What Provisions of the One Big Beautiful Tax Bill Impact Businesses? by Michael Brennan, CPA
The One Big Beautiful Tax Bill Act (OBBBA), signed into law on July 4, 2025, brings a myriad of tax benefits to businesses, small and large, including expanded deductions for depreciable property, research and development expenses and business interest expense. It also modifies taxes on foreign profits and sales of qualified small business stock while expanding the qualified opportunity zone (QOZ) program and making it permanent. Here, we discuss some of the most significant provisions of the law that impact our business clients.
Depreciation Deductions
The OBBBA permanently reinstates bonus depreciation, allowing taxpayers to immediately write off 100 percent of the costs incurred for new and used qualifying property in the year it is placed in service beginning on Jan. 19, 2025. Under prior law, taxpayers could recover only 40 percent of their acquisition costs in 2025 and 20 percent in 2026, with the deduction phasing out completely in 2027.
The law also increases the Section 179 expense deduction cap on depreciable property, including tangible business assets, qualified improvement property (QIP) and certain improvements to nonresidential property, from $1.25 million to $2.5 million. When a business’s total investment in qualifying property for the year exceeds this threshold, the amount it may deduct is reduced dollar-for-dollar.
Finally, the OBBBA introduces an additional 100 percent depreciation deduction for the costs of new factories and related building improvements placed in service before 2031.
R&D Expense Deductions
The law restores taxpayers’ ability to fully deduct all their qualifying U.S. research and development (R&D) expenditures in the year they are incurred and makes the provision permanent. Since 2021, businesses conducting R&D in the U.S. have been required to capitalize and amortize those costs over five years, often resulting in higher-than-expected tax liabilities. Taxpayers can amend previously filed tax returns to retroactively reverse capitalized expenses off the balance sheet and expense them currently in the year incurred.
While the new rules under the OBBBA will help businesses improve liquidity and reinvest in future research and development activities in the U.S., those will overseas R&D must continue to capitalize expenses for R&D conducted outside the U.S. over a 15-year period.
Business Interest Expense Deductions
The Tax Cut and Jobs Act (TCJA), passed into law in 2017, limited taxpayers’ deductions for business interest expense (BIE) to 30 percent of adjusted taxable income (ATI), calculated as earnings before deductions for interest, taxes, depreciation and amortization (EBITDA). Generally, the higher the ATI, the higher the amount a business can deduct as BIE. Any interest expense not allowed as a deduction could be carried forward and treated as business interest paid or incurred in the following taxable year.
With the passage of the OBBBA, depreciation and amortization are added back to the calculation of ATI, thereby increasing the amount of business interest expenses that taxpayers may deduct.
Qualified Small Business Stock Exclusion
The OBBBA expands the tax breaks on capital gains that shareholders receive from the sale of qualified small business stock (QSBS) in several ways, including an increase to the inflation-adjusted lifetime exclusion from $10 million to $15 million and the introduction of a three- and four-year holding period for taxpayers to exclude 50 percent and 75 of capital gains from their taxable income. Capital gains on QSBS held for five years will continue to receive a full 100 percent exclusion from federal taxes.
Foreign Income Taxes
The OBBBA makes permanent and renames two expiring provisions of the 2017 TCJA relating to the taxation on profits earned and held overseas, both of which will require U.S. taxpayers to pay higher tax rates.
Effective for tax years beginning after Dec. 31, 2025, the global intangible low-taxed income (GILTI) is renamed the net controlled foreign corporation tested income (NCTI), and the amount of the deduction is reduced from 50 percent to 40 percent without consideration for the previous 10 percent deduction for investments in qualified business assets.
Similarly, the law renames the concept of foreign-derived-intangible-income (FDII), renaming it foreign-derived eligible income (FDDEI) and reducing the amount of the deduction from 37.5 percent to 33.34 percent.
Opportunity Zones
The Qualified Opportunity Zone (QOZ) program introduced by the TCJA in 2017 is now a permanent provision of the tax code, enabling qualifying taxpayers to defer the recognition of capital gains reinvested in a broader range of low-income and rural communities. The program is also expanded in several ways, including an opportunity for taxpayers to invest ordinary income in a QOZ and yield the benefit of deferred capital gains when held for a minimum of 10 years.
Qualified Business Income (QBI) Deduction for Pass-Through Entities
The Section 199A deduction for qualified business income (QBI) is made permanent rather than sunsetting at the end of 2025. As a result, domestic pass-through entities, such as S corporations, LLCs, partnerships and sole proprietorships, can continue to receive a potential tax deduction of as much as 20 percent of their U.S.-source QBI that passes from their businesses to their personal income tax returns. The law also introduces an inflation-adjusted minimum QBI deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trade or businesses in which they materially participate.
About the Author: Michael J. Brennan, CPA, is a director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he provides tax consulting and advisory services to high-net-worth families and businesses a wide range of industries, including professional services, manufacturing and private equity. He can be reached at the CPA firm’s New York office at (646) 213-7600 or info@bpbcpa.com.
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