The “One Big Beautiful Bill Act” (OBBBA), enacted in 2025, aims to provide lasting tax relief for middle-class families, simplify the tax code, and introduce new benefits for families, workers, and students. Here’s a concise overview of the most significant changes and their impact, effective primarily for tax years beginning after December 31, 2024.
Business Deductions and Expensing
- Full Expensing for Domestic R&E Expenditures: The Act allows immediate deduction of domestic research and experimental (R&E) expenses, reversing the prior requirement to amortize these costs over five years. Foreign R&E expenses must still be amortized over 15 years. Taxpayers may elect to amortize domestic R&E over at least 60 months, but the default is full expensing. For the 2022–2024 tax years, the Act provides transition rules addressing the treatment of domestic research and experimental expenditures during this period. Additionally, companies with significant R&D activities should carefully evaluate these provisions, particularly regarding the timing and location of their R&D spending.
- Increased Section 179 Expensing Limits and 100% Bonus Depreciation: The Section 179 expensing cap rises from $1 million to $2.5 million, with the phaseout threshold increasing from $2.5 million to $4 million. Both amounts are indexed for inflation starting in 2025. Moreover, full (100%) bonus depreciation is available again for eligible property and specified plants placed in service, planted, or grafted on or after January 19, 2025. Taxpayers can, however, elect to apply a 40% bonus depreciation rate, but only for the first tax year ending after that date. Taxpayers should review their capital expenditure plans and coordinate Section 179 expensing with bonus depreciation to optimize their overall tax position.
- 100% Depreciation for Qualified Production Property: A new 100% depreciation deduction is available for certain nonresidential real property used in qualified production activities (manufacturing, production, or refining of tangible personal property) if construction begins after January 19, 2025, and before January 1, 2029, and the property is placed in service before January 1, 2031. Recapture applies if the property’s use changes within 10 years.
- Business Meal Deductions: Meals provided on certain fishing vessels and at remote fish processing facilities are now fully deductible, exempt from the usual 50% limitation. The amendments related to these business meal deductions shall apply to amounts paid or incurred after December 31, 2025.
- Qualified Business Income Deduction (§199A): Section 199A, concerning the deduction for qualified business income (QBI), has been significantly extended and enhanced with changes taking effect for taxable years beginning after December 31, 2025. For applicable taxpayers, those with at least $1,000 in aggregate QBI from active qualified trades or businesses, a minimum deduction of $400 will be allowed, representing the greater of the deduction calculated otherwise or $400. These minimum deductions and applicable taxpayer thresholds will be adjusted for inflation after 2026. Additionally, the phase-in amounts for the taxable income limitation under Section 199A have been increased to $75,000 ($150,000 for joint returns). Importantly, amounts for which a deduction is allowed under Section 224(a) for qualified tips are specifically excluded from qualified business income. A key aspect of its utilization with itemized deductions is that the limitation on the tax benefit of itemized deductions under Section 68 does not apply when determining the QBI deduction under Section 199A(e)(1). This non-application also extends to patrons of specified agricultural and horticultural cooperatives under Section 199A(g)(2)(B).
- Expensing for U.S.-Produced Sound Recordings: Up to $150,000 per sound recording production can be expensed, with eligibility for bonus depreciation.
- Exclusion of 25% of Interest on Rural/Agricultural Loans: Qualified lenders may exclude 25% of interest income from loans secured by rural or agricultural real property from gross income.
- Residential Construction Contracts: The exception to the percentage-of-completion method is expanded to include more residential construction contracts, easing compliance for builders.
Business Interest Limitations
- Section 163(j) Modifications: The EBITDA add-back is restored permanently, increasing the amount of deductible business interest. The Act also coordinates the interest deduction limitation with capitalization rules, ensuring the limitation applies before interest is capitalized, and disallowed interest is not subject to future capitalization.
- Adjusted Taxable Income Definition: The definition is updated to include certain inclusions and deductions related to foreign income, aligning with other international tax changes.
International Tax Reforms
- Foreign Tax Credit (FTC) Changes: Certain deductions, such as interest and R&E, are no longer allocated to foreign source net CFC tested income for FTC purposes, potentially increasing the FTC limitation.
- Sourcing Rules for Inventory Sales: Up to 50% of income from U.S.-produced inventory sold through a foreign branch can be treated as foreign-sourced, benefiting exporters with foreign operations.
- GILTI Renamed and Modified: The “global intangible low-taxed income” (GILTI) regime is renamed “net CFC tested income,” with the deemed return on foreign investments repealed and the deduction percentage reduced.
- Increased BEAT Rate: The base erosion and anti-abuse tax (BEAT) rate increases from 10% to 10.5% .
- Permanent CFC Look-Through Rule: The look-through rule for related controlled foreign corporations is made permanent.
- Repeal of 1-Month Deferral Election: Specified foreign corporations can no longer elect a taxable year ending one month later than the U.S. parent.
- New Rules for Foreign-Controlled Shareholders: Special rules apply to U.S. shareholders controlled by foreign persons, affecting subpart F inclusions and reporting.
Community and Family-Related Business Investments
- Opportunity Zones: The Act permanently renews and enhances Opportunity Zones, with decennial re-designation, expanded reporting, and new rural opportunity funds.
- Low-Income Housing Tax Credit: The state credit ceiling is permanently increased, and bond financing requirements are relaxed.
- New Markets Tax Credit: The credit is made permanent, with a five-year carryforward for unused allocations.
- Employer-Provided Benefits: Enhancements include increased credits for employer-provided child care, expanded adoption credits, and higher dependent care assistance limits.
- Installment Sale Rules for Farmland: Capital gains tax on sales of farmland to qualified farmers can be paid in four annual installments, easing liquidity concerns for sellers.
Specialized Provisions and New Accounts
- ABLE Accounts and 529 Plans: Contribution limits for ABLE accounts are increased, and 529 plans are expanded to cover more K-12 and postsecondary credentialing expenses, with the annual K-12 limit doubled to $20,000.
- Trump Accounts: A new tax-advantaged savings vehicle for children under 18, with a $5,000 annual contribution limit, is introduced. Employer and charitable contributions are allowed, and a government-funded $1,000 pilot program is available for newborns through 2028.
- Qualified Small Business Stock (QSBS): The gain exclusion is expanded—50% after 3 years, 75% after 4 years, and 100% after 5 years for new stock, with higher per-issuer and asset limits, both indexed for inflation.
- Remittance Excise Tax: A new 1% excise tax is imposed on certain cash remittance transfers sent abroad, collected by remittance providers.
Other Reforms and Guardrails
- Permanent Limitation on Excess Business Losses: The limitation on excess business losses for non-corporate taxpayers is made permanent, restricting the ability to offset non-business income with large business losses.
- Partnership Payment Rules: Changes clarify the treatment of payments from partnerships to partners for property or services.
- Aggregation for Excessive Employee Remuneration: Publicly held corporations must aggregate compensation across controlled group members for purposes of the $1 million deduction limit on executive pay.
- Excise Tax on Third-Party Litigation Funding: A new 31.8% excise tax applies to proceeds received by third parties from litigation financing agreements, with a 15.9% withholding requirement.
- COVID-Related Employee Retention Credits: New penalties and deadlines are imposed for improper claims and promoter conduct related to COVID-ERTC, with a final claim deadline of January 31, 2024, and a six-year assessment period.
Implementation and Effective Dates
Most provisions take effect for tax years beginning after December 31, 2024, or December 31, 2025. Some changes, such as the termination of certain energy credits and the new excise tax on litigation funding, have specific effective dates tied to enactment or later years.
Overall Impact
The OBBBA represents a major shift in business tax policy, emphasizing immediate expensing, targeted incentives, and stricter guardrails. Businesses will benefit from increased deductions and simplified expensing for domestic investment, but must navigate new compliance requirements, especially in international operations and energy-related activities. The Act also signals a move away from broad-based clean energy incentives, focusing instead on domestic production and national security concerns.
Our team is ready to guide you through these developments, review your tax planning strategies to align with these significant changes, and ensure compliance with the new rules. You may also review the full bill here.
The information presented in this article is for general informational purposes only and does not constitute legal, accounting, investment, tax, or professional advice. For guidance tailored to your specific circumstances, please consult your advisors.
