On May 22, 2025, the U.S. House of Representatives passed "The One Big, Beautiful Bill," a comprehensive tax reform package aimed at reforming the U.S. tax code.
Key provisions include:
- Business Tax:
- Enhanced flexibility for domestic R&D costs, allowing immediate deductions or varied amortization options.
- Reinstatement of 100% first-year "bonus depreciation," an increase in the Section 179 deduction cap to $2.5 million, and the addition of a 100% depreciation allowance for certain commercial real property.
- Revised Section 199A (QBI) deduction provisions with an increased deduction rate of 23%.
- Expansion of business interest deduction and modification to excess business loss calculation.
- Renewal of the QOZ program with modified eligibility and reporting requirements.
- New incentives for rural and agricultural investments, plus
expanded low-income housing tax credits.
- Employee Benefits:
- Improved HSA eligibility and contribution limits, including provisions for Medicare-eligible individuals.
- New ACA requirements for eligibility verification and the exclusion of DACA recipients from coverage.
- New restrictions on Employee Retention Credit (ERC) claims and
changes to the statute of limitations.
- International Tax:
- Permanent extension of lower tax rates on GILTI, FDII and BEAT,
alongside proposed IRC Section 899 to address "unfair"
foreign taxes.
- Permanent extension of lower tax rates on GILTI, FDII and BEAT,
alongside proposed IRC Section 899 to address "unfair"
foreign taxes.
- Estate and Gift Tax:
- Increase in the unified credit and GSTT exemption threshold from $10 million to $15 million per individual, indexed for inflation.
Now that the Bill has passed the House, the next step is consideration in the Senate, where a number of changes are likely to occur. Republicans control the Senate 53-47, and with Senator Rand Paul a definite "no" vote and Senator Ron Johnson a likely "no", Republicans have very little margin for error. A number of Republicans are not on the same page as their House colleagues and have different priorities, ranging from the amount of spending to cut, the effective and sunset dates of various provisions and the desire to make the extension of existing tax provisions permanent. Timing for both the House and the Senate passing the same bill and sending it to the President remains fluid, but the more likely scenario points to passage in August as opposed to the 4th of July.
As the Bill progresses, stakeholders should remain informed of potential changes. Look to Buchanan to provide ongoing updates, guidance and legislative counsel. For more information, please contact the relevant professionals listed in each section of the full alert.
Key Elements of The One Big, Beautiful Bill
Business Tax Provisions
Research and Development Tax Benefits
Under current law, domestic research and development (R&D) expenditures must be capitalized and amortized over five years. The House Bill revises this by offering taxpayers increased flexibility and choice. For domestic R&D expenses incurred in tax years beginning after December 31, 2024, and before January 1, 2030, taxpayers may now elect to (1) immediately deduct R&D costs in the year incurred, (2) capitalize and amortize costs over the useful life of the research (not less than 60 months), or (3) capitalize and amortize the costs over 10 years. However, current law treatment of foreign R&D costs (capitalization and amortization over 15 years) is not changed.
In addition to expenses and capitalization, there are also favorable tax credits for qualifying R&D activities and small businesses. These include allowing businesses to claim a larger credit for qualifying R&D activities, which now includes a broader definition of eligible expenses, such as software development and certain types of engineering and design work. The Bill also allows small businesses and startups to receive refundable credits, meaning companies can receive cash returns even if they have not yet generated taxable income.
Bonus Depreciation and Section 179 Expansion
The Bill also modifies the existing bonus depreciation provisions, which currently only allow businesses to deduct 40% of the purchase price of qualifying assets in the year of acquisition. The adjustments include an increased deduction percentage as well as an extension of eligibility. The amended bonus depreciation provisions reinstate 100% first-year depreciation for qualified property acquired and placed in service after January 19, 2025, and before January 1, 2030. In addition to bonus depreciation, another elective 100% depreciation allowance is added for qualified production property (QPP) through 2030, and for aircraft and certain long-production-period property through 2031. QPP covers (1) aircraft, and (2) newly constructed and certain existing non-residential real estate used for manufacturing, production, or refining of tangible personal property in the US.
The Section 179 deduction cap is also extended from $1 million to $2.5 million, with phase-outs beginning at $4 million for property placed in service after December 31, 2024.
199A QBI Deduction
The Section 199A deduction is revised to provide small business passthroughs and sole proprietors with greater tax efficiency. The Bill makes the deduction permanent, increases the deduction from 20% to 23%, and proposes a new two-step calculation for taxpayers exceeding certain income thresholds, among other changes.
New provisions also clarify which business activities and income types qualify for QBI, thereby reducing administrative burdens and uncertainties for taxpayers. Importantly, the Bill would extend qualified business income to include certain interest dividends from a "Business Development Company" that has an election in effect to be treated as a regulated investment company.
Business Interest Deduction
Under current law, taxpayers are generally allowed to deduct business interest expense only to the extent of business interest income plus 30% of adjusted taxable income (ATI) plus floor plan financing interest. The higher the calculation of ATI, the higher the amount of deductible business interest. The Bill increases the amount of business interest expenses that taxpayers will be allowed to deduct by removing depreciation, amortization and depletion deductions from the calculation of ATI.
Excess Business Losses
The Bill makes permanent the excess business loss limitation, which limits the amount of aggregate business deductions that a noncorporate taxpayer is allowed to deduct to the amount of aggregate gross income or gain attributable to trades or businesses of the taxpayer plus a threshold amount. The threshold amount is indexed for inflation ($313,000 for 2025). The Bill also modifies the way in which aggregate business deductions will be calculated by adding to that amount any "specified loss," defined as an excess business loss disallowed under Section 461(l) for a taxable year beginning after December 31, 2024.
Renewal of Qualified Opportunity Zone Program
The Qualified Opportunity Zone (QOZ) program was created to stimulate economic development in distressed communities by offering tax incentives to investors who invest in QOZs. While the current program is winding down, the Bill creates a new QOZ program using modified eligibility requirements and additional tax return and information reporting requirements.
New Tranche of QOZ Program: Current QOZ designations will expire on December 31, 2026, instead of December 31, 2028. Governors will designate new QOZs, which will then be in effect from January 1, 2027, through December 31, 2033. The Bill modifies the requirements applicable to the designation of a QOZ. The applicable percentage of newly designated QOZs (greater of 33% or percentage of U.S. population living within rural areas) must be low-income communities that are comprised entirely within a rural area. In addition, the definition of a low-income community is narrowing.
Tax Incentives for Investing Under New QOZ Program: Taxation of capital gain from the sale of property invested in a Qualified Opportunity Fund (QOF) on or after January 1, 2027, will be deferred until the earlier of December 31, 2033, or the date of disposition of such investment. Once the investor holds its interest in the fund for five years, the investor obtains a 10% basis increase, which will ensure that only 90% of the deferred gain is taxed. For investments in newly created qualified rural opportunity funds, 30% of the deferred gain is added to the basis.
The ability to invest and defer taxation of up to $10,000 of ordinary income is allowed. Lastly, once the investment is held for 10 years or more, no tax is imposed when the investment is sold. Deferred gain invested prior to January 1, 2027 will be recognized on December 31, 2026. That date has not been extended.
New Tax Return and Information Return Requirements: The Bill imposes comprehensive reporting and tax return requirements on new and existing QOFs and OZ businesses. Increased penalties are added to ensure compliance.
The provisions in the Bill leave a number of questions unanswered, including whether and how existing OZ businesses and projects are grandfathered.
Expanded Availability of Low-Income Housing Credits
The low-income housing credit was adopted to incentivize the construction and rehabilitation of affordable rental housing for low-income families. The federal government allocates tax credits to state housing agencies, which then award credits to private developers for construction of affordable rental housing projects. The Bill includes provisions to reform the credit and its eligibility requirements, which expand the tax credits that can be issued.
Increase State Housing Credit Ceiling Amount: By increasing the credit ceiling for the next four years (2026 through 2029), the Bill increases the amount of available credits.
Modify tax-exempt bond financing requirement: The Bill allows additional buildings financed with tax-exempt bonds to qualify for housing credits without receiving a credit allocation from the State housing credit.
Inclusion of Indian areas and rural areas: The Bill provides a temporary increase in credits by expanding the definition of difficult development areas to include Indian areas and rural areas.
Exclusion of Interest on Loans Secured by Rural or Agricultural Real Property
Partial Tax Exclusion for Interest Income: The Bill excludes from gross income 25% of interest income from qualified real estate loans received by FDIC insured banks, domestic entities owned by a bank holding company, state or federally regulated insurance companies, domestic subsidiaries of insurance holding companies or Federal Agricultural Mortgage Corporation (Farmer Mac).
Expansive Scope of Qualified Real Estate Loans: The partial exclusion applies to loans secured by (1) domestic farms and ranches substantially used to produce agricultural products, (2) domestic land substantially used for fishing or seafood processing, (3) any domestic aquaculture facility or (4) any leasehold mortgage for such property.
Employee Benefit Provisions
The House Bill will have an impact that employers should note regarding (i) the administration of compliant health savings account (HSA) benefit programs, (ii) changes to the health benefit exchanges under the Affordable Care Act (ACA) that could impact employer-provided medical insurance benefits, and (iii) new restrictions on enforcement of Employee Retention Credit (ERC) claims.
Health Savings Accounts (HSA): Consumer-Driven Health Care Gets a Boost
Overall, the proposed amendments to Section 233 aim to enhance the availability and flexibility of HSA accounts. These provisions, if enacted, will take effect in January 2026.
The Bill broadens eligibility for HSAs. Under current law, individuals must (i) be enrolled in a qualified High-Deductible Health Plan (HDHP), (ii) not be enrolled in Medicare or have a spouse enrolled in a Flexible Spending Account (FSA), and (iii) not have any other disqualifying health coverage. The Bill enables Medicare-eligible individuals to maintain HSA contributions and permits those with a spouse enrolled in an FSA to also have an HSA. Furthermore, bronze-level and catastrophic plans under the ACA will qualify as HDHPs for HSA eligibility. Additionally, two types of health plans, otherwise considered disqualifying health coverage, will become compatible with HSA enrollment: (1) direct primary care arrangements (with a cap on fees that may be paid using HSA funds); and (2) qualified discounted health services available through an employer's on-site clinic (provided the services meet certain requirements).
The Bill also modifies the type of medical expenses that qualify for HSA reimbursement. Individuals will be able to use their HSA to pay for sports and fitness expenses (capped at $500 per year for individuals, $1000 for families). In addition, medical expenses incurred within the 60-day period prior to HDHP coverage would be deemed qualified medical expenses.
Under current law, if both spouses are age 55 or older, they are required to open separate HSA accounts for their respective "catch-up" contributions. The proposed provision allows spouses who are both eligible for HSAs (provided one spouse has family coverage under the HDHP) to consolidate their catch-up contributions into one account. Individuals of all ages will also have the opportunity to convert active FSAs and health reimbursement arrangements into an active HSA upon enrolling in an HDHP, with limits set at $3,300 for individuals and $6,600 for joint filers, as long as the individual has not been covered by an HDHP in the preceding four years.
Finally, the Bill proposes to double the HSA contribution limits (currently $4,300 for self-only coverage and $8,550 for family coverage) for individuals making up to $75,000, or $150,000 for joint filers with family coverage. These increased contribution limits will be indexed for inflation and will phase out with income between $75,000 and $100,000 (or up to $200,000 for joint filers with family coverage).
Changes to Employee Retention Credit (ERC) Claims
Denial of Refunds Filed After January 31, 2024: As currently drafted, the Bill provides that ERC claims filed after January 31, 2024 are disallowed regardless of whether such claims were timely and validly filed under existing law. In light of the fact that the earliest date the statute of limitations expired for filing ERC claims was April 15, 2024, this change has the potential to retroactively deny bona fide claims filed by businesses and tax-exempt organizations related to both calendar years 2020 and 2021.
Extension of Statute of Limitations: The proposed tax legislation also contains provisions that extend the statute of limitations on assessments relating to the ERC to six (6) years for all applicable calendar quarters. As currently proposed, the six (6) year period runs from the later of (i) the date the original return was filed, (ii) the date the return is treated as filed under Code § 6501(b), (iii) or the date on which the claim for credit or refund for the ERC was made. While some employers claimed the ERC on their original quarterly Form 941, a substantial number of employers claimed the ERC by subsequently filing an amended Form 941-X for the applicable calendar quarter(s) in which they qualified. Accordingly, this provision has the potential to substantially extend the statute of limitations for the majority of employers who claimed the ERC.
Affordable Care Act (ACA): Limited Open Enrollment Periods and Eligibility Verification
The Bill proposes that, effective in January 2026, a health benefit exchange must conduct annual open enrollment periods during the period starting on November 1 and ending on December 15 of the previous plan year. In addition, the Bill would require that exchanges begin verifying the eligibility of each individual seeking to enroll. The goal is to verify a minimum of 75% of all individuals enrolling in an exchange plan.
Neither of these provisions directly affect employers or their offers of health plan coverage. In fact, employers can still craft open enrollment periods for their benefit programs as they and their vendors see fit. However, the tightening of these ACA requirements could cause previously ACA exchange-covered individuals to pull out of ACA coverage and consequently begin looking to their employers for the provision of health insurance benefits.
ACA: Treatment of DACA Recipients
The Bill narrows the scope of individuals eligible for exchange plans, which could also affect the census counts of employer-sponsored plans. Under current law, ACA provides marketplace coverage to qualified individuals who are generally defined as any person who lives in a U.S. state and is not incarcerated. The general provision is limited in scope by the requirement that the individual be either (i) a citizen or national of the U.S., or (ii) an alien "lawfully present" in the U.S. The Bill amends the definition of lawfully present to exclude aliens granted deferred action under the Deferred Action for Childhood Arrivals process (DACA recipients). Under the proposal, DACA recipients will no longer be qualified individuals, nor will DACA recipients receive premium tax credits or reduced cost sharing. With access to affordable health coverage unavailable through the marketplace, DACA recipients might reconsider employer-provided health plans, which in turn could affect not only the direct costs of employer-provided benefits, but the additional costs of administering a plan for a larger group.
Of course, as the Bill works its way through both houses of Congress, it remains subject to further review, modification and compromise. If the provisions materially change from this report, we will provide updated information in a refreshed Client Alert. With the Senate's consideration on the horizon, it is crucial for employers and stakeholders to stay informed and engaged. Our government relation professionals and attorneys are actively working to advance our clients' goals with respect to this legislation by providing analysis and guidance on navigating the complexities of the proposed tax provisions.
International Tax Provisions
Extension of Tax Cuts and Jobs Act Provisions
The House Bill includes provisions that would make permanent the expiring tax provisions in the Tax Cuts and Jobs Act (TCJA), including lowering the rate of tax on the "global intangible low-taxed income" (GILTI), "foreign-derived intangible income" (FDII), and "base erosion anti-abuse tax" (BEAT) at 10.5%, 13.125% and 10% tax rates, respectively. The Bill would also make permanent the current 50% GILTI deduction and 37.5% FDII deduction.
Enforcement of Remedies Against Unfair Foreign Taxes - New IRC Section 899
The Bill introduces a proposed IRC Section 899, "Enforcement of Remedies Against Unfair Foreign Taxes," to retaliate against certain foreign countries (referred to as "discriminatory countries") that adhere to the imposition of "unfair foreign tax" that applies to U.S. persons or foreign entities that are owned by U.S. persons. More specifically, proposed Section 899 would impose an escalating tax on foreign individuals, corporations, governments, and private foundations, partnerships, branches or any other entity with sufficient nexus to a discriminatory foreign country, as well as amend the application of the BEAT to corporations that are owned by foreigners. According to the Joint Committee on Tax revenue projections, proposed Section 899 is estimated to raise approximately $116B in revenue over the 10-year budget prediction.
The proposal is in line with the Defending American Jobs and Investment Act, which was introduced in May 2023 under the Biden Administration. The term "unfair foreign taxes" is broadly defined in the Bill and includes undertaxed profits rule (UTPR), digital services taxes (DSTs), and diverted profits taxes (DPTs). Additionally, an unfair foreign tax would include any tax the Secretary of Treasury would deem fit as extraterritorial or discriminatory. An exemption applies for U.S. persons and foreign companies where more than 50% by vote or value is owned by a U.S. person.
Proposed Section 899 would increase the "applicable" and "specified rate of tax" to an "applicable person." The specified rate of tax refers to the statutory rate of tax, or rate of tax in lieu of the statutory rate. The increase in tax would be 5% for each subsequent one-year period during which Section 899 remains applicable, up to 20% above the statutory rate. Proposed Section 899 would increase the tax imposed on fixed, annual, determinable and periodic (FDAP); as well as effectively connected income of foreigners in the categories described above. Additionally, proposed Section 899 would also increase the rate of withholding. Proposed Section 899 would also modify and expand the applicability of certain provisions of the BEAT rules, in particular U.S. corporations that are more than 50% owned by foreign corporations that are resident in a discriminatory foreign country, including related entities (e.g., U.S. subsidiaries).
More specifically, the Bill would modify BEAT provisions to increase the levy's rate on certain payments within newly proposed Section 899 from 10% to 12.5% for foreign-owned companies operating in the U.S. The tough application of BEAT would apply in cases where a foreign entity would tax U.S. entities under the Organization for Economic Cooperation and Development's (OECD) global minimum tax framework, which the Trump Administration does not generally support. The OECD has negotiated a global 15% minimum tax with more than 140 countries to date.
The increase in tax would override existing U.S. tax treaties by imposing the new tax on top of reduced tax rates (or tax exemptions if available) under tax treaties. For example, interest income that is exempt under a U.S. double tax treaty would be taxed at 5% first year, then 10% and so forth. The new tax regime would also apply to the BEAT.
Proposed new Section 899 would delegate to the Secretary of Treasury broad authority to issue regulations necessary and appropriate to carry out the provisions in Section 899, including: (i) providing adjustments to the application of Section 899; (ii) listing discriminatory foreign countries and updating the list on a quarterly basis by notifying Congress of same; (iii) providing and defining exceptions; and (iv) weighing in on BEAT calculations to a foreign related party as needed.
As the Bill makes its way through the legislative process, the implications for U.S. international tax policy are significant and far-reaching. Our government relations professionals and attorneys are actively working to advance our clients' goals with respect to this legislation. For additional information, please contact Government Relations Principal Edward Hild (edward.hild@bipc.com) or Tax Counsel and Chair of Blockchain and Digital Asset Practice Group Sahel A. Assar (sahel.assar@bipc.com).
Estate and Gift Tax Provisions
Permanent Increase in Estate, Gift and Generation Skipping Transfer Tax Exemptions: From Sunset to Sunrise
In a notable change to U.S. tax policy, the House Bill proposes to permanently increase the unified credit for estate and gift taxes, as well as the generation-skipping transfer tax (GSTT) exemption, from $10 million per individual to $15 million per individual, indexed for inflation. This adjustment marks a significant departure from the previous increase established by the Tax Cuts and Jobs Act (TCJA), which temporarily doubled the applicable exemption amount from $5 million to $10 million per individual, indexed for inflation. This "bonus exemption" was slated to expire at the end of 2025, which would have resulted in the applicable exemption amount reverting back to its pre-TCJA levels (approximately $7 million per individual, as indexed for inflation).
The unified credit allows individuals to transfer wealth without incurring federal estate and gift taxes up to a specified limit. Similarly, the GSTT exemption allows transfers to certain future generations without incurring additional tax. By raising the exemption amount to $15 million, individuals would be able to pass on greater wealth to their heirs without the burden of transfer taxation, thereby encouraging wealth accumulation, larger lifetime gifts and transfers within families. This proposed change is particularly beneficial for high-net-worth individuals and families, as it provides them with more flexibility in estate planning and wealth management.
If signed into law by President Trump, the permanence of this increase would reflect a broader trend in tax policy aimed at providing stability and predictability for individuals and families planning their estates. It would allow for more strategic long-term financial planning, as individuals will be able to confidently make decisions regarding wealth transfers without the looming uncertainty of potential tax increases resulting from the temporary nature of the exemption.
The permanent increase in the unified credit and GSTT exemption is a pivotal development that will have significant and lasting implications for wealth transfer and estate planning in the U.S. Individuals with larger estates may need to review and adjust their estate plans to take advantage of the increased exemption and minimize potential tax liabilities. Therefore, it is advisable to consult with one's tax professionals to optimize estate planning strategies in accordance with the latest regulations.
Looking Forward to Next Steps
With the Senate's consideration on the horizon, it is crucial for businesses, investors, and stakeholders to stay informed and engaged. Buchanan's attorneys and government relations professionals will continue to monitor and provide additional analysis, as well as personalized guidance on navigating the complexities of the proposed tax provisions. Look for additional client advisories as the Bill progresses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
