On July 4, President Donald Trump signed the One Big, Beautiful Bill Act into law, solidifying sweeping changes to the Internal Revenue Code that will impact nearly every business and investor.
Aside from the tax code changes, the 900-plus-page bill reflects a massive change in policy regarding federal government funding initiatives that are intended to reshape healthcare, secure U.S. borders, spur investment in domestic infrastructure, and significantly alter the country's approach to energy and environmental policy.
Many well-known and widely used provisions of the IRS code were made permanent, while others were extended or repealed. The bill also introduces several new provisions that will impact both individuals and businesses.
It is crucial for companies and investors to understand the potential implications of this new law and strategize accordingly for future filings. On July 30, Buchanan tax attorneys convened to share their insights into the most significant changes impacting for-profit organizations and individuals.
While it's impossible to cover every detail of every change to the tax code in a single article, our attorneys and experienced tax professionals discussed several important areas companies and individuals need to consider:
Business Tax Changes for QBI, R&D and Depreciation
Under this new law, the qualified business income (QBI) deduction has been made permanent and is no longer expiring at the end of 2025. This deduction can be applied to nearly any business (subject to restrictions that may prevent certain service businesses from getting this deduction) and allows self-employed individuals and small business owners to deduct up to 20 percent of their QBI.
In an effort to stimulate investment in domestic research and development, businesses can now immediately deduct qualifying domestic research and development expenses incurred in taxable years beginning after December 31, 2024, and in the year that they are incurred. This deduction is designed to improve cash flow and reduce taxable income in the near term for businesses investing in domestic innovation.
The bill also permanently reinstates the 100% bonus depreciation credit for qualified property placed in service on or after January 20, 2025. This allows businesses to immediately deduct the full cost of qualifying assets such as equipment and furniture. In addition to bonus depreciation, a Section 179 deduction may be allowed for investment in qualified equipment and certain other assets subject to limitations. The bill increases the Section 179 deduction cap from $1 million to $2.5 million with phase-out beginning at $4 million for property placed into service after December 31, 2024.
A new depreciation benefit was also added to the tax code to stimulate manufacturing in the U.S. Under this new benefit, an election is allowed to take an immediate deduction for the cost of building or purchasing qualified production property used in domestic manufacturing, production or refining. However, this property must be placed in service before January 1, 2031, and meet other eligibility requirements. This first year write-off is not, however, available for the portion of the property used for sales activities and other non-manufacturing or production activities and is also not available for land. As a result, an allocation of the construction costs and purchase price is needed to determine the eligible deduction.
Alterations to the Opportunity Zone Program
The One Big Beautiful Bill Act made the Qualified Opportunity Zone (QOZ) program permanent with rolling 10-year QOZ designations, modified eligibility requirements and additional tax return and information reporting requirements.
Beginning July 1, 2026, state governors will designate new QOZs, which will then be in effect for 10 years beginning January 1, 2027. On the tenth anniversary of each successive designation date, new QOZs will be designated and will be in effect for another ten years. The definition of a "low-income community" has also been narrowed, meaning that fewer census tracts will be eligible for designation as a QOZ. Importantly, the act repealed a rule in the original opportunity zone program that allowed certain areas located contiguous to a QOZ to be designated as QOZs. It also repealed the rule that made all population census tracts in Puerto Rico designated QOZs.
The new legislation also included changes that impact the deferral and exclusion benefits available for OZ investments. Notably, there was no extension granted for deferred gains under the original QOZ program (i.e., the December 31, 2026 date still applies to any remaining deferred gain). Taxation of capital gain invested in a Qualified Opportunity Fund (QOF) or a Qualified Rural Opportunity Fund (QROF) on or after January 1, 2027, can be deferred until either the date of disposition of the investment or five years from the date of the investment in the fund – whichever comes sooner. If a taxpayer holds a qualifying investment in a QOF or QROF for at least five years, the taxpayer's basis in the investment is increased by an amount equal to 10% (30 percent in the case of a qualifying investment in a qualified rural opportunity fund ("QROF")) of the gain that the taxpayer originally elected to invest and defer (which means that 10% (or 30%)) of the deferred gain is permanently excluded.
The act also imposes comprehensive reporting and tax return requirements on new and existing QOFs and Qualified Opportunity Zone Businesses (QOZBs). Increased penalties are added to ensure compliance. As a result, it is critical to work proactively with tax attorneys to ensure all requirements and deadlines are met going forward.
SALT, QSBS, and Business Interest Deduction Changes
The new law increased the deduction cap on state and local taxes (SALT) from $10,000 to $40,000 per return starting this year. The cap increases by 1 percent annually through 2029, then reverts to $10,000 on January 1, 2030 unless Congress acts again. This change only increases the SALT cap and does not limit or address the various state passthrough entity tax (PTETs) workarounds.
There are also significant expansions to qualified small business stock (QSBS) capital gains exclusions. Under current law, the 100% exclusion is available after a five-year holding period. This new legislation adds a tiered gain exclusion percentage for QSBS sales after three years (50% gain exclusion), after four years (75% gain exclusion) and maintains the 100% gain exclusion after five years. The per taxpayer exclusion keeps the 10x basis exclusion limitation but raises the alternative election from $10 million to $15 million and raises the company gross asset limitation from $50 million to $75 million.
For the deduction of business interest expenses, this new law modifies the definition of adjusted taxable income (ATI) so that the deduction limitation is computed as 30% of an ATI amount that does not subtract depreciation, amortization, and depletion. It also provides relief for floor plan financing of certain recreational vehicles.
Energy Tax Credit Reforms
The One Big Beautiful Bill Act is far-reaching in its reforms of energy tax credits. It repeals three crucial tax credits for the purchase of new and used personal and commercial electric vehicles (EVs). It also removes the EV charging infrastructure tax credit. Several tax credits for making improvements to a home's energy efficiency were also repealed for projects started after certain dates. The legislation also accelerates the repeal of tax credits for most commercial energy projects, with a great deal of focus placed on wind and solar production facilities. Specifically, solar and wind production facilities which are placed in service after December 31, 2027 will not be eligible for key tax credits, unless the construction of such facilities begins within 12 months after the One Big Beautiful Bill Act was enacted.
In addition to accelerating the repeal of tax credits for most commercial projects, this new legislation provides that taxpayers which are owned or controlled by "foreign entities of concern (FEOCs)," including China, Russia, North Korea and Iran, are now prohibited from claiming tax credits. Further, energy facilities, including solar/wind production facilities and energy storage technology, the construction of which begins after December 31, 2025, are not eligible for the credits if the construction, reconstruction or erection of such property includes any "material assistance" from a prohibited foreign entity
It is now more important than ever for developers to review their projects for compliance with "beginning of construction" rules and the FEOC rules. As to the FEOC rules, developers should track ownership and control of facilities, their supply chain and prior payments to understand the extent to which there is involvement from an FEOC. Companies in the energy sector should consult with tax attorneys to review existing projects and formulate a plan to maximize credits now and in the future.
International Tax Changes
Under the new legislation, key international tax modifications (effective after December 31, 2025), include, among others: (i) renaming the global intangible low‑taxed income (GILTI) to net CFC tested income (NCTI) with the repeal of the qualified business asset investment (QBAI) and a reduction in IRC Section 250 deduction from 50 percent to 40 percent; (ii) renaming of the foreign-derived intangible income (FDII) to foreign-derived deduction eligible income (FDDEI) with a revised lower reduction rate; and (iii) increasing the Base Erosion and Anti-Abuse Tax (BEAT) rate to 10.5%. Multinational enterprises should work closely with their tax attorneys to reassess their cross-border payments and consider structuring adjustments to maintain deductions (including foreign tax credit modifications), and where appropriate, review application of new sourcing rules from the sale of inventory produced in the United States.
The One Big Beautiful Bill Act also reinstates IRC Section 958(b)(4), effective for taxable years beginning after December 31, 2025, and permanently extends the controlled foreign corporation (CFC) look-through rule, which was due to expire. This modification ties within the newly enacted IRC Section 951B as an anti-abuse provision in applying the constructive ownership rules relevant to CFCs. Furthermore, the newly-enacted law repeals the one-month deferral election under IRC Section 898 with respect to a Specified Foreign Corporation's first tax year beginning after November 30, 2025.
Finally, the One Big Beautiful Bill Act provides a newly enacted provision to implement a 1% excise tax on certain remittance transfers. The provision is effective after December 31, 2025, and certain exemptions apply.
A New Tax Landscape
The changes covered above only scratch the surface of the far-reaching implications of this expansive new law. Businesses and investors must review their exposure to these changes to the tax code closely with their tax attorneys and professionals. Many of these changes take effect over the next few months and will impact 2025 filing strategies. At Buchanan, our tax attorneys have thoroughly reviewed this new law and are ready to help businesses and individuals navigate this new tax landscape.
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.
