On July 4, 2025, the legislation commonly known as "The One Big Beautiful Bill Act" (the "BBBA") was enacted. The BBBA makes permanent, extends and, in certain cases, modifies, a number of provisions from the 2017 Tax Cuts and Jobs Act ("TCJA"), enacts a number of new provisions and phases out many of the green energy provisions from the 2022 Inflation Reduction Act.
The following is a summary of some of the key provisions from the BBBA:
BUSINESS TAX PROVISIONS
Some of the key provisions impacting businesses include the following:
1. Extension of Deduction for Qualified Business Income, REIT Dividends and MLP Income. Under pre-BBBA law, an individual generally may deduct 20 percent of qualified business income from a partnership, S corporation, or sole proprietorship, as well as 20 percent of certain real estate investment trust dividends and publicly traded partnership income. For taxpayers with taxable income in excess of certain specified threshold amounts, the deduction for qualified business income is in most cases limited based on (1) the W-2 wages and unadjusted basis of tangible, depreciable property of each relevant business and (2) whether each relevant business is a specified service trade or business. This deduction was set to expire for taxable years beginning after December 31, 2025.
The BBBA makes the deduction permanent and makes relatively minor modifications to the manner in which the limitations are phased in for taxpayers with taxable income above the threshold amounts for such taxable years, as well as including a minimum deduction of $400 (plus inflation adjustments) for certain taxpayers.
2. Extension of "Bonus" Depreciation Allowance for Certain Property. The BBBA permanently extends the "bonus" depreciation provisions in the TCJA allowing taxpayers to immediately expense 100% of the cost of qualified property (including most equipment and machinery) acquired after January 19, 2025.
3. Increased Dollar Limitations for Expensing of Certain Depreciable Business Assets. Under pre-BBBA law (IRC section 179) a taxpayer may elect to expense the cost of qualifying property, rather than to recover such costs through depreciation deductions, up to a maximum amount of $1 million (plus inflation adjustments) for the taxable year. This $1 million limitation is reduced by the amount by which the cost of such property placed in service during the taxable year exceeds $2.5 million (plus inflation adjustments).
For taxable years beginning after December 31, 2024, the BBBA increases the $1 million limitation and $2.5 million phase-out threshold to $2.5 million and $4.0 million, respectively, adjusted for inflation.
4. Deduction of R&E Expenditures. Pre-BBBA law requires that qualifying domestic research and experimental expenditures be amortized over 5 years. The BBBA allows taxpayers to (1) immediately deduct domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024 and (2) accelerate the deduction of remaining unamortized domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021, and before January 1, 2025. Notably, however, there is a specific exclusion for and, thus, immediate deductibility does not apply to, any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). Additionally, certain small business taxpayers are permitted to apply these changes retroactively for domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021.
5. Special Depreciation Allowance for Qualified Production Property. The BBBA provides for an immediate deduction for 100% of the cost of certain depreciable real property used as an integral part of a qualified production activity if, among other things, (i) the property is placed in service in the U.S. or any possession of the U.S., (ii) the original use of the property begins with the taxpayer, (iii) the construction of the property begins after January 19, 2025, and before January 1, 2029 and (iv) the property is placed in service after July 4, 2025 and before January 1, 2031. A "qualified production activity" generally means the manufacturing, chemical or agricultural production, or refining of tangible personal property. An activity generally does not count as a qualified production activity unless it results in a substantial transformation of the property comprising a product.
6. Modified Calculation of Adjusted Taxable Income for Purposes of Business Interest Deduction. Under pre-BBBA law, the deduction for business interest expense for a taxable year is generally limited to 30% of the taxpayer's "adjusted taxable income" (plus the taxpayer's business interest income and "floor plan financing interest") for the taxable year. "Adjusted taxable income" generally corresponds to earnings before interest and taxes (EBIT).
The BBBA modifies the "adjusted taxable income" definition for taxable years beginning after December 31, 2024 so that it (1) is computed without taking into account deductions for depreciation, amortization, or depletion (which generally corresponds to earnings before interest, taxes, depreciation and amortization (EBITDA)) and (2) excludes global intangible low-taxed income ("GILTI") and income inclusions under IRC section 951(a) and IRC section 78 (and the portion of the deductions allowed under IRC sections 245A(a) (by reason of IRC section 964(e)(4)) and 250(a)(1)(B) by reason of such inclusions).
7. Renewal and Enhancement of Opportunity Zone Tax Benefits. Pre-BBBA law provides tax benefits for investments in qualified opportunity funds ("QOFs"), which generally are funds which invest in qualified opportunity zones. These tax benefits include temporary deferral of taxation of existing capital gains that are invested in a QOF, tax basis step-up, and exclusion of certain taxable gain ultimately realized on the QOF investment. These were set to expire at the end of 2026.
The BBBA provides for a second, permanent, round of QOFsbeginning on January 1, 2027, with rolling ten-year qualified opportunity zone designations, subject to narrower eligibility requirements. The second round of QOFswould have similar but modified benefits, including temporary deferral of taxes on existing capital gains, tax basis step-up (including an increased basis step-up for investments in "qualified rural opportunity funds") and exclusion of certain taxable gain ultimately realized on the QOF investment.
8. Expansion of Qualified Small Business Stock Gain Exclusion. Under pre-BBBA law, 100% of the gain from the sale of qualified small business stock ("QSBS") by a noncorporate taxpayer is excluded from taxable income if certain conditions are satisfied, including that the QSBS was held for more than five years. A taxpayer's QSBSexclusion for a taxable year with respect to a single corporate issuer is subject to a limit equal to the greater of (i) the remaining portion of a lifetime exclusion limit of $10 million ($5 million in the case of a separate return of a married individual) with respect to such corporate issuer and (ii) ten times the aggregate adjusted bases of QSBS issued by such corporate issuer and disposed of by the taxpayer during the taxable year. A corporation generally cannot qualify as a "qualified small business" when it issues stock if the corporation's aggregate gross assets exceed $50 million at any time after 1993 through the moment immediately after the stock issuance.
The BBBA relaxes the holding period requirements that must be met in order for gain from QSBSto be excluded from taxable income. In particular, under the BBBA, 50% of the gain would be excluded for QSBS stock held at least three years, 75% for four years, and 100% for five years or more. The BBBA also increases the lifetime exclusion limit for QSBS gains from a single issuer from $10 million to $15 million (which is halved in the case of a separate return by a married individual) and raises the gross asset limit for a corporation to qualify as a "qualified small business" from $50 million to $75 million. Both thresholds are indexed for inflation beginning in 2027. These changes generally apply to taxable years beginning after July 4, 2025, with respect to QSBS issued or acquired after July 4, 2025.
9. Increase in Threshold for Requiring Information Reporting With Respect to Certain Payees. Under pre-BBBA law, the reporting threshold for payments by a business for services performed by an independent contractor or subcontractor and for certain other payments is generally $600.
The BBBA generally would increase the threshold to $2,000 for payments made after December 31, 2025, and adjust the threshold for inflation for calendar years after 2026.
10. Limitation on Individual Deductions for State and Local Taxes. Under pre-BBBA law, in the case of an individual, the itemized deduction for state and local taxes is capped at $10,000 ($5,000 for a married taxpayer filing a separate return) (the "SALT cap") for taxable years beginning before January 1, 2026.
The BBBA increases the SALT cap to $40,000 ($20,000 for a married taxpayer filing a separate return) for taxable years beginning after December 31, 2024 and before January 1, 2030, subject to a phasedown in the case of taxpayers with modified adjusted gross income above specified thresholds (with the SALT cap not being reduced below $10,000, or $5,000 for a married taxpayer filing a separate return). The BBBA also generally increases the SALT cap by 1% each year for taxable years beginning after December 31, 2026, and before January 1, 2030. Finally, the BBBA provides for the SALT cap to permanently return to $10,000 ($5,000 for a married taxpayer filing a separate return) for taxable years beginning after December 31, 2029. Notably, the BBBA does not include the provisions in prior versions of the bill which in some cases would have denied deductions for state and local taxes paid under pass-through entity tax, or "PTET", regimes of states and localities.
11. Limitation on Excess Business Losses of Noncorporate Taxpayers. The BBBA makes permanent the limitations in effect under pre-BBBA law on deductions for "excess business losses" and continues to permit any excess business losses to be carried forward as NOLs in subsequent taxable years.
12. 1% Floor on Deduction of Charitable Contributions Made By Corporations. The BBBA limits the deduction of charitable contributions by corporations for taxable years beginning after December 31, 2025 to only that portion of such contributions which exceeds 1% of the corporation's taxable income for the taxable year. If such contributions exceed 10% of the corporation's taxable income for the taxable year, then any charitable contribution deductions disallowed by the 1% floor generally can be carried forward for 5 taxable years.
13. Substantial Changes to Clean Energy Tax Incentives. The BBBA makes substantial changes to the clean energy tax credits enacted, extended and expanded as part of the 2022 Inflation Reduction Act. Please click here for a more detailed discussion of these BBBA provisions.
14. Payments from Partnerships to Partners for Property or Services. Under pre-BBBA law (IRC section 707(a)(2)), certain payments or transfers to partners from a partnership for property or services may be treated as transactions between the partnership and a non-partner "[u]nder regulations prescribed by the Secretary." The BBBA makes IRC section 707(a)(2) self-effecting "[e]xcept as provided" by the Secretary for services performed by or property transfers to partners after July 4, 2025. The BBBA further provides that this change "shall [not] be construed to create any inference with respect to the proper treatment under section 707(a) of the Internal Revenue Code of 1986 with respect to payments from a partnership to a partner for services performed, or property transferred, on or before the date of the enactment of this Act."
15. No Carried Interest Provisions. The BBBA does not include any provisions directly changing the taxation of carried interests.
16. Expansion of Publicly Traded Partnership Qualifying Income. The BBBA would expand the definition of "qualifying income" under IRC section 7704 for publicly traded partnerships to include certain income from an electricity generating facility that satisfies certain carbon capture requirements, as well as certain income from the production of electricity at certain nuclear facilities, the production of electricity or thermal energy from geothermal or hydropower facilities and the operation of geothermal or geothermal heat pump property, and would restore to "qualifying income" status the income from transportation or storage of two products that were inadvertently eliminated by TCJA.
INTERNATIONAL TAX PROVISIONS
Some of the key international tax provisions include the following:
1. Changes to FDII (now "FDDEI") and GILTI (now "NCTI") Rules. Under pre-BBBA law, a U.S. corporation was allowed a deduction equal to 37.5% of its foreign-derived intangible income ("FDII") and 50% of its inclusions with respect to GILTI. Each of FDII and GILTI were generally determined by reducing the income base by an amount equal to a deemed tangible income return of 10% (DTIR). The FDII and GILTI deductions were scheduled to be reduced to 21.875% and 37.5%, respectively, for taxable years beginning after December 31, 2025.
The BBBA (1) renames the FDII and GILTI provisions as foreign-derived deduction eligible income (FDDEI) and net CFC tested income (NCTI), respectively, (2) eliminates the DTIR reduction utilized in determining a U.S. corporation's FDII (now FDDEI) and a U.S. shareholder's GILTI (now NCTI) inclusion, and (3) limits the allocation and apportionment of interest and other deductions to GILTI (now NCTI) for foreign tax credit purposes.
The BBBA also permanently sets the deduction amount for FDDEI and NCTI to 33.34% and 40%, respectively, for taxable years beginning after December 31, 2025, resulting in effective tax rates of 14% and 12.6%, respectively. However, because the BBBA increases the allowed foreign tax credit for NCTI inclusions from 80% to 90% of foreign taxes, a local tax rate of 14% on NCTI is required to offset the effective U.S. tax rate of 12.6%.
2. Change in Base Erosion Minimum Tax ("BEAT") Amount. Under pre-BBBA law, BEAT applies to corporations with annual gross receipts in excess of $500 million and base erosion payments above a certain threshold and imposes an additional tax to the extent that 10% of an applicable corporation's modified taxable income exceeds its regular tax liability (reduced by certain specified tax credits). For taxable years beginning after December 31, 2025, under pre-BBBA law, the 10% rate was scheduled to increase to 12.5% and the corporation's regular tax liability would be reduced by all allowable credits (rather than just certain specified credits).
The BBBA permanently sets the BEAT rate at 10.5% and retains the pre-BBBA treatment of tax credits for taxable years beginning after December 31, 2025.
3. Non-Enactment of Revenge Tax. The BBBA does not include the IRC section 899 "revenge tax" that was included in prior versions of the bill. Section 899 was removed from the bill in conjunction with the G7 countries announcing they will provide guidance on how the U.S. tax system and Pillar II will operate side-by-side in the coming months including to materially reduce compliance burdens for U.S. parented multinationals.
4. Section 954(c)(6) "Look Through Rule" Extension Made Permanent. The BBBA makes permanent the "look-through rule" in IRC section 954(c)(6) which exempts from foreign personal holding company of a controlled foreign corporation ("CFC") income dividends, interest, rents, and royalties between related CFCs to the extent that such items are not attributable to subpart F income or income that is effectively connected with the conduct of a U.S. trade or business of the payor.
5. Limitations on Downward Attribution of Stock for CFC Purposes. The BBBA (1) restores the limitation on downward attribution of stock ownership from a foreign person to a U.S. person, former IRC section 958(b)(4), when applying the constructive ownership rules for purposes of the CFC rules, but (2) adds a new IRC section 951B to allow for downward attribution from a foreign person to a U.S. person in more limited cases involving foreign-controlled U.S. shareholders. These rules apply to tax years of foreign corporations beginning after December 31, 2025.
6. Deferral Election Repealed. The BBBA repeals the IRC section 898 one-month deferral election for taxable years of specified foreign corporations beginning after November 30, 2025. The election previously permitted a CFC to elect a taxable year beginning one month earlier than its majority U.S. shareholder.
7. Subpart F Treatment of Partial Year CFCs and U.S. Shareholders. The BBBA provides that, if a foreign corporation is a CFC at any time during its tax year, each US shareholder that owns stock in that corporation during such tax year is required to include in gross income such shareholder's pro rata share of the corporation's subpart F income for the CFC year. Similar modified pro rata share rules would apply in the calculation of a US shareholder's GILTI inclusion. This rule would apply to tax years of foreign corporations beginning after December 31, 2025.
TAXATION OF INDIVIDUALS
Some of the other key provisions impacting individuals include the following:
- The BBBA makes permanent the reduction in the individual income tax rates made by the TCJA.
- The BBBA increases the estate and lifetime gift tax exemption amount to $15 million (plus the unused exclusion amount of a deceased spouse), indexed for inflation going forward, for estates of decedents dying and gifts made after December 31, 2025.
- The BBBA makes permanent the increased individual alternative minimum tax exemption amounts and reverts the exemption phase-out thresholds to their original 2018 levels under the TCJA, while indexing them to inflation. Such exemption amounts and phase-out thresholds were otherwise set to expire for taxable years beginning after December 31, 2025.
- The BBBA makes permanent the elimination of deductions for miscellaneous itemized deductions made by the TCJA and which currently exists.
- The BBBA reduces other itemized deductions of individual taxpayers who have taxable incomes in excess of the dollar amount at which the 37% rate bracket begins ($751,600 for married couples filing jointly in 2025). The reduction equals 2/37ths of the lesser of:
(1) such amount of itemized deductions; or
(2) so much of the taxable income of the taxpayer for the taxable year (determined without regard to this section and increased by such amount of itemized deductions) as exceeds the dollar amount at which the 37 percent rate bracket under section 1 begins with respect to the taxpayer.
This reduction applies to taxable years beginning after December 31, 2025.
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.
