The recently enacted One Big Beautiful Bill Act (OBBBA) includes several significant tax and policy provisions that directly and indirectly impact financial institutions.  Financial institutions have the opportunity to leverage these provisions to reduce tax liability, increase client value, and position the institution for strategic growth.

Some impacts to and opportunities for financial institutions, include the following:

Auto Loan Interest Deduction

What Changed?

The Act introduced a new deduction for individual taxpayers for interest paid on qualifying loans for the purchase of a new, U.S.-assembled, personal-use vehicle.  This is an “above-the-line” deduction, meaning that it can be used by itemizing and non-itemizing taxpayers, for tax years from 2025 through 2028.

Vehicle Requirements

• Vehicle must be new (never used).
• Vehicle must have undergone final assembly in the U.S., which will be shown on the window sticker or accessed via vehicle identification number (VIN) data.
• Eligible vehicle types include cars, SUVs, pick-up trucks, vans, and motorcycles under 14,000 pounds.
• Vehicle must be for personal use.

Loan Information

• The loan must be originated after December 31, 2024.
• The deduction is capped at $10,000 of interest paid per year.
• The loan must be secured by the new vehicle.
• If the vehicle loan is later refinanced, interest on the refinanced loan remains eligible for deduction.

Income Limits

• Full deduction is available if modified adjusted gross income is $100,000 or less for individual filers and $200,000 for joint filers.
• The deduction will phase out to zero at $150,000 for individual filers and $250,000 for joint filers.

Opportunities and Considerations

This temporary incentive may influence borrower behavior and increase the demand for auto financing.

Financial institutions will have to update year-end reporting procedures as they are now required to comply with the new information reporting under Internal Revenue Code 6050AA.  This requires the reporting of interest received of $600 or more annually from individuals and the institution must provide customers with written statements (Form 1098-AUTO).  Financial institutions should determine if they will send out a Form 1098 for all auto loan borrowers or only those that qualify.  If sending to all, consider including a disclaimer to avoid misleading implication risk and/or excluding obvious non-qualifiers.  If sending to those that qualify, consider the need to update loan origination systems to capture the VIN (to verify U.S. final assembly), annual interest paid, and borrower income data (for phase-out boundaries).

Note that the IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.

Interest Income Exclusion for Rural or Agricultural Real Estate Loans

What Changed?

This provision provides an amendment to the Internal Revenue Code to exclude 25% of interest income on eligible real estate loans from gross income for qualifying lenders.

What Lenders are Eligible?

• FDIC-insured banks and savings associations
• State or federally regulated insurance companies
• Domestic entities wholly owned by a U.S. bank or insurance holding company
• Federally chartered entities under the Farm Credit Act (e.g., Farmer Mac)

What Loans Qualify?

• The loan must be secured by rural or agricultural real estate or forestland, or by a leasehold mortgage on such property that is used substantially for agricultural production (includes real property used for commercial fishing or seafood processing and aquaculture facilities located within any U.S. state or territory).
• The borrower must not be a foreign adversary entity.
• The loan must be originated after July 4, 2025 (loans made on or before July 4, 2025 do not qualify even if they are refinanced after).

Opportunities and Considerations

For banks that are active in the agricultural lending arena, this may provide an incentive to expand the agricultural and rural lending portfolio, as well as the opportunity to offer reduced rates for eligible loans.

Making sure to have procedures in place to identify which loans are eligible for the exemption will be important, as well as training lenders on those procedures.

Federal Estate, Gift, and Generation-Skipping Tax Exemptions

What Changed?

Starting January 1, 2026, the unified federal estate, gift, and generation-skipping transfer (GST) tax exemption will be permanently set at $15 million per individual ($30 million per married couple).

The exemption will be indexed annually for inflation starting in 2027 with no scheduled expiration under current law.

Opportunities and Considerations

This may influence demand for trust and wealth advisory services, especially among high net worth individuals.

Making sure advisors are aware of the changes and how they impact clients will be important to take full advantage of the opportunity to expand relationships with high net worth individuals.

Immediate Expensing of Research & Experimentation Expenditures

What Changed?

Effective for tax years beginning after December 31, 2024, domestic research and experimentation (R&E) expenses may once again be immediately deducted in the year incurred, restoring pre-TCJA treatment.

Small businesses (less than or equal to $31 million average gross receipts) can retroactively apply immediate expensing to R&E costs incurred in tax years beginning after December 31, 2021 by filing amended returns by July 4, 2026.

All other taxpayers may accelerate any remaining unamortized R&E expenses from 2022-2024 either: (1) fully in the first taxable year beginning in 2025, or (2) over a two-year period starting in 2025.

Note that the deduction is reduced by the amount of any Section 41 R&D tax credit claimed, unless the taxpayer elects the alternative under Section 280C(c)(2).

Opportunities and Considerations

This provision enhances the value of internal innovation and digital platform upgrades by offering tax savings.  Customers may experience improved cash flow, which may translate to increased demand for working capital, equipment financing, and mortgage loan products.

Ensure lenders are educated on changes that impact borrowers to support client conversations and better understand client cash flows and need.

100% Bonus Depreciation Reinstated

What Changed?

This provision reinstates and makes permanent the 100% first-year bonus depreciation on qualifying tangible property with a recovery period of 20 years or less, while expanding qualifying property to include interior leasehold improvements.

The provision also introduces a temporary 100% expensing allowance for qualified production property, such as manufacturing assets or real property integral to production.

Opportunities and Considerations

This provision supports the financial institution’s tax-efficient investment in infrastructure and digital transformation.

Customers may experience improved cash flow, which may translate to increased demand for working capital, equipment financing, and mortgage loan products.

Ensure lenders are educated on changes that impact borrowers to support client conversations and better understand client cash flows and need.

Introduction of Trump Accounts

What Changed?

The Act introduced a new tax-advantaged savings account program (Trump Accounts) to encourage early investment and to allow families a means for tax-free savings for children’s futures.  Accounts can be opened for any child with those for eligible children being initially funded with a $1,000 government contribution.  Additional contributions within certain limits are allowed until the year the child turns 18, then, at that time, the funds become available to the child.

Who is Eligible?

• Children born after December 31, 2024 and before January 1, 2029 are eligible to open an account and receive the $1,000 government contribution.
• Children born outside of these years may open an account, but are not eligible to receive the $1,000 government contribution.
• The child must be a U.S. citizen with a Social Security number.
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Who can contribute?

• Parents, relatives, and others can contribute up to $5,000 annually until the year the child turns 18.
• A company can deposit up to $2,500 to an account for an employee’s eligible dependent child without being considered taxable income to the employee.

Opportunities and Considerations

Financial institutions will likely have the opportunity to serve as custodians or account administrators for Trump Accounts, which opens the door to new, low-cost deposits, fee-based custodial services, and additional product offerings for children and families.  This affords financial institutions the opportunity to establish new customer relationships, reach underserved or rural markets, cross-sell existing products and services, and strengthen reputational goodwill in the communities served.

While implementation rules have not been issued, it is important for financial institutions to monitor for the issuance of guidance from the IRS and Treasury and be prepared to make decisions on how to proceed.

Health Savings Accounts  

What Changed?

There were three key changes to the Health Savings Account (HSA) rules under the Act:

• First, any individual who purchases a bronze or catastrophic plan under the Affordable Care Act would automatically qualify to contribute to an HSA starting January 1, 2026. This will impact the nearly 7.5 million individuals enrolled in those types of plans.

• Second, it made a permanent telehealth safe harbor for high-deductible, high-premium (HDHP) plans. This provision is retroactive to January 1, 2025 and allows HDHP to cover telehealth services from day one without disqualifying HSA eligibility. Coverage for virtual care can be offered without cost-sharing before the deductible is met, which restores such flexibility that was eliminated at the end of 2024.

• Third, effective January 1, 2026, direct primary care (DPC) arrangements (i.e., where a patient pays a monthly fee to a doctor to see them as often as they want) with flat monthly fees up to $150 for individuals ($300 for families) will no longer disqualify someone from contributing to an HSA. In addition, such fees are an eligible HSA expense.

Opportunities and Considerations

The expanded eligibility for individuals to open and fund HSA accounts may increase demand at financial institutions that offer HSAs.  Financial institutions may also consider expanding their product line to include HSA custodial or investment accounts.

For financial institutions offering HSAs, consider the system updates needed to eligibility filters for onboarding to include Bronze and Catastrophic plans and DPC participants.  Disclosures should be updated to the changes to eligibility requirements.  Employees should also be trained on the new eligible plan types.

Low-Income Housing Tax Credit Changes

What Changed?

Starting January 1, 2026, the Act permanently increases the state housing credit ceiling for 9% low-income housing tax credit (LIHTC) projects by 12% annually.  This means that more projects can be funded with the LIHTC.

In addition, for 4% LIHTC projects placed in service after December 31, 2025, the minimum requirement for private activity bond (PAB) financing is permanently reduced from 50% to 25% of the combined building and land basis.  To qualify, bonds must (1) be issued on or after December 31, 2025 and (2) finance at least 5% of the project’s aggregate basis.

Opportunities and Considerations

The increase in the ceiling allows for more availability of high-yield tax credits creating additional investment opportunities for banks.  Coupled with the decrease in the PAB financing requirement, this creates a much greater supply of LIHTC projects and CRA-qualified equity investments.

These are just a few of the changes impacting financial institutions that came through in the passage of the OBBBA.  Our advisors are happy to help answer any questions you may have or to discuss these in more detail. Contact us today!