A Preview of H.R. 1, The One Big Beautiful Bill Act

The House just passed its version of the budget reconciliation bill

In this week's marathon session, the House of Representatives passed the One Big Beautiful Bill Act (OB3 Act)—the Republican budget reconciliation package with significant tax changes. This legislation goes much farther than a simple extension of the Tax Cuts and Jobs Act (TCJA) and will impact almost every taxpayer’s situation.

We will not know the specifics of each provision until Congress passes a bill that the President signs into law. However, based on the current version, we know the general direction the final tax bill will take.

This bill contains hundreds of tax provisions. Below is a brief description of the most significant provisions impacting individuals and small business owners.

Excited? Preparing to retire? Let’s get to the details.

Image courtesy of Matt Metras, EA

Individual Provisions

The following provisions are the most significant for individual taxpayers.

Child Tax Credit. The base child tax credit is permanently increased to $2,000. It is temporarily increased to $2,500 for tax years 2025 through 2028, and from tax year 2029 onward, the $2,000 base amount is inflation-adjusted.

Energy Credits. The §25C energy efficient home improvement credit, the §25D residential clean energy credit, and the §25E used clean vehicle credit are terminated starting in tax year 2026. The §30D clean vehicle credit is significantly restricted for tax year 2026 and then terminated starting in tax year 2027.

Estate Tax Lifetime Exemption. The exemption is reset to $15 million for tax year 2026 and is inflation-adjusted. This change is permanent.

Health Savings Accounts (HSAs). Individuals making less than $75,000 annually and families making less than $150,000 could contribute up to double the current HSA limit. Many other changes are proposed, including making bronze and catastrophic health plans purchased on an exchange eligible for HSA contributions and permitting certain fitness expenses, including gym memberships, up to an annual limit. Most of the HSA changes are effective starting in tax year 2026.

International Money Transfers. A new 3.5% excise tax applies to remittance transfers sent from an individual in the U.S. to a recipient in a foreign country using a financial institution for transfers made after December 31, 2025.

Transfers sent by U.S. citizens or nationals using a qualified remittance service provider are exempt from the tax, and a new refundable tax credit is available for U.S. citizens and certain residents to offset the tax fully if it is imposed on them.

Mortgage Interest Deduction. The mortgage interest deduction limit of $750,000 ($375,000 married filing separately) would be made permanent, as would the non-deductibility of home equity debt (i.e., debt secured by the residence but not used to buy, build, or improve the residence).

Overtime Deduction. For tax years 2025 through 2028, there is a new below-the-line individual deduction for qualified overtime compensation. Employees with earned income exceeding the highly compensated employee threshold and qualified tips (see below) are not eligible for the deduction.

Personal Casualty Losses. The TCJA provision, which allows them in connection with a federal disaster, or to the extent of personal casualty gains, is made permanent.

Senior Citizen Deduction. For tax years 2025 through 2028, taxpayers aged 65 and older can deduct an additional $4,000 from their taxable income. This deduction phases out at modified adjusted gross income (MAGI) of $150,000 for joint filers and $75,000 for all other taxpayers.

Standard Deduction. The proposal permanently extends the enhanced standard deduction and would add an extra year to the existing inflation adjustment. In addition, there would be a temporary increase of $1,000 for individual filers and $2,000 for joint filers for tax years 2025 through 2028.

State and Local Tax (SALT) Deduction. In tax year 2025, the individual SALT deduction cap increases to $40,000 ($20,000 married filing separately) and begins to phase down to $10,000 at a MAGI of $500,000. The cap is permanent; however, the thresholds will increase by 1% annually for 10 years starting in tax year 2026.

Tax Rates. The TCJA’s lower rates for individuals are permanently extended beginning in tax year 2026. It also provides an additional year of inflation-adjustment for all income brackets except for the top 37% bracket.

Terminated Provisions. These provisions are permanently terminated: the exemption deduction, miscellaneous itemized deductions subject to the 2% of AGI floor, and the moving expenses deduction and exclusion.

Tip Deduction. For tax years 2025 through 2028, there is a new below-the-line individual deduction for qualified tips. Employees with earned income exceeding the highly compensated employee threshold or qualified tips from a §199A specified service trade or business (SSTB) are ineligible for the deduction.

Qualified tips include those earned in an occupation where tipping is customary before tax year 2025, are paid voluntarily, and are determined by the payer.

The §45B tip credit is permanently expanded to include beauty services, such as hair and nail salons, esthetics, and spas, effective in tax year 2025.

Business Provisions

The following provisions are the most significant for business taxpayers and individual taxpayers who own businesses.

§199A Deduction. The §199A deduction is made permanent, and the rate increases from 20% to 23%. In addition, the deduction phase-out over the taxable income threshold is modified so the deduction phases out more slowly. These changes take effect starting in tax year 2026.

Bonus Depreciation. The proposal restores 100% bonus depreciation for assets placed in service after January 19, 2025, and before January 1, 2030. In addition, qualified production property (a new property category) is eligible for full expensing if construction begins after January 19, 2025, and before January 1, 2029.

§179 expensing thresholds are increased from $1 million to $2.5 million, with the phase-out beginning at $4 million, starting in tax year 2025.

Employee Retention Credit (ERC). Certain promoters are subject to new penalties, and the assessment statute of limitations is extended for ERC amounts. ERC claims filed after January 31, 2024, but not paid on or before the law’s enactment date, are disallowed. There is no clawback of ERC claims already paid out.

Energy Credits. Most Inflation Reduction Act energy-related tax credits are phased out over the next five to seven years.

Excess Business Loss Limitation. This TCJA loss limitation provision is made permanent; it was scheduled to terminate in tax year 2029.

Form 1099 Reporting. Effective retroactively, the Form 1099-K reporting threshold is returned to $20,000 in gross sales and 200 transactions. Starting in tax year 2026, the general Form 1099 reporting threshold is increased from $600 to $2,000, and adjusted for inflation going forward.

Health Reimbursement Arrangements (HRAs). The proposal codifies and expands Individual Coverage HRAs and renames them “CHOICE Arrangements.”

Opportunity Zones. A new round of opportunity zone investments, along with enhanced tax benefits, is authorized starting in tax year 2027 through tax year 2033.

Pass-Through Entity Taxes (PTET). The proposal makes PTETs for §199A specified service trade or businesses (SSTBs) separately stated items for partnerships and S corporations, subject to the individual SALT deduction cap. This takes effect starting in tax year 2026.

Research & Development Expenses. The proposal allows businesses to immediately deduct the cost of domestic research expenses in the year paid or incurred for tax years 2025 through 2029; however, the amortization of foreign research expenses is retained.

These Proposals Will Likely Change

The reconciliation bill still needs to be passed by the Senate, and some modifications will likely require the House to pass it again before it is sent to the President for signature.

However, the final law should be similar in scope and effect to the House's current version. While we cannot advise our clients to make changes based on the above legislation (because it is not final), we can undoubtedly answer client questions about the bill and begin to prepare for how we will offer paid advisory services to taxpayers materially impacted by the new law.

Want More Information?

I am hosting an informal Q&A session about this legislation in InCite, the tax community I co-founded, on Friday, May 23, 2025, at 1:00 pm ET / 10:00 am PT.

If you are not a member, use coupon code BBB2025 to get $10 off your first month of membership. You can also attend the Q&A or watch the recording this weekend.

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