OBBBA Tax Changes: 2026 Planning Guide

Public Law 119-21, commonly called the One, Big, Beautiful Bill Act (OBBBA), was signed July 4, 2025. It made several TCJA-era rules permanent, restored or expanded business deductions, introduced temporary individual deductions, and changed multiple 2025 and 2026 thresholds. This guide separates permanent changes from temporary provisions and links to current IRS guidance so a planning decision is not based on an expired forecast.

TCJA Provisions Made Permanent

OBBBA made many individual TCJA provisions permanent instead of allowing the scheduled December 31, 2025 sunset:

Marginal Tax Rates

The TCJA-era brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) become permanent — eliminating the planned reversion to pre-TCJA rates (10%, 15%, 25%, 28%, 33%, 35%, 39.6%). The bracket boundaries continue to inflation-adjust annually.

Standard Deduction

The larger standard deduction structure becomes permanent, with amounts continuing to adjust for inflation. Personal exemptions remain eliminated. Use the IRS inflation-adjustment release for the tax year being planned rather than carrying a prior-year dollar amount forward.

Section 199A QBI Deduction

The 20% deduction on qualified business income from pass-through entities becomes permanent. The SSTB carve-outs, W-2 wage and UBIA limits, and aggregation provisions all continue.

Child Tax Credit

The maximum Child Tax Credit increased to $2,200 per qualifying child for 2025 and is indexed after 2025. The phase-out begins at $200,000 for most filers and $400,000 for joint filers; Social Security number and other eligibility rules apply.

Estate and Gift Tax Exemption

The larger estate and gift tax exemption framework becomes permanent and continues to be indexed. Estate plans should use the exemption for the relevant year and should still be reviewed for state estate tax, basis, liquidity, and non-tax objectives.

SALT Cap

The individual SALT deduction ceiling is temporarily $40,000 for 2025 and $40,400 for 2026, with a MAGI-based reduction above the applicable threshold and a statutory floor. The higher ceiling continues with indexing through 2029; the law returns to a $10,000 ceiling in 2030 absent another change. PTET value therefore depends on the owner's income, state rules, entity facts, and the year under review.

Mortgage Interest Cap

The $750,000 acquisition mortgage interest cap becomes permanent. Home equity loan interest restrictions continue (deductible only when used to acquire or substantially improve the home).

Miscellaneous Itemized Deduction Suspension

The elimination of 2% floor miscellaneous itemized deductions (employee business expenses, investment management fees, tax preparation fees) becomes permanent.

Bonus Depreciation Restoration

OBBBA permanently restored 100% additional first-year depreciation for eligible property acquired after January 19, 2025. Eligibility still depends on acquisition date, placed-in-service date, property type, related-party rules, business use, and elections. It did not retroactively turn 2023 or 2024 property into 100% bonus property.

Section 174 R&D Reform

OBBBA restored current deductibility for eligible domestic research expenditures:

• Domestic R&D: Fully deductible in year incurred (eliminating 5-year amortization).

• Foreign R&D: Continues to require 15-year amortization.

• Transition rules and elections for unamortized 2022-2024 domestic costs differ by taxpayer size and facts; taxpayers should follow current IRS procedures before amending a return or changing method.

Software, technology, manufacturing, and other research-intensive businesses should reconcile project records, credit support, capitalization history, and the permitted transition method before claiming relief.

Section 179 Expensing Increase

OBBBA expanded Section 179 for tax years beginning in 2025:

• Maximum deduction: $2,500,000 (up from $1,250,000).

• Phase-out threshold: $4,000,000.

• Inflation-adjusted annually.

Combined with restored 100% bonus depreciation, the higher Section 179 limits expand immediate expensing options. The two provisions have different eligibility, ordering, taxable-income, recapture, and state-conformity consequences.

New Provisions Introduced

Tip Income Deduction

OBBBA introduced a temporary 2025-2028 deduction for qualified tip income for taxpayers in eligible occupations:

• Above-the-line deduction for federal income tax (does not reduce SE tax for self-employed).

• Limited to specific industries (food service, beauty services, hospitality, others).

• Income limits apply.

• Implementation guidance from Treasury continues to refine eligibility rules.

Overtime Pay Deduction

OBBBA introduced a temporary 2025-2028 deduction for the qualifying overtime premium required by the Fair Labor Standards Act:

• Above-the-line deduction.

• Limited to non-exempt hourly workers.

• Subject to income limits.

• Reduces federal income tax (does not affect FICA).

Auto Loan Interest Deduction

OBBBA introduced a temporary 2025-2028 deduction for interest on qualifying personal vehicle loans:

• Limited to vehicles assembled in the United States.

• Annual cap on deductible interest.

• Income phase-outs.

• Specific eligibility rules for vehicle types and price ranges.

Senior Tax Deduction

OBBBA introduced a temporary 2025-2028 enhanced deduction for taxpayers age 65 or older:

• Above-the-line deduction in addition to the existing over-65 standard deduction increase.

• Subject to income phase-outs for high-earning seniors.

• Layered with the regular standard deduction for retirees.

Business Provisions Beyond §174 and §179

QSBS Enhancements

For qualifying stock acquired after July 4, 2025, OBBBA added tiered exclusion percentages based on holding period and increased statutory limits. Section 1202 still requires a separate eligibility analysis covering issuance date, original issuance, gross assets, active business use, redemptions, and excluded industries.

Pass-Through Entity Tax Modifications

OBBBA's temporary SALT ceiling increase changes the PTET calculation but does not make PTET automatically beneficial or unnecessary. Model the state election, federal entity deduction, owner credit or exclusion, cash timing, and state-specific deadline together.

Opportunity Zone Modifications

OBBBA created a redesigned, permanent Opportunity Zone framework beginning in 2027. Existing investments and new elections have detailed timing, gain-recognition, asset, and reporting rules; verify the applicable regime before presenting projected tax benefits.

Provisions Notably Not Changed

Net Investment Income Tax

The 3.8% NIIT thresholds ($200K single / $250K joint) remain non-inflation-adjusted, continuing to capture more taxpayers each year as nominal incomes rise.

Additional Medicare Tax

The 0.9% surcharge on high earners continues without inflation adjustment.

Section 461(l) Excess Business Loss Limitation

The limitation was made permanent. The annual threshold remains inflation-adjusted, and a disallowed amount generally becomes a net operating loss carryforward subject to the applicable rules.

Capital Gains Brackets

The preferential 0%, 15%, and 20% long-term capital gains brackets continue with inflation adjustments.

Estate Planning Implications

For high-net-worth families who had been preparing to use the higher estate exemption before 2026 sunset:

• OBBBA makes the higher exemption framework permanent.

• Urgency to execute SLATs, GRATs, and other vehicles before year-end 2025 is reduced.

• However, estate tax remains a meaningful concern at $14M+ wealth levels, and structured planning continues to provide value.

• Future legislative changes remain possible — making continued vigilance important.

Business Planning Implications

For pass-through business owners:

• Permanent §199A deduction eliminates the 2025 sunset urgency.

• Continued threshold management remains important for high-income owners.

• SSTB classification concerns continue.

• PTET elections require a state-by-state, owner-by-owner model under the temporary SALT ceiling.

For C-corporations:

• The 21% corporate rate, enacted permanently by TCJA and unchanged by OBBBA, continues.

• The C-corp conversion analysis (potentially favored if §199A had sunsetted) becomes less compelling.

For capital-intensive businesses:

• Restored 100% bonus depreciation transforms equipment financing economics.

• Combined with §179 increases, immediate expensing options are dramatically expanded.

Roth Conversion Strategy Implications

The permanent TCJA-era marginal rates change Roth conversion timing analysis:

• Current 22%, 24%, 32% rates remain — eliminating the 1-3 percentage point increase that would have occurred under sunset.

• Conversions remain valuable for bracket arbitrage and RMD elimination.

• The "convert before rates rise" urgency is reduced for many taxpayers.

Common Mistakes Post-OBBBA

• Continuing to plan as if TCJA were sunsetting (many provisions are now permanent).

• Changing Section 174 treatment without confirming the taxpayer-specific transition procedure.

• Treating property acquired before January 20, 2025 as eligible for the restored permanent 100% bonus rule.

• Not capturing new tip, overtime, or auto loan interest deductions.

• Assuming estate tax planning urgency disappears entirely (significant wealth transfer planning still valuable).

• Continuing C-corp conversion analyses based on the assumed §199A sunset.

Bottom Line

OBBBA invalidated many pre-enactment sunset forecasts, but it did not create a one-size-fits-all tax strategy. Re-run projections with the correct tax year, document eligibility, distinguish temporary provisions from permanent ones, and verify later guidance before filing or making an irrevocable election.