § 263A(f) (relating to the allocation of interest to property produced by taxpayer) is not business interest. IRC § 163(j)(5).

Second, the Act reduces the transfer tax on firearms to $200 for machineguns and destructive devices, such as explosives, incendiary devices, or poisonous gas, and $0 for any other firearm. IRC § 5811(a). The transfer tax prior to the Act was $200 for each firearm, unless the firearm was classified as any other weapon under § 5845(e), meaning a weapon or device capable of being concealed on the person and from which a shot can be discharged through the energy of an explosive, where the tax would be $5 for such firearm transferred. Effectively, there is now no transfer tax on firearms unless the firearm is a machinegun. This reduction in tax is effective for calendar quarters beginning more than 90 days after July 4, 2025.

Third, a new section has been created to address the gain received from the sale or exchange of qualified farmland property to qualified farmers. IRC § 1062. Under this section, when there is gain from the sale or exchange of qualified farmland property to a qualified farmer, the taxpayer may elect to pay the net income tax on such gain in four equal installments. IRC § 1062(a).

Fourth, the Act has permanently established a safe-harbor that allows high-deductible health plans to cover telehealth or other remote healthcare services without a deductible being met and still have the plan qualify as HSA-compatible. IRC § 223(c)(2). The Code provision specifically states that a “plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for tele-health and other remote care services.” IRC § 223(c)(3)(E). Furthermore, bronze and catastrophic plans that are available through the Exchange created under the Affordable Care Act will also be treated as high-deductible health plans that are compatible with HSA requirements. IRC § 223(c)(2)(H).

Fifth, the Act has created a new type of retirement account for individuals, known as a “Trump account.” The purpose of a Trump account is to establish a savings account for a child to use once they reach the age of majority. With a Trump account, a parent or another individual can contribute up to $5,000 a year to the account. Employers can also contribute up to $2,500 to the account, but the employer contribution will count towards the aggregate $5,000 limit that can be deposited into the account each year. However, if the employer does contribute money to the account, it will not be considered gross income to the account’s beneficiary, and therefore will not be subject to income tax. Furthermore, children who are born in 2025, 2026, 2027, and 2028 will be automatically enrolled and receive a one-time deposit of $1,000 from the federal government. Monies in the accounts are tax-deferred so investment earnings on the account will not be taxed until they are withdrawn. Account beneficiaries do need to have been issued a social security number to qualify for this type of account. Additionally, the annual maximum contribution amount will be adjusted for inflation starting in calendar year 2028. IRC §§ 530A, 139J, 6434, and 6659.

Lastly, the Opportunity Zones program, which was originally created under the TCJA, has been modified and made permanent by the Act. Prior to the Act, investors in Opportunity Zones were able to deposit unrealized capital gains into an Opportunity Zone fund and defer the capital gains tax until 2026. Additionally, up to 15 percent of the deferred gain would be tax-exempt, depending on when the investor made the investment. If the monies were left in the fund for ten years or more, any profits on the investment would not be subject to capital gains tax at all. Under the Act, the current Opportunity Zones will terminate at the end of 2026 (instead of 2028, as set out in the TCJA), and new zones will be created starting in January 2027. The tax breaks and capital gain deferral created under the TCJA for Opportunity Zones still exist, but they will only be available for investments made in the newly designated zones. The designation of Opportunity Zones in tracts that are contiguous with low-income communities has been removed. Furthermore, the eligibility criteria for establishing an Opportunity Zone have been modified. To designate a tract as a “low-income community,” the threshold has been changed to 70 percent of area of statewide median income, as opposed to 80 percent under the TCJA.

Tax Provisions Affecting Businesses

In addition to the provisions discussed above, the Act had an impact on various tax provisions that affect businesses. Starting off with several depreciation-related items, businesses are allowed to elect to deduct the full purchase price of certain depreciable assets in the year the items are placed in service rather than depreciating the asset over multiple tax years. IRC § 179. For property that is placed in service on or after January 1, 2025, the Act increases the maximum amount that a business can deduct from $1 million to $2.5 million. The deduction amount will be decreased by the amount of the property that exceeds $4 million (increased from $2.5 million prior to the Act’s enactment).

Furthermore, the Act creates a new depreciation allowance for qualified production property that is placed in service prior to January 1, 2031. IRC § 168(n). The depreciation deduction will now include an allowance equal to 100 percent of the adjusted basis of the qualified production property (but the adjusted basis of such property will be reduced by the amount otherwise allowed as a depreciation deduction under the Code). “Qualified production property” is any portion of nonresidential property that is used by the taxpayer as an integral part of a qualified production activity, is placed in service in the U.S. prior to January 1, 2031, the original use of which begins with the taxpayer, and construction begins after January 19, 2025, and before January 1, 2029.

The last of the depreciation-related changes under the Act deals with bonus depreciation. Under the TCJA, bonus depreciation had a 100 percent rate, with scheduled phase-downs of the rate beginning in 2023, and the entire provision terminating at the end of the 2026 tax year. However, under the Act, the 100 percent bonus depreciation rate has been made permanent and there are no phase-down or sunset provisions. IRC § 168(k).

Turning to tax credits available to businesses, the Act modified, extended, and terminated several credits. Beginning with credit modifications, as of July 4, 2025, the Carbon Oxide Sequestration Credit has been eliminated for foreign entities and foreign-influenced entities and cannot be transferred to a specified foreign entity. Next, the Advanced Energy Project Credit will no longer allow any returned credit allocation to increase the overall available limitation. IRC § 48C(e)(3)(C). Furthermore, the amount of the Advanced Manufacturing Investment Credit has been increased from 25 percent of the qualified investment to 35 percent. IRC § 48D(a). The Advanced Manufacturing Production Credit has been amended to begin phasing out the credit for eligible critical minerals that are produced after December 31, 2030 (with the credit terminating after December 31, 2033), and the credit has been terminated for wind energy components that are produced and/or sold after December 31, 2027. IRC § 45X.

Moreover, both the New Markets Tax Credit and the clean fuel production credit have been extended by the Act. The New Markets Tax Credit has been permanently extended and now allows for a five-year carryover of unused limitation. IRC § 45D(f). The Clean Fuel Production Credit has been extended for fuel produced through December 31, 2029. IRC § 45Z. The Act does state that any credit-eligible feedstocks must be produced or grown in either the United States, Mexico, or Canada to receive the credit. Certain prohibitions on negative emission rates were also imposed under the Act.

Meanwhile, several tax credits were terminated under the Act, most of them having been created under the Green New Deal. Specifically:

• The Previously-Owned Clean Vehicle Credit will no longer be allowed after September 30, 2025. IRC § 25E(g)
• The Clean Vehicle Credit will not be allowed for any vehicle acquired after September 30, 2025. IRC § 30D(h)
• The Qualified Commercial Clean Vehicles Credit will not be allowed for any vehicle acquired after September 30, 2025. IRC § 45W(g)
• The Alternative Fuel Vehicle Refueling Property Credit will not be allowed for any property placed in service after June 30, 2026. IRC § 30C(i)
• The Energy Efficient Home Improvement Credit will not be allowed for any item of specific property placed in service after December 31, 2025, unless the item is produced by a qualified manufacturer and the taxpayer includes the qualified product identification number of such item on the return. IRC § 25C(h)
• The Residential Clean Energy Credit will not apply to any expenditure made after December 31, 2025. IRC § 25D(h)
• The Energy Efficient Commercial Building Deduction will not apply to any property the construction of which begins after June 30, 2026. IRC § 179D(i)
• The New Energy Efficient Home Credit will not apply to any qualified new energy efficient home that is acquired after June 30, 2026. IRC § 45L(i)
• For purposes of cost recovery for qualified clean energy property, solar and wind energy property have been removed from the definition of five-year property, effective for property beginning construction after December 31, 2024. IRC § 168(e)(3)(B)
• The Clean Hydrogen Production Credit will not apply to a clean hydrogen production facility construction of which begins after January 1, 2028. IRC § 45V(c)(3)(C)
• The Clean Electricity Production Credit has been eliminated for wind and solar facilities that are placed in service after December 31, 2027, if construction begins more than one year after July 4, 2025. There is also a phase-down and termination of the credit after December 31, 2032, for non-wind and solar facilities. The credit is unavailable for facilities that begin construction after December 31, 2025, and are constructed with material assistance from China or any other prohibited foreign entity. IRC § 45Y
• The Clean Electricity Investment Credit has been eliminated for wind and solar facilities if they are placed in service later than December 31, 2027, if construction begins more than one year after July 4, 2025. IRC § 48E
• The investment credit for certain energy property has been eliminated for microturbine energy property and interconnection property the construction of which began on or after June 16, 2025.

Lastly for credits, the employer credit for wages paid to qualifying employees on family medical leave has been made permanent. IRC §§ 45S, 280C(a). The amount of the credit is determined under one of two methods: (a) taking a percentage of wages paid to qualifying employees on family medical leave or (b) taking a percentage of the total amount of premiums paid or incurred by the employer for family medical leave insurance. The employer is allowed to elect which determination method they want to apply.

Moving from tax credits to deductions, the Act amended the deduction for domestic research or experimental expenditures that are paid or incurred by a taxpayer during the taxable year. IRC § 174A(a). The deduction will not apply to any expenditure for the acquisition or improvement of land or for acquisition or improvement of property used in connection with research or experimentation and of a character which is allowed to be depreciated. Furthermore, the deduction also will not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). Lastly, any amount paid or incurred in connection with software development is treated as a research or experimental expenditure. This deduction can be applied to amounts paid or incurred on or after January 1, 2025.

Prior to the OBBBA, and pursuant to the Tax Cut and Jobs Act of 2017, research and development expenditures were required to be capitalized and amortized over a period of five years. The OBBBA restores the option for full expensing of domestic research and experimental costs for tax years beginning after December 31, 2024. Taxpayers may also choose to capitalize and amortize those expenditures over a period of at least 60 months. Foreign research costs remain subject to capitalization and amortization over a 15-year period. Importantly, software development expenditures continue to be treated as research costs under the provision.

The return to full expensing also allows the option of accelerating any domestic research costs that were capitalized but still are unamortized as of December 31, 2024. In addition, certain small businesses (with gross revenues less than $31 million) can amend their 2022-2024 tax returns and claim a refund for the tax associated with the costs that were capitalized.

The restoration of immediate expensing of research and experimental costs is expected to have a large fiscal impact, including at the state level where the states will face the issue of whether to conform to all the OBBBA’s changes.

The Code prohibits a publicly held corporation from taking a deduction for employee compensation for a covered employee to the extent that such compensation exceeds $1,000,000. IRC § 162(m). Effective January 1, 2026, the Act changes the language of this prohibition from “covered employee” to “specified covered employee,” which will include the CEO, CFO, and next eight (previously three) highest compensated employees of the company.

Similar to the 0.5% floor imposed on individual charitable contributions, there is a 1.0% floor imposed on corporations, meaning the corporation can only take the deduction if the corporation’s charitable contributions exceed 1 percent but do not exceed 10 percent of the corporation’s taxable income for the tax year. IRC § 170(b)(2)(A). While excess contributions cannot be carried forward for individuals, excess contributions for corporations can be carried forward for five years.

Lastly, there are several provisions that affect businesses that are not a specific credit or deduction but should still be discussed. First, the TCJA allowed a business to include their depreciation and amortization expenses when determining their adjusted taxable income, resulting in an increased ability to deduct business interest expenses. The Act makes this allowance permanent, effective January 1, 2026. IRC § 163(j)(8)(A)(v).

Second, the exception for de minimis payments by third-party organizations has been reinstated. This means that a payment settlement entity must make a return with respect to third-party network transactions for each payee only if the gross amount of the reportable payment transactions exceeds $20,000 and the aggregate number of transactions exceeds 200. IRC § 6050W(e).

Third, information reporting is required for certain payments that are made in the course of a trade or business. The Act increases the threshold for information reporting from $600 to $2,000. IRC § 6041(a).

Fourth, the Code currently states that a publicly traded partnership will be treated as a corporation for tax purposes. However, this will not be the case if 90 percent or more of the partnership’s gross income consists of “qualifying income,” such as interest, dividends, real property rents, and gain from the sale or other disposition of real property. Under the Act, the definition of “qualifying income” has been amended and, effective for tax years beginning on or after January 1, 2026, will include income and gains derived from:

• transportation or storage of sustainable aviation fuel, liquified hydrogen, or compressed hydrogen;
• electricity generation, electricity storage, or carbon dioxide capture at a qualified carbon capture facility;
• electricity production from an advanced nuclear facility;
• electricity or thermal energy production using a geothermal or hydropower energy resource; and
• the operation of geothermal or ground water energy property.

Fifth, those who meet the requirements of removing eligible, indelibly-dyed diesel fuel or kerosene from a terminal are eligible for a refund of tax they paid for the removal of a taxable fuel from any refinery or terminal, entry into the U.S. of any taxable fuel for consumption, use, or warehousing, and the sale of a taxable fuel to any person who is not registered under section 4101 of the Code. IRC § 6435. The amount of tax to be refunded does not include interest.

Finally, effective January 1, 2026, a corporation’s adjusted financial statement income can be reduced by allowed deductions for intangible drilling and development costs in the case of oil and gas wells and any wells drilled for any geothermal deposit. IRC § 56A(c)(13).

Please feel free to reach out with any questions regarding the Act and how it could affect you or your business.

This blog is provided by Hawley Troxell Ennis & Hawley LLP for educational and information purposes only. It is intended to notify our clients and friends of certain events or issues. It is not intended to be, nor should it be, used as a substitute for legal advice regarding specific factual circumstances. © Hawley Troxell Ennis & Hawley LLP all rights reserved.

---