On July 4, the president signed into law the One Big Beautiful Bill Act (OBBBA), implementing many significant tax and spending policy changes. The law’s provisions are wide sweeping, encompassing policies on tax rates and incentives, education funding, healthcare programs, defense spending, and more. This article highlights some of the key provisions of the legislation most likely to impact local governments, according to the Government Finance Officers Association (GFOA).

Please note that IRS guidance on the new legislation is still forthcoming. RBT CPAs will continue to provide updated information as this guidance is issued.

Tax Exemption on Municipal Bonds

Under the OBBBA, tax exemptions on municipal bonds, 501(c)3 bonds, and private activity bonds are preserved. The GFOA emphasizes the importance of these financing instruments in funding critical public projects, including essential infrastructure and community improvement projects. The OBBBA also expands the tax code to include additional provisions authorizing tax-exempt bond financing for spaceports. The National League of Cities (NLC) recognizes the preservation of tax-exempt municipal bonds and private activity bonds as a “critical financial win for cities, towns, and villages across America.”

Increased SALT Cap

The OBBBA temporarily increases the federal deduction limit for state and local taxes (SALT cap) from $10,000 to $40,000, adjusted each year for inflation until 2029. The deduction phases out for taxpayers with modified gross income (MAGI) greater than $500,000 in 2025, with the MAGI threshold adjusted for inflation until 2029.  In 2030, the SALT cap will revert to $10,000.

Removal of Clean Energy Incentives

The OBBBA terminates or phases out many clean energy tax incentives, including Section 179D (energy-efficient commercial buildings deduction), Section 45L (new energy-efficient home credit), Section 48E (clean electricity investment credit), and Section 45Y (clean electricity production tax credit), among others.

Expansion of Low-Income Housing Tax Credit (LIHTC)

The OBBBA permanently increases allocations for 9% LIHTC by 12%, and also permanently reduces the private activity bond financing requirement for 4% LIHTC from 50% to 25%. These changes will become effective January 1, 2026. These provisions will encourage more investment in the LIHTC program.

Child Tax Credit

The OBBBA permanently increases the Child Tax Credit (CTC) to $2,200 per qualifying child under the age of 17, effective for tax year 2025 and indexed annually for inflation. The maximum refundable portion has been raised to $1,700, also adjusted annually for inflation.

Qualified Opportunity Zones

The OBBBA makes the Opportunity Zones tax incentive permanent, with several modifications including a narrower definition of “low-income community” and expanded reporting requirements. Every ten years, state governors will propose new opportunity zones. The OBBBA also includes additional incentives for rural opportunity zones. This provision becomes effective January 1, 2027.

Changes to Medicaid

The OBBBA makes several significant changes to Medicaid programs, including a new requirement that able-bodied adults aged 19 to 64 enrolled in Medicaid must spend at least 80 hours per month working or participating in other qualifying activities (i.e., community service, job training, educational programs) to maintain eligibility. Some exemptions exist, such as for pregnant women, caregivers of young children, and people with certain qualifying medical conditions. The legislation also reduces Medicaid eligibility based on legal status. Eligibility must be reassessed by the state at least every 6 months.

Changes to SNAP

The OBBBA also makes significant changes to the Supplemental Nutrition Assistance Program (SNAP). Under the new legislation, states will have to contribute to food benefits beginning in FY 2028. The amount that each state contributes depends on that state’s payment error rate from three fiscal years prior (cost share rates for FY 2028 will be based on FY 2025 payment error rates). The OBBBA also extends work requirements to adults aged 55-64 and parents of children 14 and older, requiring these individuals to work for at least 20 hours a week in order to qualify for SNAP benefits.

Additional Guidance

The One Big Beautiful Bill Act is an expansive piece of legislation containing many significant policy changes. RBT CPAs will continue to keep our clients apprised as additional information and guidance is released regarding the OBBBA. GFOA is offering a webinar on August 21, 2025 for government finance professionals seeking to understand and implement the new legislation. In the meantime, if you have questions regarding the recent tax law changes, please don’t hesitate to reach out to our experts at RBT CPAs.