The One Big Beautiful Bill Act: 5 key items for individual taxpayers

ARTICLE | June 24, 2025

Executive summary

Congress is considering wide-ranging tax legislation that could reshape personal tax planning. Five key potential tax changes that individuals should pay attention to include:

Qualified business income (QBI) deduction
State and local tax (SALT) cap and pass-through entity tax (PTET) election
Itemized deductions and charitable contributions
Qualified small business stock (QSBS) section 1202 expansion
Qualified opportunity zones (QOZ) reboot

The One Big Beautiful Bill Act (OBBBA), passed by the House on May 22 and subsequently taken up by the Senate, proposes sweeping changes to the U.S. tax code that could significantly impact individual taxpayers starting in 2025.

While many provisions build on the Tax Cuts and Jobs Act of 2017 (TCJA), the OBBBA proposes new rules and limitations that individuals should closely monitor. From deductions and income thresholds, to opportunity zones and estate planning, the legislation would reshape personal tax planning.

Here are five potential tax changes that individuals should pay close attention to as Congress works to enact the OBBBA.

1. Qualified business income (QBI) deduction

The House and Senate take different approaches to the future of the qualified business income (QBI) deduction. Under the TCJA, eligible business owners can deduct up to 20% of their QBI, but this provision is set to expire after 2025. Without legislative action, that expiration would result in a significant tax increase for many pass-through business owners.

The House version of the OBBBA proposes to increase the deduction to 23% and make it permanent, offering both expanded benefits and long-term certainty. In contrast, the Senate version retains the current 20% deduction but also makes it permanent, preserving the status quo while avoiding the looming sunset.

Planning point: With the House and Senate proposing to make the QBI deduction permanent at 23% and 20%, respectively, business owners can plan with greater certainty. Rather than preparing for the loss of the deduction, the focus now shifts to maximizing eligibility. This includes reviewing your business structure, income thresholds, and the nature of your services, especially if you operate in a specified service trade or business (SSTB), which may face new limitations under proposed pass-through entity tax (PTET) rules.

Strategic restructuring, income smoothing, or reclassification of activities may help you continue to access the deduction and optimize your overall tax position.

2. State and local tax (SALT) cap and pass-through entity tax (PTET) election

The TCJA imposed a $10,000 cap ($5,000 married filing separately) on the deduction for SALT for individuals, including property and income taxes, expiring after 2025. In response, many states introduced PTET regimes allowing pass-through entities to pay state taxes at the entity level, effectively bypassing the SALT cap for owners.

The House version of the OBBBA proposes to increase the SALT deduction cap to $40,000 ($20,000 married filing separately) and introduces a phase-down for high earners.

Further, the House restricts PTET elections for certain pass-through entities, particularly specified service trades or businesses (SSTBs), such as law, health care, accounting, and investment management firms. These businesses would no longer be able to deduct state taxes paid at the entity level if they do not qualify for the QBI deduction.

The Senate version keeps the SALT deduction cap at $10,000[RC1] [WA2] but takes a two-step approach to the limitation.

It would make permanent the current $10,000 cap ($5,000 married filing separately) without indexing for inflation or including a high-income phase-down.
PTET would be subject to a separate limitation. The list of taxes subject to this portion of the SALT cap have changed. It does, however, allow individuals to deduct any unused portion of the $10,000 SALT cap plus the greater of up to $40,000 of their allocation of the PTET or 50% of their allocable share of the PTET.

Notably, the Senate version does not include language that would eliminate the ability of SSTBs to utilize state PTET elections. The differences between the House and Senate proposals on these issues are a focal point of policy negotiations and warrant close monitoring.

Planning point: With the House and Senate proposing to retain some form of the SALT deduction cap, individuals—especially those in high-tax states or with pass-through business income—should revisit their state tax strategy and entity structure.

The House’s proposed increase in the cap and its phase-down for high earners may offer relief for some, but its restrictions on PTET elections for SSTBs could limit a key solution.

Meanwhile, the Senate’s approach maintains the $10,000 cap but introduces a more flexible PTET deduction mechanism and removes SSTB limitations.

Given the high likelihood that some version of the SALT cap will remain, consider the timing of state and local tax payments and monitor how your entity’s classification and income allocation may affect your ability to benefit from PTET elections under either version of the bill.

3. Itemized deductions and charitable contributions

Under the TCJA, many individuals stopped itemizing deductions due to the increased standard deduction and new limitations on SALT and mortgage interest deductions. The TCJA also suspended miscellaneous itemized deductions and raised the adjusted gross income (AGI) limit for charitable contributions of cash from 50% to 60%. Those provisions are set to expire after 2025.

The House and Senate propose making permanent the TCJA’s increased standard deduction. The House adds a temporary $1,500 increase for tax years 2025 through 2028, while the Senate sets the deduction at $16,000 for single filers, $24,000 for heads of household, and $32,000 for joint filers, with inflation adjustments beginning in 2026.

The House bill would:

Permanently eliminate miscellaneous itemized deductions
Introduce a new overall limitation on itemized deductions for high earners
Reinstate a partial charitable deduction for non-itemizers from 2025 through 2029

Both chambers also propose permanently eliminating personal exemptions. Additionally, the Senate proposes a temporary $6,000 senior deduction for individuals over age 65, with phaseouts beginning at $75,000 AGI ($150,000 for joint filers).

While both versions align on eliminating miscellaneous deductions, the Senate proposes a simpler overall itemized deduction limitation and expands educator expense deductions.

Under the Senate version, starting in 2026, nonitemizers could claim a charitable deduction of up to $1,000 ($2,000 for joint filers). For itemizers, charitable contributions would be deductible only to the extent they exceed 0.5% of AGI, with carryforwards allowed only if that threshold is met. The Senate also makes permanent the 60% AGI limit for cash contributions to public charities.

Planning point: With the TCJA provisions set to expire and both chambers proposing permanent changes, individuals should reassess their deduction strategy.

The proposed overall limitation on itemized deductions from both chambers would be a further limitation from what high-income taxpayers currently experience; however, it is likely a better situation than a reinstatement of pre-TCJA limits.

The Senate’s proposal of an additional 0.5% annual limitation on charitable contributions may cause many taxpayers to consider bunching charitable contributions. This can have two effects for taxpayers:

It can allow you to encounter the 0.5% limitation only in that year of the bunched contributions
For some, it could mean not itemizing every year, allowing them to take the standard deduction (a deduction allowed without a cash payment).

Those considering bunching of itemized deductions could also consider the use of donor-advised funds or other vehicles to allow the deduction in the current year without making a final decision as to the charity that will benefit from the funds.

4. Qualified small business stock (QSBS) section 1202 expansion

The QSBS exclusion allows eligible investors to exclude up to 100% of capital gains on the sale of certain stock held for more than five years, subject to limits, such as the $10 million per-issuer cap and a $50 million gross asset test. The TCJA made no changes to the QSBS exclusion, and the House bill proposed no changes.

The Senate bill, however, proposes the following three changes expanding the benefit and scope of section 1202:

A tiered exclusion: Allowing taxpayers that have held stock in a qualified company a reduced benefit for holding periods as short as three years.
Increased per-issuer limitation: Raising the per-issuer gain exclusion cap from $10 million to $15 million (indexed for inflation)
Increased gross asset threshold for qualification: Increasingthe gross asset threshold from $50 million to $75 million (also indexed for inflation).

Planning point: With the Senate proposing an expanded benefit and scope to section 1202, investors should be careful to assess the timing and applicability to current or future investments.

For new acquisitions of existing companies, consider timing to align with the proposed acquisition, holding period, and acquisition value thresholds. Documenting acquisition dates and basis now can help preserve future tax benefits if the Senate’s enhancements are enacted.

For existing enterprises with values close to or below the gross asset value limitation, it may mean reexamining your choice of entity. Lower corporate tax rates and potential protection from capital gains taxes upon exit may make a taxpaying C corporation a better option than flow-through taxation.

5. Qualified opportunity zones (QOZ) reboot

The TCJA created the QOZ program to encourage investment in economically distressed communities. Investors could defer capital gains by reinvesting them into qualified opportunity funds (QOFs), with the potential for partial exclusion—and full exclusion of post-investment appreciation if held for at least 10 years. The original program is scheduled to sunset at the end of 2026.

The House proposes to renew and modify the QOZ program, including modified definitions, criteria, investment incentives and reporting requirements.

The Senate goes further by proposing a permanent QOZ policy that builds off the original structure by:

Introducing rolling 10-year QOZ designations beginning Jan. 1, 2027
Updating the definition of low-income communities (LIC)
Eliminating the ability for contiguous non-LIC tracts as QOZs

The Senate also proposes expanded tax benefits, including incremental gain reductions starting on the first anniversary of the investment. The bill creates special rules for investments in qualified rural opportunity funds. Additional reporting requirements and IRS enforcement funding are also included.

Planning point: With a deferred implementation date to allow the original program to reach maturity, taxpayers would have time to plan for this provision. With both chambers signaling support for extending or expanding the QOZ program, investors should evaluate whether upcoming capital gains should be deferred, and a portion of the gain excluded, by investing into QOFs under the new rules.

Other items of note

Estate and gift tax: Both the House and Senate versions of the OBBBA propose to increase the estate and gift tax exemption to $15 million per individual starting in 2026, with annual adjustments for inflation. This would provide long-term certainty for high-net-worth individuals engaged in estate planning and wealth transfers.

Even with this certainty, it will be important for individuals to continue evaluating whether their current plan fits their needs and whether anything needs to be done to limit their estate tax exposure.

Excess business loss (EBL) limitation: The House and Senate each propose to make the EBL limitation permanent and require that disallowed losses remain subject to the limitation in future years, rather than converting to net operating losses (NOLs).

However, the Senate goes further by extending the EBL rules to estates and trusts, and by applying attribute reduction rules—such as those triggered by debt discharge or bankruptcy—to EBL carryovers. This would add complexity and potential limitations for affected taxpayers.

The road ahead for the tax bill

As Congress works to resolve differences between the House and Senate versions of the OBBBA, individuals should pay close attention to the evolving provisions that could significantly impact their tax planning strategies.

While some proposals offer clarity and permanence—like the QBI deduction and standard deduction—others, such as SALT cap treatment and PTET eligibility, remain in flux. Staying informed and proactive will be key to navigating the changes ahead.

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This article was written by Andy Swanson, Amber Waldman and originally appeared on 2025-06-24. Reprinted with permission from RSM US LLP.
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