The One Big Beautiful Bill: An Overview (Senate Edition)

At a glance:

• The main takeaway: After an arduous process, the Senate passed the One Big Beautiful Bill along party lines. The legislation now heads back to the House of Representatives for a vote.
• Impact on your business: The uncertainty surrounding the bill’s passage means businesses and individuals cannot plan for specific tax provisions, which can create added complexity when forecasting potential financial impacts.   
• Next steps: Aprio’s tax advisors are proactively monitoring tax legislation developments and are prepared to help you navigate the potential changes. 

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The full story:

After an arduous process that included an extended vote to take up the bill, a 16-hour oral reading of the bill, over 10 hours of debate, and a record setting “vote-a-rama”, the Senate has passed the One Big Beautiful Bill along party lines. It was a difficult process with Senators Collins (R-ME), Paul (R-KY), and Tillis (R-NC) joining Senate Democrats in voting against the bill.

The legislation now heads back to the House of Representatives for what appears to be a very difficult vote. The Senate measure contains significantly deeper cuts to Medicaid than its House counterpart, as well as deeper cuts to Supplemental Nutrition Assistance Program (SNAP) benefits. The bill also makes certain business tax cuts permanent, increasing the cost of the measure as compared to the previously passed version of the House bill. These changes threaten to upset the delicate balance struck by the majority in initially passing the House version of the bill.

To meet the President’s self-imposed July 4 deadline, the House would have to vote on the Senate measure without changes on either July 2 or July 3. If the House insists on changes to the Senate bill, the two chambers will likely have to form a conference committee and draft compromise legislation. This is a time-consuming process and could delay final passage of the legislation well beyond July 4.

Key Provisions in the Senate Tax Bill

Individual Income Tax Provisions

• Tax Brackets and Rates: The Senate bill makes the brackets and rates implemented by the Tax Cuts and Jobs Act (TCJA) permanent. There is an additional year of inflation adjustment to the brackets below 24%, impacting the 10%, 12%, and 22% brackets.

• Standard Deduction: The bill permanently extends the standard deduction that originated in the 2017 TCJA. In tax years beginning after 2025, the standard deduction will be $15,750 for single filers ($31,500 MFJ) and $23,625 for those who file as head of household.

• Personal Exemptions: The bill permanently repeals all deductions for personal exemptions. There is an added phase out for the senior deduction that phases out after the modified adjusted gross income (MAGI) of the senior exceeds $75,000 for single filers ($150,000 MFJ). The senior deduction will expire in 2028.

• Mortgage Interest: The itemized deduction for interest paid on home mortgages will be reduced permanently to the first $750,000 in home mortgage acquisition debt. Certain mortgage insurance premiums on acquisition indebtedness will also be treated as qualified residence interest.

• SALT Deduction: The bill creates a SALT cap of $40,000 for the tax year 2025 and adjusts by adding 1% until tax year 2029. Phase outs will begin at MAGI of $500,000 in years before 2029. For years after 2029, the SALT deduction will be capped at $10,000 ($5,000 MFS).

• Disaster Loss: The bill includes a permanent extension of the disaster loss treatment within federally declared disaster zones.

• Miscellaneous Deductions: The bill permanently removes miscellaneous itemized deductions and removes unreimbursed employee expenses for eligible educators from the list of misc. deductions.

• Gambling Losses: The bill clarifies that the term “losses from wagering transactions” includes any deduction allowable incurred in carrying on wagering transactions and limits to 90% of the amount of such losses to the extent of gains from similar transactions.

• Moving Expenses: The bill permanently eliminates exclusions for qualified moving expenses reimbursement and the deduction for moving expenses. Only active-duty members of the Armed Forces and Intelligence Community will be eligible. 

• Itemized Deduction Cap: The bill repeals the Pease limitation and replaces it with a new cap. The new cap is 35 cents per dollar and applies only to filers in the highest tax bracket.

• Child Tax Credit: The bill makes permanent all of the following:
  • Increase to $2,200 per child tax credit,
  • $1,400 refundable tax credit,
  • Increased income phase outs of $200,000 ($400,000 MFJ), and
  • $500 non-refundable credit for each dependent other than a qualifying child.

• Alternative Minimum Tax (AMT): The bill makes permanent the increased individual AMT exemption amounts with the phase out thresholds at $500,000 for single filers ($1M MFJ).

• Tipped Income Deduction: The bill provides a deduction of up to $25,000 for qualified tips received by an individual in an occupation that usually receives tips, allowed for itemizers and non-itemizers. There is a phase out of $150,000 for single filers ($300,000 MFJ) of MAGI. Tips must be voluntary and are not subject to negotiation. The deduction will be allowed for tax years 2025 through 2028. A list of occupations that regularly receive tips is to be published within 3 months by the Secretary of the Treasury.

• Auto Loan Interest: The bill allows for a deduction of up to $10,000 for qualified passenger vehicle loan interest for filers with a MAGI below $100,000 ($200,000 MFJ). Above these thresholds there will be a phase out. This applies to vehicles that:
  • The original use of which commences with the taxpayer;
  • Are manufactured primarily for use on public streets, roads, and highways;
  • Have at least two wheels;
  • Are a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle;
  • Are treated as motor vehicles for purposes of title II of the Clean Air Act; and
  • The final assembly of which occurs in the U.S.

This deduction will be allowed from tax years 2025 through 2028.

• Overtime Deduction: The bill allows a deduction of $12,500 ($25,000 MFJ) for qualified overtime compensation. This deduction is allowed for both itemizers and nonitemizers and will begin to phase out when MAGI exceeds $150,000 for single filers ($300,000 MFJ). It is only allowed if overtime is reported separately on the individual’s W-2. The deduction will be available from 2025 through 2028.

Business Tax Provisions

• Section 199A Deduction: The bill permanently adopts the deduction for qualified business income. The deduction limit phase-in amounts increase to $75,000 for single filers ($150,000 MFJ) and ease the impact of the limitations for both SSTBs and pass-throughs subject to wage and investment limitations. It also provides a new minimum of $400 in deductions for those who have at least $1,000 in qualified business income.

• SALT Cap Workarounds: The bill closes loopholes that have allowed for SALT cap avoidance for pass-through entities by requiring partnerships and S corporations to disclose specified taxes and pass-through entity taxes as separately stated items.

• Excess Business Loss Limitation: The bill makes permanent the excess business loss limitation. Excess business losses disallowed after tax year 2024 will be taken into account when determining a taxpayer’s excess business loss in subsequent years.

• Charitable Contributions: The bill limits the deductibility of charitable contributions made by a C corporation to contributions greater than 1% but less than 10% of the taxpayer’s taxable income. Any amount greater than 10% of the taxable income may be carried forward for 5 taxable years.

• Executive Compensation: The bill adds an entity aggregation rule for the purposes of the deduction. The corporation’s deduction for wages paid to highly paid employees within an aggregated group of publicly held corporations will be limited to $1 million. 

• FICA Tip Credit: The bill expands the FICA tip credit to include beauty services that regularly receive tips. A statement of tips must be furnished to the Secretary and the payee.

• R&D Expensing: The bill allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred beginning in the tax year 2025. Research conducted outside of the United States is required to be capitalized and amortized over 15 years. Small taxpayers (gross receipts less than $31 million) are allowed to apply the change retroactively to tax years beginning after December 31, 2021.

• Interest Expense Limitation: The bill increases the cap on the deductibility of business interest expenses for tax years beginning in 2025. The provision specifies that “adjusted taxable income” is computed without considering depreciation, amortization, and depletion. This aligns adjusted taxable income with the financial accounting concept of earnings before interest, taxes, depreciation, and amortization (EBITDA). The provision also modifies the definition of motor vehicle to allow interest on floor plan financing for some trailers and campers.

• Qualified Production Property: The bill allows for additional first-year depreciation of 100% of the adjusted basis of qualified production property. “Qualified production property” is nonresidential real property used as an integral part of the taxpayer’s business, placed in service in the US, where construction begins after January 19, 2025, and before January 1, 2029, and is placed in service before January 1, 2031.

Energy and Environment Provisions

• Energy Tax Credits: The bill shortens expiration dates of energy-related credits, including:
  • Clean Vehicle Credit: Credit terminated for vehicles acquired after September 30, 2025.
  • Alternative Fuel Vehicle Refueling Property Credit: Credit terminated for property placed in service after June 30, 2026.
  • Energy Efficient Home Improvement Credit: Credit terminated for property placed in service after December 31, 2025.
  • Residential Clean Energy Credit: Credit terminated for expenses incurred after December 31, 2025.
  • New Energy-Efficient Home Credit: Credit terminated for property constructed after June 30, 2026.
• Inflation Reduction Act (IRA) Clean Energy Credits: Changes include:
  • Clean Electricity Production Credit: Phaseout for all wind and solar beginning after 2026.
  • Clean Electricity and Investment Credit: Phases out clean energy investment credit for investments in wind and solar beginning after 2026. No credits allowed for facilities that begin construction after tax year 2025.
  • Zero-Emission Nuclear Power Production Credit: Disallows credit for zero emission nuclear power production where the taxpayer uses fuel obtained from a covered nation. Effective for tax years beginning in 2028.
  • Clean Hydrogen Production Credit: Accelerated expiration to facilities constructed after December 31, 2028.
• Advanced Manufacturing Production Credit: The bill phases out the credit for production of materials down to 75% in 2031 and down an additional 25% until it reaches zero in 2034.

Projected Financial Impact of the Senate Version of the One Big Beautiful Bill

Estimating the financial impact of the Senate version of the bill is more difficult than estimating the impact of the House version. The Senate chose to use the “current policy baseline” to consider the financial impact of the legislation; this means that the Senate proceeded as if the provisions of the TCJA that were set to expire at the end of the year were permanent. This reduced the projected cost of the Senate bill by trillions of dollars. It is also a point of contention with some members of the House who were already concerned about the deficit.

The Joint Committee on Taxation (JCT) estimates that the tax provisions of the bill will result in a tax increase for taxpayers with a MAGI of $30,000 or less. While those with a MAGI of more than $30,000 are projected to see a tax decrease, individual situations may vary. The projected cost of the bill without the use of the current policy baseline has not yet been projected by the non-partisan Congressional Budget Office (CBO).

The bottom line

After proceeding through a very difficult process that resulted in several last-minute changes to the legislation, the Senate has passed its version of the One Big Beautiful Bill. There are numerous provisions enacted by the Senate which run counter to provisions in the House version of the bill, and which place the differing versions of the bills on a collision course. While the overall legislation proceeds, it is difficult to predict whether the House will pass the Senate version of the bill to meet the President’s July 4 deadline or if a conference committee will need to be formed to reconcile the difference in the bills, potentially delaying final passage.

Given the challenging nature of the legislative process, individuals and businesses should remain cautious and not rely on any specific provisions or measures being included in the final version of this bill. Aprio’s tax advisors are proactively monitoring tax legislation developments and are prepared to help you navigate the potential changes.

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