President Trump signed H.R. 1, popularly known as the “One Big Beautiful Bill Act” (OBBBA) into law on July 4, 2025. In this update, Hunton’s Financial Institutions Corporate and Regulatory and Tax groups provide an overview of certain relevant provisions in the OBBBA that may affect financial institutions.

As a comprehensive budget reconciliation bill, the OBBBA has far-reaching consequences across the economy with potential impacts for financial institutions, including tax law changes such as the introduction of tax-advantaged savings vehicles, limitations to graduate student loans, permanent 199A qualified business income deductions, and extension of the SALT deduction cap.

Hunton has previously published alerts discussing other OBBBA provisions, including IRC § 45X Tax Credits.

Hunton continues to monitor developments as these changes are implemented and is ready to assist clients with any questions that may arise with respect to the opportunities and challenges for financial institutions brought about by the OBBBA.

Highlighted Changes for Financial Institutions

Section 70105 Extension of Deduction for Qualified Business Income

The OBBBA permanently extends the IRC § 199A qualified business income deduction, previously set to expire December 31, 2025. The deduction allows non-corporate taxpayers (including shareholders of S-corporations) a deduction of 20% of their qualified business income that phases out based on factors including taxable income. For eligible taxpayers below the threshold ($197,300 or $394,600 if married filing jointly for 2025 as adjusted for inflation), the full 20% credit is available.

For taxpayers whose taxable income exceeds the threshold amount by up to $50,000 ($100,000 for married filing jointly), the deduction is subject to a partial reduction. Under the OBBBA, this has increased to $75,000 ($150,000 for married filing jointly) effective as of tax year 2026. For taxpayers whose taxable income exceeds the threshold by more than that amount, the deduction is reduced by the greater of half the W-2 wages paid by the qualified business or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property immediately after the acquisition of all qualified property.

Section 70101 Extension of Tax Rates and Sections 70110-701111 Itemized Deductions

The individual interest tax rates originally adopted under the TCJA have now been indefinitely extended. While the top marginal rate was set to revert for tax year 2026, that rate will now remain 37% for tax years 2026 and onward.

Additionally, another TCJA change set to expire at the end of the year was the freeze on miscellaneous itemized deductions. Prior to the TCJA, miscellaneous itemized deductions were allowed to the extent that such deductions exceeded 2% of a taxpayer’s adjusted gross income. The TCJA suspended these miscellaneous deductions, but this suspension was set to expire. The OBBBA has now made the IRC § 67(g) suspension of miscellaneous itemized deductions permanent.

With respect to remaining itemized deductions, the OBBBA amends IRC § 68 to permanently repeal what was colloquially known as the “Pease limitation” (which had been suspended by the TCJA). Instead, the OBBBA introduces a new limitation on itemized deductions that applies to taxpayers in the top 37% marginal bracket. The new limit reduces all itemized deductions (including the SALT deduction) by ²/₃₇ of the lesser of (i) the taxpayer’s total itemized deductions or (ii) the amount by which the taxpayer’s taxable income plus total itemized deductions exceeds the dollar amount at which the 37% bracket rate begins for the taxpayer (before applying this new limit). This new limitation will apply starting in 2026. Importantly, the calculation of the qualified business income deduction under IRC § 199A will not take this new limit into account.

Section 70204 Trump Accounts and Contribution Pilot

Beginning in 2026, the OBBBA establishes a program of tax-advantaged savings accounts – so-called “Trump Accounts” – for eligible minor children. To be eligible when an account is created, a child must be under 18 years of age at the end of the year and must have an existing Social Security number. The Treasury Department will create an account for an eligible child automatically upon a parent filing a tax return claiming the child, or a custodian may elect to open the account voluntarily. At this time, further clarification from the Treasury Department is necessary regarding the process for opening Trump Accounts. The team at Hunton is ready to assist banking clients in navigating this new account type as public interest in the program grows.

Contribution Pilot: Additionally, the OBBBA enacts a pilot program wherein the federal government will make an initial one-time contribution of $1,000 to a new Trump Account for children born in years 2025 through 2028. This pilot contribution will not count toward annual account contribution limits. Contributions are invested into specified investment vehicles and will not allow distributions before the calendar year in which beneficiaries turn 18, at which time the Trump Account is treated like an IRA for distribution purposes.

Contribution Limits: Trump Accounts will allow non-deductible contributions of up to $5,000 per year beginning July 4, 2025. No contributions may be made after the calendar year in which an account beneficiary turns 18. Employers may also contribute up to $2,500 per year to the account of an employee’s child, which will count toward the $5,000 annual cap on contributions.

Advantages of Trump Accounts: While the Trump Accounts bear some similarities to existing investment vehicles like IRA, 529, or brokerage accounts, they may be a preferred option in some scenarios due to the balance of tax advantage and flexibility that they provide. First, unlike any of the aforementioned investment vehicles, employer contributions to an employee’s child’s Trump Account can be structured to avoid taxable income to the employee, a distinct advantage. Second, the accounts are more versatile than a 529 plan, which may be used only toward educational expenses, and offer more tax-advantaged treatment than a traditional brokerage account. Like an IRA account, Trump Accounts offer the advantage of tax deferred growth and the disadvantage of penalties on non-qualified distributions before the age of 59½. However, while Trump Accounts have more limited investment option than a traditional IRA, they do have the added benefit that there is no earned income requirement, making this a more versatile option for children who do not tend to be employed.

Section 70605 Employee Retention Tax Credit (“ERTC”)

The OBBBA will retroactively disallow any ERTC claim filed for the third or fourth quarter of 2021 if the claim were filed after January 31, 2024. The statute of limitations on assessment for claims from these two quarters has also been extended to the later of six years from the original return due date or the date the ERTC claim was filed.

Notably, the OBBBA did not retroactively disallow any ERTC claim filed for the first or second quarter of 2021. (Earlier versions of this legislation included a provision retroactively disallowing any claim for these periods filed after January 31, 2024.) The IRS will continue processing ERTC claims for these periods, and any refund will include interest dating back to the day the ERTC claim was first filed.

Section 70604 Excise Tax on Remittance Transfers

Effective January 1, 2026, a 1% excise tax is imposed on any remittance transfer where the sender gives cash or an equivalent to a remittance transfer provider. Remittances funded directly from accounts at certain financial institutions or US- issued debit or credit cards are exempt. A remittance transfer provider will collect this tax from the sender at the time of a transaction and will bear the liability for remitting such tax quarterly, even in the case of failure to collect from a sender.

This tax increases the financial burden placed on the millions of people working in America who send money to support family and communities abroad. As taxpayers face increased costs associated with cash remittances, lower-cost alternatives from fintech and traditional banks with the ingenuity to move into this space are likely to become increasingly appealing options.

Section 70106 Increased Estate and Gift Tax Exemption

Originally set to revert to the pre-TCJA amount of $5 million at the end of 2025, as adjusted for inflation, the federal estate, gift, and generation-skipping transfer (“GST”) tax exemption has not merely been extended at the current TCJA level (as adjusted for inflation, currently $13,990,000 in 2025 per individual). Rather, the OBBBA goes a step further and permanently increases the exemption amount to $15 million per individual, adjusted for inflation in subsequent years, beginning January 1, 2026.

Section 70102 Limitation on Individual SALT Deduction

An increase to the cap placed on deductions for state and local taxes was enacted as part of the OBBBA. However, the legislation ultimately made no changes to the Pass-Through Entity Tax regime, preserving that flow-through taxpayer workaround to the SALT cap. Effective for tax years 2025 through 2029, the cap increases from $10,000 to $40,000 in 2025, with a 1% increase each year thereafter. In tax year 2030, the cap is set to revert to $10,000. The higher limit is the same for all filing statuses except married filing separately (in which case the applicable limit is 50% of the other limits).

This increased deduction begins to phase down for taxpayers whose modified adjusted gross income exceeds $500,000 (increasing 1% each year thereafter). For taxpayers over that threshold, the deduction will be reduced by 30% of the excess of the taxpayer’s adjusted gross income over the threshold but will not reduce the deduction below $10,000.

Lending Market and Credit Impacts

Section 70203 Tax Deduction for Interest on Car Loans and 1099 Information Reporting

The OBBBA has introduced a new annual tax deduction of up to $10,000 for qualifying “passenger vehicle loan interest” paid from tax year 2025 through 2028 for a loan originated in or after 2025. For a car loan to qualify for this deduction, it must be for the purchase of a new passenger vehicle that is assembled in the US, intended for personal use, and secured by a first lien on the car. The deduction provided by this provision is reduced for taxpayers with modified adjusted gross income exceeding $100,000 ($200,000 if married filing jointly).

To allow the IRS to properly administer this deduction, the OBBBA has introduced a new IRS information reporting requirement under IRC § 6050AA, which will require any person who receives interest exceeding $600 for any calendar year on a specific passenger vehicle loan to provide the payor with an information return on an IRS Form 1099 listing:

1. The amount of interest received during the year;
2. The amount of outstanding principal on the car as of the beginning of the year;
3. The date of the origination of the loan; and
4. The year, make, model, and VIN of the car which secures the loan.

Penalties will be imposed for failure to properly issue these information returns.

Section 70435 Lender Exclusion of Interest on Agricultural Loans

Qualified lenders, including FDIC insured banks, domestically regulated insurance companies, and wholly owned subsidiaries of bank or insurance holding companies, may now exclude from gross income 25% of the interest received on qualified real estate loans made after July 4, 2025, and secured by domestic rural or agricultural real property interests. An otherwise qualifying loan will not be treated as made after July 4, 2025, to the extent the proceeds are used to refinance an earlier loan. One point to note is that loan recipients who are “specified foreign entities” under new IRC § 7701(a)(51) are not eligible to receive qualified real estate loans under this provision. Entities with a principal place of business or parent company in China, Russia, Iran, or North Korea may be considered “specified foreign entities” under the new definition.

Section 81001 Limitation on Federal Student Loans

The OBBBA has introduced significant changes to student loan borrowing. As of July 1, 2026, only Federal Direct Unsubsidized Stafford Loans will be available to graduate students and “professional students” such as doctors and lawyers, subject to annual and lifetime limitations. Graduate students may borrow only $20,500, and professional students may borrow $50,000 annually. A graduate student who has never been a professional student has a lifetime cap of $100,000 on student loan borrowing, excluding undergraduate federal loans. For professional students, or graduate students who also obtain a professional degree, that limit increases to a lifetime cap of $200,000, excluding undergraduate borrowing.

The OBBBA also introduces limitations on parent borrowing through the Federal Direct PLUS loan program. All parents of a dependent student (including undergraduates) may now borrow only $20,000 annually, with a lifetime cap of $65,000 per dependent child. A carveout is made for students enrolled in a program prior to June 30, 2026, who received loans under the older rules and are expected to be credentialed in their program in the lesser of three years or the minimum time predicted in the program advertisement.

As limitations on federal borrowing leave graduate students with fewer options for educational funding, many may look to alternatives like private lenders to fill that gap.

Business Tax Provisions Affecting Commercial Clients

Section 70301 Full Expensing for Business Property

The OBBBA makes 100% bonus depreciation permanent for qualifying property. Bonus depreciation allows taxpayers to immediately deduct the cost of qualifying property (e.g., tangible property used in a trade or business or for the production of income with a MACRS recovery period of 20 years or less, in the year that the property is placed in service). The OBBA does not change the fact that bonus depreciation applies to certain used property that is acquired by a taxpayer, specifically, used property that has not been used by the taxpayer (or a predecessor) at any time prior to the transaction, was not acquired from a related party or another member of the same controlled group, and the basis of which is not determined with reference to the basis of the person from whom it acquired the property and does not include the taxpayer’s basis for other property in the year that the property is placed in service. Prior to the OBBBA, the bonus depreciation amount allowable under IRC § 168(k) has been steadily decreasing. It was set to decrease to 20% in 2026 and phase out entirely in 2027. However, under the OBBBA, for property that is acquired (and placed in service) after January 19, 2025, the bonus depreciation amount has been permanently reset to 100% for qualifying property. Bonus depreciation generally applies to qualifying property that is acquired by a taxpayer (rather than manufactured or produced by a taxpayer), and property is deemed to be acquired on the date that a written binding contract is entered into for such acquisition. Importantly, the OBBBA changes do not apply to qualifying property that was acquired prior to January 19, 2025. If property acquired prior to that date is not placed in service until after December 31, 2026, the bonus depreciation is 0%.

Section 70306 Increased Dollar Limitations on IRC § 179 Elections

The OBBBA increases the ability to deduct 100% of the cost of certain property defined in IRC § 179(d)(1) (“section 179 property”) acquired and placed in service in taxable years beginning after December 31, 2024. IRC § 179 allows a taxpayer to elect to deduct, instead of depreciating, 100% of the cost of acquiring section 179 property (which includes most depreciable property) in the year the property is placed in service. Prior to the OBBBA, a taxpayer could deduct only $1 million (adjusted for inflation) of section 179 property under IRC § 179. The OBBBA increases the annual limitation to $2.5 million (adjusted for inflation) and increases the phaseout amount (which reduces the annual limitation) to $4 million (adjusted for inflation).

Section 70303 Modification of Limitation on Business Interest and Section 70341 Coordination with Interest Capitalization Provisions

For taxable years beginning after December 31, 2024, the OBBBA reinstates the IRC § 163(j) limitation on business interest expense that is based on earnings before interest, taxes, depreciation, and amortization (“EBITDA”). IRC § 163(j) limits a taxpayer’s business interest expense deductions to the sum of the taxpayer’s business interest income, floor plan financing interest for that year, and 30% of the taxpayer’s adjusted taxable income (“ATI”) for that year.

Starting in 2022, the calculation of ATI was limited and based on earnings before interest and taxes (“EBIT”) rather than EBITDA. Effectively, the OBBBA reverts to the EBITDA-based calculation of ATI that existed prior to January 1, 2022. This change generally should allow for higher interest deductions than were allowable prior to the OBBBA.

Additionally, beginning in tax year 2026, new ordering rules will mandate that the IRC § 163(j) limitation be determined before the application of most interest capitalization provisions.

Section 70305 No Employer Deduction for Office Break Room Snacks and Coffee

The OBBBA does not extend the employer deduction for providing items in an employee break room, including snacks and coffee. Therefore, as of January 1, 2026, expenses paid for these items will not qualify for a tax deduction.

Capital Markets and Investment Incentives

Section 70421 Permanent Renewal of Opportunity Zones

Beginning in 2026, state governors will propose new qualified opportunity zones every 10 years to promote investment in “low-income” areas. The acquisition window will reset with each new 10-year cycle. This development is timely since the existing opportunity zones were set to expire in 2026. Investment vehicles looking to take advantage of the extended program by becoming qualified opportunity funds will now face enhanced information reporting requirements in connection with the addition of IRC § 6039K, which creates an annual reporting requirement that must be furnished to the IRS and the investor. The report must contain information including but not limited to the name, address, taxpayer identification number of the fund, type of entity, value of total assets held, value of total qualified opportunity zone property, and detailed information regarding qualified business investments that make up part of the fund’s holdings. 

Corresponding updates are also made to the deferral of capital gains taxpayers are allowed under IRC § 1400Z-2 for investment in a qualified opportunity fund, which now allows for realization at the earlier of the date the investment is sold or five years after the investment date. Finally, the special rule for investments held for at least 10 years is modified to account for the statute’s broader time horizon. The rule now states that, if a taxpayer makes the election for an eligible investment, the basis will equal the fair market value on the date of sale if the investment has been held less than 30 years and will equal the fair market value 30 years from the date of investment at any point beyond that.

Section 70422 Enhancement of the Low-Income Housing Tax Credit

The Low-Income Housing Tax Credit has been permanently enhanced by increasing the state allocation ceiling by 12% beginning in calendar year 2026.

The tax-exempt bond financing requirement has been reduced under the OBBBA. Previously, 50% of the aggregate basis needed to be financed by tax-exempt public bonds subject to volume cap. Now, the tax-exempt bond financing requirement necessitates only 25% aggregate basis and provides that 5% of the aggregate basis must include one or more such bonds with an issue date after December 31, 2025.

Section 70423 Extension of New Markets Tax Credit Program

Beginning in 2026, the New Markets Tax Credit Program will be permanently extended with $5 billion in annual allocation. To the extent that annual amount is not allocated to eligible Community Development Entities (“CDEs”) by the CDFI Fund, the remaining funds may be carried forward up to five years.

Section 70431 Expansion of the Small Business Stock Exclusion

Changes were made to the Qualified Small Business Stock (“QSBS”) exclusion under IRC § 1202 that will allow wider eligibility for the exclusion from capital gains. Under IRC § 1202, a noncorporate taxpayer generally may exclude capital gains arising from the disposition of QSBS from taxable income if the QSBS has been held for more than five years, subject to certain other requirements. However, the OBBBA does not change the fact that a corporation engaged in a “banking” or “financing” trade or business is not eligible to issue QSBS. The scope of what constitutes a “banking” or “financing” trade or business remains an open question. It is possible that a fintech company (or similar entity) is eligible to issue QSBS. In addition, even if a fintech company is eligible to issue QSBS, the OBBBA does not address whether a bank shareholder of a QSBS issuer may be eligible to take advantage of IRC § 1202 benefits.

Prior to the enactment of the OBBBA, the amount of gain that could be excluded from the disposition of QSBS depended on when the taxpayer acquired the QSBS. Depending on when the QSBS was acquired, a taxpayer may exclude 50%, 75%, or 100% of the capital gain realized when disposing of the QSBS up to the greater of $10 million (taking into account all prior dispositions of QSBS by the taxpayer in the issuer) or 10 times the taxpayer’s adjusted basis in the QSBS. Taxpayers have been eligible to exclude up to 100% of capital gain from the disposition of QSBS acquired since 2010. The OBBBA makes three changes to expand the QSBS exclusions that will apply to QSBS acquired by a noncorporate taxpayer after July 4, 2025.

1. Shorter holding period for QSBS benefits. The OBBBA introduces a phased-in exclusion for QSBS that has been held for three to five years. As mentioned above, prior to the OBBBA, a noncorporate taxpayer was required to hold QSBS for five years to be eligible for the QSBS gain exclusion. For QSBS acquired after July 4, 2025, a noncorporate taxpayer may exclude up to 50% of the gain from the disposition of QSBS held at least three years, up to 75% for QSBS held at least four years, and up to the full 100% for QSBS held at least five years. In short, the OBBBA retains the 100% exclusion for QSBS that has been held by a noncorporate taxpayer for at least five years but extends the holding period rules so that noncorporate taxpayers receive some of the IRC § 1202 benefits for QSBS that has been held for less than five years. This is an important change for noncorporate investors in startups and should provide more flexibility for those investors to take advantage of an earlier exit opportunity.
2. Increased gross asset value limitation for eligibility to issue QSBS. The OBBBA increases the gross asset value limitation from $50 million to $75 million and subsequently the number of eligible domestic C corporations that may issue QSBS. Prior to the OBBBA, a domestic C corporation was only eligible to issue QSBS if its “aggregate gross assets” did not exceed $50 million at any time prior to the issuance of the QSBS and do not exceed $50 million after taking into account any cash or property being paid for the QSBS in question. Significantly, when analyzing whether an issuer meets this $50 million test, the “aggregate gross assets” of all the corporations included in the issuer’s parent-subsidiary controlled group must be included. This change is significant for startups, which are now able to raise more money prior to issuing QSBS, and for issuers that are part of a parent-subsidiary controlled group. The latter will have more cushion before the aggregate gross assets of other entities in that group cause the issuer to no longer be eligible to issue QSBS.
3. Increased per-issuer flat cap on capital gains. Finally, the OBBBA increases the lifetime cap on gains which may be excluded under IRC § 1202 for a particular issuer from $10 million to $15 million. As mentioned above, a taxpayer may exclude capital gain realized when disposing of QSBS (at a rate that depends on when the QSBS was acquired) up to the greater of $10 million (taking into account all prior dispositions of QSBS by the taxpayer in the issuer) or 10 times the taxpayer’s adjusted basis in the QSBS. The OBBBA increases this flat cap from $10 million to $15 million (with the cap being annually adjusted for inflation after 2026). The change in dollar-value cap is particularly important for smaller investors who have a lower basis in their QSBS.

It is also important to note material QSBS items that the OBBBA does not change. Among other things, of particular importance to our banking and fintech clients:

• Only a domestic C corporation may issue QSBS.
• As mentioned above, for a domestic C corporation to be eligible to issue QSBS, at least 80% of its assets must be actively used in a “qualified trade or business.” Importantly, “banking” and “financing” is not a “qualified trade or business” for this purpose. The OBBBA does not change this rule or provide any additional color on activities that are considered “banking” or “financing.” The scope of this exclusion from QSBS eligibility remains an open question.

If you have any questions or concerns regarding the tax law changes contained in the OBBBA, please reach out to the authors of this alert.