Key Provisions in the One Big Beautiful Bill Act

The signing of HR 1, the One Big Beautiful Bill Act (OBBBA) legislative package, introduced a variety of changes and planning opportunities for businesses and individuals. While many provisions will require additional guidance, taxpayers should have conversations with their advisors to understand the changes, the effective dates, and the implications for their situations. 

Here are some of the key provisions to consider:

The OBBBA permanently reinstates 100% bonus depreciation for qualified business property placed in service after January 19, 2025. Companies can immediately deduct the full cost of eligible property rather than spreading deductions over future years.

Qualified property generally includes machinery, equipment, and specific software with a recovery period of 20 years or less. Nonresidential real estate does not qualify, except under a new rule for “qualified production property” (parts of commercial buildings used directly in manufacturing or production).

For these, businesses can elect 100% bonus depreciation if construction starts after January 19, 2025, and is completed before January 1, 2031. However, if the property stops being used for production within 10 years, some deductions may be subject to recapture.

Additionally, Section 179 expensing limits are increasing. Starting in 2025, companies can fully expense up to $2.5 million in qualifying assets, with phaseouts beginning at $4 million, both indexed for inflation.

Note: Review your upcoming equipment, software, and facility investments to take advantage of the increased bonus depreciation and the higher Section 179 expensing limits starting in 2025. Consult your tax advisor to structure purchases and construction projects to maximize immediate deductions and avoid potential recapture rules for production property. 

The act included the highly anticipated repeal of the 2017 Tax Cuts and Jobs Act (TCJA) requirement to capitalize and amortize foreign and domestic research and experimental (R&E) expenditures.

This long-desired fix to Section 174 of the Internal Revenue Code will significantly benefit innovative U.S. businesses by enabling immediate expensing of domestic R&E expenditures. This change does not apply to foreign R&E.

Note: Read our detailed summary of these changes: OBBBA Delivers Section 174 Capitalization Relief.

New tax rules permanently calculate interest deduction limits based on EBITDA (earnings before interest, taxes, depreciation, and amortization), which generally allows for larger interest deductions. Additionally, certain international tax items, including Net CFC Tested Income (formerly GILTI) and subpart F income, are excluded from adjusted taxable income when calculating interest deduction limits, effective in 2026.

Interest limitations now apply whether you deduct or capitalize the interest. Any allowed business interest deduction is first applied to capitalized interest amounts, except for specific farming and carrying cost interest.

Note: Review your company’s financing strategy to maximize interest deductions under the new EBITDA-based limits starting in 2026. Work with your tax advisor to understand how the exclusion of Net CFC Tested Income, subpart F income, and the treatment of capitalized interest may affect your overall tax planning. 

The Act permanently extends the 20% deduction for Qualified Business Income (QBI) for domestic businesses operated as sole proprietorships, partnerships, S corporations, trusts, or estates. It also continues the 20% deduction for REIT dividends and publicly traded partnership (PTP) income.

Key changes effective after 2025:

Limitations remain for specified service trades or businesses (SSTBs) above income thresholds.

Note: These permanent and enhanced QBI provisions offer continued tax savings for business owners and investors. Review your structure and income planning to maximize benefits under the updated Section 199A rules. 

Starting in 2025 through 2028, individuals in occupations that customarily receive tips can claim a new deduction for qualified tips, even if they don’t itemize their deductions. Qualified tips are voluntary amounts not negotiated in advance.

The deduction is capped at $25,000 ($12,500 for single filers) and phases out for incomes over $300,000 ($150,000 for single filers). A valid Social Security number is required.

Employers must include qualified tip amounts in tax statements furnished to the IRS. Specifically, payments reportable on Forms 1099-K, 1099-MISC, or 1099-NEC must:

These changes apply to businesses with tipped employees and to payors processing contractor or platform payments, increasing reporting complexity.

Additionally, the Act expands the FICA tip tax credit to include beauty service businesses such as barbering, hair and nail care, esthetics, and spa treatments, provided tipping is customary. This helps employers offset Social Security taxes on employee cash tips in these industries.

A list of eligible tipped occupations will be published within 90 days of enactment. A transition rule applies for returns or statements required before January 1, 2026.

Note: Employers should prepare to update payroll systems and reporting processes to comply with these new detailed requirements.

From 2025 to 2028, qualified employees can claim a new deduction for qualified overtime pay (overtime wages under the Fair Labor Standards Act above regular pay rates). The deduction is up to $12,500 ($25,000 for joint filers) and phases out for incomes over $150,000 ($300,000 for joint filers). Highly compensated employees are excluded.

Key employer responsibilities:

Note: Employers should review payroll and reporting systems to ensure compliance with these new requirements, which support employees’ ability to claim this deduction.  

The Act makes Opportunity Zones (QOZs) permanent, with new designations every 10 years starting July 1, 2026. It narrows eligibility to census tracts with poverty rates over 20% or median family incomes under 70% of the area median.

Key benefits remain:

For rural investments, the gain reduction increases to 30%, and the substantial improvement requirement for buildings drops to 50%, making rural projects easier to qualify.

Note: Employers, investors, and fund managers should note new reporting requirements aimed at increasing program transparency and demonstrating economic impact. Evaluate potential investments in new or existing Opportunity Zones to take advantage of permanent tax deferral and exclusion benefits. Consider targeting rural projects to benefit from the enhanced 30% gain reduction and easier building improvement requirements. 

The Act enhances the Qualified Small Business Stock (QSBS) gain exclusion:

Additionally, no AMT adjustment applies to stock acquired under these changes. To qualify, companies must still meet QSBS requirements, including the gross asset test.

Note: These changes apply to stock acquired on or after enactment and are permanent. Business owners and investors should assess planning opportunities under this expanded exclusion. Review your current and planned investments in QSBS to take advantage of the higher exclusion caps and new tiered holding period benefits. Ensure your company meets QSBS eligibility requirements to maximize these permanent tax savings opportunities. 

The Act increases the Advanced Manufacturing Investment Credit (Section 48D) from 25% to 35% for property placed in service after December 31, 2025, enhancing incentives for U.S. manufacturing investments.

It also updates rules for the Advanced Manufacturing Production Credit (Section 45X). Taxpayers can now treat a component as sold to an unrelated party if:

However, at least 65% of the secondary component’s material costs must come from primary components mined, produced, or manufactured in the U.S.

These changes support expanded tax benefits for manufacturers investing in U.S.-based production and integrated component assembly.

Note: Assess upcoming manufacturing investments to capitalize on the increased 35% Advanced Manufacturing Investment Credit starting in 2026. Review your supply chain and production processes to ensure at least 65% of secondary component material costs come from U.S. sources to qualify for the updated production credit benefits. 

Starting after December 31, 2025, the basic exclusion amount—the amount each U.S. citizen or domiciliary can transfer during life or at death without paying estate or gift tax—will increase from $13.99 million to $15 million (before inflation adjustments).

Unlike the current temporary higher exemption (scheduled to drop after 2025), this $15 million threshold is permanent and will be indexed for inflation starting in 2027.

The Act retains the current estate, gift, and generation-skipping transfer (GST) tax system but makes a significant change to exemption amounts. The GST exemption will also increase to $15 million, allowing transfers to grandchildren or other “skip persons” outright or in trust without triggering GST tax.

Individuals and families can transfer greater wealth tax-free under this expanded and permanent exemption. It provides more certainty for estate planning, eliminating concerns about future sunset reductions.

Note: Review your estate and gifting plans to align with the new permanent $15 million exemption starting in 2026. Consider accelerating wealth transfer strategies to maximize tax-free transfers under these expanded limits. 

The Act temporarily increases the state and local tax (SALT) deduction cap to $40,000 from 2025 through 2029. After 2029, the cap will permanently revert to $10,000.

For 2025, the full $40,000 cap applies, but starting in 2026, the cap phases down for individuals with modified adjusted gross income over $500,000, decreasing by 1% each year through 2029 (though it will never drop below $10,000). The applicable cap is always halved for married individuals filing separately.

The Act does not address SALT deductions for passthrough entities. Existing treatments for PTET (pass-through entity tax) workarounds remain unchanged, though PTET workaround validity continues to rely on IRS Notice 2020-75 and could change with future Treasury guidance.

These new SALT cap provisions apply to tax years beginning after December 31, 2024.

Note: Review your projected state and local tax payments to maximize deductions during the temporary $40,000 SALT cap window from 2025 to 2029. Consult your tax advisor to evaluate PTET election strategies and plan for the phase-down if your income exceeds $500,000. 

The Act makes permanent the pre-TCJA Pease limitation, which reduces itemized deductions for high-income taxpayers. Specifically, taxpayers in the highest income tax bracket will see their allowable itemized deductions, including charitable contributions and SALT deductions, capped under this provision. This limitation does not affect the qualified business income (QBI) deduction under Section 199A.

For standard deductions, the Act:

These amounts apply for tax years after December 31, 2024, and will be adjusted for inflation annually.

For tax years 2025 through 2028, taxpayers can claim a $6,000 deduction for each qualified individual. A qualified individual is:

The deduction is reduced by 6% of modified adjusted gross income (MAGI) exceeding:

However, the deduction cannot be reduced below zero. To claim it, the Social Security number of each qualified individual must be included on the tax return.

Note: This temporary senior deduction offers meaningful tax relief for older taxpayers but begins phasing out at moderate income levels. It is available only for tax years 2025 through 2028. Review your income levels with your tax advisor to manage MAGI phase-out impacts and ensure Social Security numbers are correctly reported to qualify. 

The Act creates Trump accounts, similar to traditional IRAs but designed for children under 18. Key features include:

The Act also establishes a government-funded pilot program providing a $1,000 credit into a Trump account for each qualifying child born between 2025 and 2028 who is a U.S. citizen at birth.

Employers may set up tax-free contribution programs for employees or their dependents, similar to Dependent Care Assistance Programs, if established through a written plan meeting specific requirement.

Note: Consider setting up Trump accounts for your children or dependents to build tax-advantaged savings before they turn 18. Employers should evaluate establishing a written contribution program to provide tax-free benefits to employees or their dependents under these new rules. 

To learn more about these provisions and how they apply to your circumstances and planning opportunities, contact us.