Understanding the Business Tax Implications of the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (“OBBBA”), enacted July 4, 2025, represents the most sweeping set of business tax reforms since the Tax Cuts and Jobs Act of 2017. The OBBBA makes permanent and expands many temporary provisions from prior law, introduces new incentives, and repeals or curtails a range of green energy tax benefits. See below for a summary of the most significant business tax law changes, their effective dates, and practical implications for business taxpayers.

Major Business Tax Law Changes

Permanent 100% Bonus Depreciation (Full Expensing)

• Provision: Section 168(k) is amended to make 100% bonus depreciation permanent for qualified property acquired after January 19, 2025. The phase-down schedule is repealed, and taxpayers may elect a reduced percentage (40% or 60%) for property placed in service in the first taxable year ending after January 19, 2025, as a transitional measure.
• Practical Implications: Businesses can immediately expense the full cost of most tangible property with a recovery period of 20 years or less, including certain qualified improvement property and specified plants. This change simplifies planning and accelerates tax deductions for capital investments, enhancing after-tax cash flow.

Special Depreciation Allowance for Qualified Production Property

• Provision: New Section 168(n) allows 100% expensing for certain nonresidential real property used in qualified production activities, with recapture rules if the property ceases to be used in production within 10 years.  Qualified Production Property (“QPP”) is nonresidential real property used by the taxpayer as an integral part of a qualified production activity; placed in service in the United States or any possession of the United States; the original use commences with the taxpayer; construction begins after January 19, 2025 and before January 1, 2029 and is placed in service before January 1, 2031.  QPP does not include the facilities portion of nonresidential real property, which is used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities or any other functions unrelated to the manufacturing, production or refining of tangible personal property.  Additional parameters apply around what constitutes a qualified production activity and qualified products.  Further guidance to be provided by Department of Treasury regarding required qualifications and application of new provisions. 
• Practical Implications: This provision targets manufacturing and production facilities, providing a powerful incentive, through immediate deduction of certain domestic investment in production capacity.

Increased Section 179 Expensing Limits

• Provision: The Section 179 expensing limit is increased to $2,500,000 (from $1,000,000), with the phase-out threshold raised to $4,000,000 (from $2,500,000), both indexed for inflation after 2024.
• Practical Implications: More small and midsize businesses can fully expense qualifying property in the year placed in service, reducing taxable income and simplifying depreciation calculations.

Immediate Expensing of Domestic Research and Experimental (“R&E”) Expenditures

• Provision: New Section 174A allows immediate expensing of domestic R&E expenditures paid or incurred in taxable years beginning after December 31, 2024. Foreign R&E expenditures remain subject to 15-year amortization.  There are two transition rules for the previously capitalized domestic R&E expenditures for tax years beginning after December 31, 2021.  The first transitional rule is only available for certain small businesses, which would allow eligible taxpayers to elect to retroactively apply the new rules for domestic R&E expenditures to taxable years beginning after December 31, 2021.  The second transitional rule is available for all taxpayers and allows for an election to deduct the unamortized domestic R&E expenditures in the first taxable year beginning after December 31, 2024, or to deduct the amounts ratably over two years beginning in the first taxable year after December 31, 2024. 
• Practical Implications: This reverses the five-year amortization requirement for domestic R&E under prior law, restoring immediate deductibility for innovative businesses.  Taxpayers will need to weigh their options under the transitional rules.

Restoration of EBITDA Add-Back for Business Interest Deduction Limitation

• Provision: Section 163(j) is amended to permanently restore the Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) add-back for the business interest deduction limitation, increasing the amount of deductible interest.  New rules have been added to restrict businesses from capitalizing interest to avoid the 163(j) limitations.  Beginning in tax years after December 31, 2025 interest capitalized to other assets would be subject to the Section 163(j) limit, with exceptions for straddles and certain production property.  Additional provisions have been added to disregard certain types of income from the EBITDA calculations, primarily impacting companies that derive income, tax credits or dividends from foreign entities.  Additional details are provided in the International OBBBA Summary.
• Practical Implications: The restoration of EBITDA to determine the interest limitations potentially allows businesses to deduct more interest expense, especially capital-intensive businesses, and aligns the limitation with pre-2022 rules.  The inclusion of capitalized interest in calculation 163(j) limitations is designed to prevent taxpayers from using capitalization to circumvent the interest expense limitations.

Qualified Business Income (“QBI”) Deduction (Section 199A) Enhancements for Business Owners

• Provision: The QBI deduction was originally set to expire at the end of 2025. However, the OBBBA makes the QBI deduction permanent.   The calculations for the QBI deduction have certain income limits and thresholds, exceeding the thresholds triggers a phase-in of limitations.  The phase-in threshold is increased to $75,000 ($150,000 for joint filers).  Prior to the OBBBA, the phase-in threshold was $50,000 ($100,000 for joint filers).  A new $400 minimum deduction is established for active business income for taxpayers with at least $1,000 in qualified business income from active trade or businesses, indexed for inflation after 2026.
• Practical Implications: More taxpayers will benefit from the 20% QBI deduction, and active business owners are allotted a minimum deduction, providing greater certainty and benefit to small business owners.

Permanent Paid Family and Medical Leave Credit

• Provision: Section 45S is made permanent and expanded to include insurance premiums and clarify aggregation and state/local paid leave rules.
• Practical Implications: Employers can claim a credit for providing paid family and medical leave, including insurance premiums, encouraging broader adoption of paid leave policies.

New Floors for Charitable Contribution Deductions

• Corporations: Only contributions exceeding 1% of taxable income are deductible, up to the existing 10% limit, with carryforward rules.  Corporate contributions that exceed the existing 10% ceiling can be carried forward five years.  Contributions that fall below the 1% floor can only be carried forward if the corporations’ totals contributions exceed the 10% ceiling in the year of contribution. 
• Practical Implications: These floors reduce the benefit of small charitable contributions and may affect giving patterns.  Additional tax planning is advised, and certain taxpayers may want to consider bundling of contributions over various tax years.

Permanent Extensions and Enhancements to Qualified Opportunity Zones, Low-Income Housing, and New Markets Tax Credits

• Qualified Opportunity Zones (“QOZ”): Qualified opportunity zones were originally established to spur economic development and job creation in economically distressed communities.  The OBBBA makes the QOZ program permanent and introduces a decennial re-designation (10-year cycle of identifying new zones), includes expanded reporting requirements, new rural opportunity funds, and extended/modified benefits.
• Low-Income Housing Tax Credit: State credit ceiling increases are made permanent, and bond financing requirements are relaxed.
• New Markets Tax Credit: New Markets Tax Credit is made permanent, with a 5-year carryforward for unused allocations.
• Practical Implications: These changes provide long-term certainty and expanded incentives for investment in low-income and distressed communities.

Early Termination of Green Energy Credits

• Provision: Credits for clean vehicles, alternative fuel property, energy efficient home improvements, residential clean energy, and others are terminated for property placed in service or acquired after various dates in 2025 or 2026
• Practical Implications: Businesses should consider accelerating qualifying investments to benefit from these credits before their expiration.

Permanent Limitation on Excess Business Losses

• Provision: The limitation on excess business losses of noncorporate taxpayers under Section 461(l) is made permanent, with thresholds updated for inflation.
• Practical Implications: Noncorporate taxpayers (including partners and S corporation shareholders) will continue to face limits on the deductibility of business losses against nonbusiness income, affecting tax planning for loss-generating businesses.

Expanded Qualified Small Business Stock (“QSBS”) Exclusion

• Provision: For stock acquired after enactment of the OBBBA, the exclusion is phased in: 50% for stock held 3 years, 75% for 4 years, and 100% for 5 years. The per-issuer limit increases to $15 million, and the gross assets test increases to $75 million, both indexed for inflation.
• Practical Implications: This enhances the attractiveness of QSBS for investors and founders, encouraging investment in qualifying small businesses.

Increased 1099-MISC/NEC Reporting Thresholds

• Provision: The 1099-MISC/NEC reporting threshold increases from $600 to $2,000, indexed for inflation. The de minimis threshold for third-party network transactions is restored to $20,000/200 transactions for reporting and backup withholding.
• Practical Implications: Reduces compliance burden for small payments and casual sellers, but businesses must update systems to track new thresholds.

Expanded Tax on Excess Compensation for Tax-Exempt Organizations

• Provision: 21% excise tax on compensation exceeding $1 million paid to any individual employed by the tax-exempt organization after December 31, 2016.  This provision will apply for tax years beginning after December 31, 2025.
• Practical Implications: Tax-Exempt Organizations could now be taxed on compensation paid to a broader group of highly compensated employees and will require tracking among related entities.

Summary Table of Key Effective Dates

If you have questions on how the OBBBA affects your tax situation, please reach out to your contact at GreerWalker so we can help you interpret the impact to you or your company.