On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), which modifies and extends numerous provisions of the 2017 Tax Cuts and Jobs Act (TCJA). One key area of focus is the state and local tax (SALT) deduction. While the TCJA imposed a $10,000 SALT deduction limit ($5,000 for married filing separately), the OBBBA temporarily raises the cap to $40,000 ($20,000 for married individuals filing separately) for 2025, with slight annual inflation adjustments through 2029. This temporary increase offers limited relief for individuals and small business owners in high-tax jurisdictions, but the benefit is phased down for taxpayers with modified adjusted gross income (MAGI) over $500,000 ($250,000 for married taxpayers filing separately), reducing the expanded deduction by 30% of the amount over the threshold—though not below the $10,000 threshold.
Business
The OBBBA preserves the viability of the Pass-Through Entity Tax (PTET) workaround established under IRS Notice 2020-75. PTET allows owners of S corporations, LLCs, partnerships, and sole proprietorships to pay state income tax at the entity level, thus bypassing the SALT cap for owners who otherwise deduct taxes at the individual level. Importantly, drafts of the legislation proposed eliminating this option for specified service trades such as law and medicine, but those restrictions were not adopted. Thus, professional pass-through entities remain eligible to make PTET elections, and their owners may continue deducting the full entity-level state tax from their federal tax liability. This development is particularly relevant for small businesses and professional practices in high-tax jurisdictions such as the D.C. metropolitan area.
Furthermore, the OBBBA makes permanent the 20% qualified business income (QBI) deduction under Section 199A, which had been set to expire at the end of 2025. The legislation enhances the deduction by increasing the phase-in limits for wage and investment-based restrictions and by introducing a minimum $400 deduction for taxpayers with at least $1,000 in qualified business income from active trades or businesses. As a result, more business owners may become eligible for the QBI deduction as well as benefit from the guaranteed $400 deduction.
Real Estate
The legislation also revises the accounting rules for residential construction. Under prior law, contractors on projects with four or fewer dwelling units could avoid using the percentage-of-completion method (PCM). The OBBBA expands this exemption to cover larger residential projects, including those with more than four units such as apartments and condominiums. For contracts entered into after 2025, eligible developers and builders may now use more favorable accounting methods like the completed-contract method, allowing for deferred revenue recognition and improved cash flow. This change enhances flexibility for developers and may incentivize greater housing development with cash flow advantages for developers, builders, and contractors working on larger-scale residential developments.
On the affordable housing front, the annual allocation of 9% LIHTCs will see a permanent 12% increase beginning in 2026. These changes are expected to accelerate affordable housing development nationwide. Additionally, developers seeking 4% LIHTCs now only need to finance 25% of project costs with bonds—down from 50%— allowing states to finance twice as many projects. It would be prudent for developers that were considering including LIHTCs as part of their sources and uses to revisit eligibility criteria and adjust their plans accordingly.
The OBBBA provides certain benefits for many individuals and small businesses, particularly in the areas of state tax deductibility, pass-through taxation, real estate and affordable housing incentives. However, because legislation is projected to reduce federal revenue by nearly $1.5 trillion over the next decade, future funding for infrastructure, workforce development, and social safety net programs—services many small businesses rely on—could be at risk. While the OBBB Act offers near-term deductions and favorable provisions, long-term business strategy should consider both the potential phase-out of individual benefits and the uncertain fiscal and legal landscape ahead. If you have questions about how the OBBBA may impact your business and real estate, please reach out to your Jackson & Campbell team with any questions or for support.
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