OBBBA H.R. 1 - Some Track Changes and Commentary

I find it helpful in understanding changes to Code sections to use track changes to readily see what was removed and what was added. And when the text of the public law says something like replace "(B)(ii)" at paragraph (d)(1), it is difficult to picture that in your head and you might make a mistake in figuring out what the change does.

I've done this with past public laws such as the TCJA and IRA 2022.

Here are a few for the OBBBA:

Section 36B with various changes to the Premium Tax Credit but not the one many folks were hoping for to make permanent the removal of the requirement for a PTC that household income cannot exceed 400% of the Federal Poverty Line.  Perhaps Congress will do this before 2026. Otherwise, many people will see their health insurance costs increase and many will drop their insurance.  With fewer in the insurance pool, costs for everyone is likely to go up.  Why did Congress put this limit in the PTC to start with? After all, about 60% of employees get a great tax break by being able to exclude the health insurance premiums their employer pays and there is no requirement for this exclusion that one's income has to be below 400% FPL (which is about $62K for a single person). Also, even individuals eligible for the PTC might not get it if based on their age and zip code and the §36B affordability factors, they may be found to be able to afford a second lowest cost silver plan. Again, harsh since there is no affordability factor for the exclusion for employer-provided health insurance.

Section 45S with changes to the employer credit for paid family and medical leave to expand coverage and make the provision permanent (was set to expire at the end of 2025).

Section 67 to allow educators to claim their §62(a)(2)(D) expenses that exceed the dollar amount ($350 for 2026), as miscellaneous itemized deductions that are not subject to the 2% of AGI limit so they are allowed for itemizers (non-itemizers limited to the for AGI amount at §62(a)(2)(D) (adjusted annually for inflation).

Section 68 with the new limitation for itemizers in the 37% top bracket starting in 2026. There have been proposals in the past for further cut back such as to provide that the savings from itemized deductions can't be more than 25% or 28%. This cut back to 35% is not much.

Section 108(f)(5) makes the discharge of debt exclusion for student loans when a student dies or becomes disabled permanent, but does not extend the general exclusion for cancellation of student loans that the American Rescue Plan Act of 2021 added through 2025. Also requires an SSN for the exclusion for death or disability of the student.

Section 163(h) with change to the mortgage interest deduction and new temporary interest on domestic car loans. It is odd that they put the car loan at Section 163(h)(4) thereby splitting the mortgage interest rules that are at 163(h)(3) and (5).  I already posted comments on the car loan provision that likely won't get a lot of use for the target group based on income and given the tremendous difference in price between new and used cars and domestic versus foreign, and the small tax savings from the interest deduction.

Section 163(j) with return to calculating the interest expense limitation threshold by adding back to taxable income, depreciation, amortization and depreciation effective for tyba 12/31/24; and some other changes effective for tyba 12/31/25.

Section 170 on charitable contribution deduction with a few OBBB provisions making changes.

Section 199A on the qualified business income (QBI) deduction with key change being making it permanent at the same 20% rate (House proposal for a 23% deduction is NOT in final legislation). A minimum $400 deduction if QBI from active business of at least $1,000, starting after 2025. A few modifications due to §68 limitation on overall itemized deductions.

Section 460(e) with changes to reduce the number of dwelling units per dwelling for home versus residential contracts.

Section 461(l) on excess business loss of noncorporate taxpayers is made permanent (it was already in the law through 2028). Minor modifications on inflation adjustment.

Section 1202 on gain exclusion for noncorporate holders of qualified small business stock. The holding periods, maximum gain exclusion and size of the C corporation are changed.

Hope these are helpful.

H.R. 1 OBBBA's New Limited Deduction for Interest on Car Loan

H.R. 1, the One Big Beautiful Bill Act (OBBBA) (officially known as An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14) was signed into law on July 4, 2025. It has just over 100 tax changes! One of these is at SEC. 70203, No Tax on Car Loan Interest. Technically, it is a deduction for interest on certain car loans available to individuals below specified modified AGI levels, whether or not they itemize.

In reviewing the details, it doesn't seem that it will benefit too many people because the Senate added a requirement that it must be a new vehicle (the House allowed the deduction for a used vehicle), the income levels are low relative to the average price of a new vehicle being almost $50,000, and the eligible individuals having a marginal tax rate of 10%, 12% or 22% will find that the tax savings will be less than the money savings of buying a used car. Note that by "benefit" I don't mean just getting a lower tax bill, but having to spend more money to get the tax break when comparing the cost differential between a new and used vehicle.

Here is my summary of this new provision and some observations and an example (it's a bit long as is SEC. 70203!).

•        §163(h)(4)

•        Existing (h)(4) becomes (h)(5).

•        Deduction available for 2025 through 2028.

•        Deduction from AGI even if don’t itemize.

•        Apparently also allowed for AMT.

•        Qualified Passenger Vehicle Loan Interest - Debt incurred after 2024 for purchase of, and secured by, a first lien on “applicable passenger vehicle” for personal use.

•        Refinancing of such debt that doesn’t exceed balance at refinancing date.

•        No related party financing.

•        Interest deduction can’t exceed $10,000 for any tax year.

•        Phaseout - Reduce otherwise deductible amount by $200 for each $1,000 or portion thereof by which MAGI exceeds $100,000 ($200,000 if MFJ)

•        MAGI = AGI + §911, §931 and §933 exclusions

•        Must include VIN on return.

•        “Applicable passenger vehicle”

•        Original use starts with taxpayer.

•        Manufactured primarily for use on public roads.

•        Has at least 2 wheels.

•        Is a car, minivan, van, SUV, pickup truck or motorcycle.

•        Treated as a motor vehicle under Title II of Clean Air Act.

•        Has gross vehicle weight of less than 14,000 pounds.

•        Final assembly was in the U.S. (§163(h)(4)(E)(i)) (Observation: Likely dealer will have info.)

•        New §6050AA – lender required to issue information report (likely 1098 type) if interest is $600 or more. Must show origin date of loan and year, make, model and VIN of vehicle, and other info required by IRS.

•        Observations:

•        Interest rates on new cars per B of A at July 2025 is 5.64%.

•        Higher if have poor credit score.

•        Average new car price per Kelley Blue Book is $49,740.

•        Loan amount to generate $10,000 of interest expense is

•        $166,667 if interest rate if 6%

•        $ 76,923 if interest rate is 13%

•        Once MAGI reaches following, no interest deduction:

•        $150,000

•        $250,000 if MFJ

•        If financing 80% of new car costing $45,000 (so loan of $36,000), likely need income of $30,000 before taxes (but also relevant other expenses and debts outstanding).

•        Interest expense on $36,000 loan at 6% = $2,160

•        Tax savings at marginal rate of

•        12% = $259

•        22% = $475

•        Given price difference between new and used vehicles, tax savings of deducting interest not enough to justify buying a new versus used vehicle.

•        Example:

•        1/2/25 - Amy, single, with 2025 MAGI of $110,000 purchased new car for personal use for $35,000 and financed $30,000 with dealer at 6%.

•        Car assembled in U.S.

•        2025 interest expense is $1,800

•        Amy’s MAGI of $110,000 requires her to reduce deduction by 10 x $200 or $2,000, but not below $0 so she has no possible deduction.

•        If Amy’s MAGI were instead $100,000, she can deduct entire $1,800 of interest. Savings for Amy who has marginal rate of 22% is $396.

•        Observation: Amy will save far more than $396 per year for four years by purchasing a used vehicle and having a smaller loan or buying a less expensive new car with a smaller loan.

My take: Given that the people who qualify for this won't have $10,000 of interest expense, the phaseout level starts at fairly low amounts for people likely to be able to afford a new car, the reporting requirement for lenders, this provision should have been omitted and the $30 billion it costs the fisc over 4 years (per JCX-35-24 (7/1/25)) should have been used for deficit reduction.

Comments?  Do you think I got anything wrong?

What do you think?

H.R. 1 OBBB Depreciation Query

H.R. 1, One Big Beautiful Bill (OBBB) Act, was passed by the House on May 22 and the Senate is still working on their version although the Senate Finance Committee released their tax provisions on June 16. There are lots of tax provisions in the bill! Just look at the House version's table of contents with tax changes running from SEC. 110000 to 112208 + SEC. 70301 modifying a multistate tax nexus provision from 1959.

Changes include extending many of the temporary provisions of the TCJA passed in December 2017, such as lower tax rates for individuals and a higher standard deduction. H.R. 1 brings back 100% bonus depreciation for eligible assets. Bonus depreciation had begun to phase down per TCJA terms to 80% starting in 2023, 60% in 2024 and 40% in 2025. See SEC. 111001

But I question what seems like an odd effective date for this depreciation change - eligible property acquired and placed in service after January 19, 2025 (so starting on Inauguration Day). Property placed in service on January 1 to January 19 gets 40% bonus depreciation. Generally bonus depreciation rules apply per calendar year even for fiscal year taxpayers. So, why not allow 100% for all of 2025 especially given that the 40% for the first 19 days is from the TCJA drafted by the same party drafting H.R. 1? And it would follow the general rule of having the same rule for an entire calendar year. 

My query: What do you think - should we have 100% bonus for all of 2025 or only starting after January 19 and deal with 40% for the first 19 days? 100% versus 40% is a big difference in first year depreciation.