As the country celebrated the beginning of its 250th year of independence on July 4th, President Trump signed into law the legislation commonly referred to as the One Big Beautiful Bill Act (the “Act” or “OBBBA”) which included several modifications to the Internal Revenue Code. This article provides an overview of the key tax provisions contained therein, including a summary of items pertaining to personal income tax, domestic business tax, green energy incentives, and international tax. Unless otherwise noted, all references to “Sections” herein pertain to sections of the Internal Revenue Code.
I. Personal Income Tax Provisions
A. Individual Tax Rate Extensions
The Act makes permanent the lower individual income tax rates originally enacted under the Tax Cuts and Jobs Act of 2017 (TCJA). As a result, the following tax brackets and rates for the 2025 tax year and forward are as provided below.
| Income Range (Single Filers) | Income Range (MFJ) | Permanent Rate |
| $0 – $11,925 | $0 – $23,850 | 10 percent |
| $11,925 – $48,475 | $23,850 – $96,950 | 12 percent |
| $48,475 – $103,350 | $96,950 – $206,700 | 22 percent |
| $103,350 – $197,300 | $206,700 – $394,600 | 24 percent |
| $197,300 – $250,525 | $394,600 – $501,050 | 32 percent |
| $250,525 – $626,350 | $501,050 – $751,600 | 35 percent |
| $626,350 or more | $751,600 or more | 37 percent |
B. Individual Income Tax Deductions
Tips and Overtime Deductions
The OBBBA includes two items that President Trump campaigned on during the presidential election: no tax on tips and no tax on overtime. For both items, the “no tax” occurs via new above-the-line tax deductions that apply for the 2025 through 2028 tax years for certain qualifying taxpayers. The Act requires that these forms of compensation be reported on statements provided to payees (e.g., Form W2 for an employee) with separate accounting for such items (transition rules allow for any reasonable method specified by Treasury for amounts required to be reported for periods before January 1, 2026). The Act also directs Treasury to modify procedures for withholding for taxable years beginning after December 31, 2025, in order to take the new deductions into account.
New Section 224 provides a deduction of up to $25,000 for “qualified tips” but is reduced by $100 for each $1,000 a taxpayer’s modification adjusted gross income (MAGI) exceeds $150,000 ($300,000 if married filing jointly). The term “qualified tips” means cash tips received by an individual in an occupation in which an individual customarily and regularly received tips prior to December 31, 2024. Exclusions apply to the term, including receipt of cash in the trade or business identified as a specified service trade or business (SSTB) under Section 199A. The term “cash tips” includes credit card payments and tip-sharing arrangements. As an above-the-line deduction, it is available whether or not a taxpayer itemizes deductions (i.e., available for non-itemizers). A taxpayer will have to provide a Social Security number on the income tax return to obtain the deduction, and if the taxpayer is married, a joint return is required to claim the deduction.
Similarly, new Section 225 provides a deduction of up to $12,500 ($25,000 if married filing jointly) for qualified overtime compensation, which is reduced by $100 for each $1,000 by which a taxpayer’s MAGI exceeds $150,000 ($300,00 if married filing jointly). The provision defines “qualified overtime compensation” as “overtime compensation paid to an individual under section 7 of the Fair Labors Standard Act of 1938 that is excess of the regular rate (as used in such section) at which such individual is employed”. Thus, the deduction is based on the additional rate of pay for overtime worked (the excess over the regular rate), as opposed the amount of overtime worked. The term excludes “qualified tips” as defined in Section 224. As with the qualified tip deduction, the qualified overtime compensation deduction is available regardless of a taxpayer’s deduction itemization, requires the taxpayer to provide a Social Security number on the income tax return, and requires a married taxpayer to file a joint return.
Standard Deduction and New Senior Deduction
While the Act permanently eliminates personal exemptions, it increases the standard deduction to $15,750 for single filers, and $23,625 for head of household, and $31,500 for married couples filing jointly. This increase is effective beginning with the 2025 tax year and is indexed for inflation annually thereafter.
In addition, for the 2025 through 2028 tax years, taxpayers aged 65 by the end of the taxable year and older are eligible for an enhanced senior deduction of $6,000. If both spouses have attained the age of 65 by the end of the taxable year, each spouse would constitute a qualified individual (i.e., joint filers who are qualified individuals may claim a total deduction of $12,000).
The above-the-line deduction begins phasing out at a MAGI threshold amount of $75,000 for single filers ($150,000 for taxpayers married filing jointly). The deduction decreases by 6 percent of the taxpayer’s MAGI in excess of the threshold amount.
Limitation on Itemized Deductions
For individual taxpayers who itemize deductions, a new limitation exists for taxable years beginning after December 31, 2025. This new limitation effectively replaces the Pease limitation which reduced itemized deductions by 3 percent of AGI above certain thresholds. The TCJA suspended the Pease limitation for the 2018 through 2025 taxable years. Under the new limitation, taxpayers in the top 37 percent rate tax bracket will have their itemized deductions limited (effectively limiting such deductions to the 35 percent tax rate and below). This occurs via reduction of itemized deductions by 2/37 of the lesser of:
The legislation clarifies that the limitation does not apply to the determination of a taxpayer’s qualified business income tax deduction under Section 199A.
State and Local Tax (SALT) Deduction Cap
The Act raises the SALT deduction cap to $40,000 for the 2025 tax year, increasing to $40,400 in 2026 and by one percent thereafter through the 2029 tax year. However, the cap resets to $10,000 for the 2030 taxable year. The expanded cap is subject to an income-based phaseout which begins at a MAGI threshold amount of $500,000 ($250,000 if married filing separately) with the threshold amount increasing to $505,000 in 2026 and by one percent each taxable year through 2029. The deduction is reduced by 30 percent of the taxpayer’s MAGI in excess of the threshold amount.
Importantly, the legislation does not alter or preempt the passthrough entity tax (PTET) workarounds adopted by more than 30 states since 2018. These PTET regimes allow passthrough businesses such as partnerships and S corporations to elect to pay state and local income taxes at the entity level, thereby enabling owners to claim a federal deduction otherwise disallowed under the SALT cap since the entity level tax payment reduces taxable income allocated to the owners. The House bill passed in May would have effectively eliminated the PTET for businesses identified as specified service trades or businesses under Section199A, while preserving for all other businesses. The initial Senate bill would have limited PTET for all businesses. Both the House and initial Senate bills also included provisions that would have made such entity level paid taxes separately stated items for owners of passthrough entities, which would have added more complexity to tax return compliance. The final legislation eliminates these complexities and preserves the PTET regimes for passthrough entities and their owners.
Charitable Contribution Modifications
The Act includes notable changes to the treatment of charitable contributions. For individuals who do not itemize, an above-the-line deduction for cash contributions to qualifying charitable organizations of up to $1,000 for single filers and $2,000 for married couples filing jointly is available for taxable years beginning after December 31, 2025. A similar above-the-line charitable deduction (in the amounts of $300 and $600, respectively) was enacted as part of the CARES Act in 2020 but expired at the end of 2021.
For taxpayers who itemize, the Act imposes a new 0.5 percent AGI floor before charitable contributions may be deducted for taxable years beginning after December 31, 2025. Contributions in excess of the floor remain subject to the existing AGI-based percentage limitations depending on the nature of the gift (e.g., 60 percent for cash to public charities, 30 percent for appreciated assets).
It should be noted that corporations’ charitable contributions are also now subject to a new floor for taxable years beginning after December 31, 2025. As such charitable contributions will only be allowed as a deduction to the extent they exceed 1 percent of taxable income; and the total deduction is limited to 10 percent of taxable income. Consequently, charitable contributions below the threshold would be nondeductible.
Miscellaneous Itemized Deductions
The Act codifies the suspension of most miscellaneous itemized deductions previously enacted under the TCJA, including deductions for unreimbursed employee expenses, tax preparation fees, investment expenses, hobby-related costs, and safety deposit box fees. However, the legislation clarifies that deductions for educator expenses as allowed under Section 162 do not constitute “miscellaneous itemized deductions” and thus remain allowable. Moving expenses, except for active-duty members of the U.S. Armed Forces who relocate pursuant to military orders, are also permanently disallowed.
Alternative Minimum Tax (AMT) Exemption
The Act makes permanent the TCJA’s AMT exemption amounts. The legislation resets the exemption level thresholds to their 2018 amounts ($500,000 or $1 million if married filing jointly), but it increases the phaseout of the exemption amount from 25 percent to 50 percent of the amount a taxpayer’s alternative minimum taxable income as exceeds the threshold amount.
New Passenger Vehicle Loan Interest Deduction
For taxable years 2025 through 2028, taxpayers may deduct “qualified passenger vehicle interest” which is defined as interest paid or accrued on indebtedness incurred for the purchase of an “applicable passenger vehicle” acquired for personal use. Indebtedness would include refinancing up to the amount of refinanced indebtedness if secured by a first lien on the applicable passenger vehicle.
The legislation specifically excludes the following from “qualified passenger vehicle interest”:
An “applicable passenger vehicle” is defined as a vehicle the original use of which commences with the taxpayer, requires at least two wheels and manufactured for primary use on public roadways, is a car, minivan, van, SUV, pickup truck, or motorcycle that is treated as a motor vehicle for purposes of title II of the Clean Air Act, and has a gross vehicle weight rating of less than 14,000 pounds. Final assembly of the vehicle must occur within the United States for the vehicle to meet this definition.
The deduction is allowed for non-itemizers. However, for all filers, it is reduced by $200 for each $1,000 by which a taxpayer’s MAGI exceeds $100,000 ($200,000 if married filing jointly).
Qualified Resident Interest Deduction
The current $750,000 limitation for deduction of qualified resident interest, which applies to indebtedness incurred on or before December 15, 2017, is made permanent. Additionally, for taxable years beginning after December 31, 2025, qualified resident interest will include mortgage insurance premiums, as was the case prior to the 2022 tax year.
Wagering Loss Deduction Limitation
Since the passage of the TCJA, taxpayers who claim itemized deductions have had wagering losses limited to gains from any wagering transactions. The OBBBA further limits the deductibility of wagering losses for professional and amateur gamblers. For tax years beginning after December 31, 2025, the deduction for wagering losses is limited to 90 percent of such losses for the taxable year and continues to offset only gains from wagering transactions. This will lead to phantom taxable income in cases where wagering losses equal or exceed wagering gains for the taxable year.
Other Beneficial Personal Tax Items Included in the OBBBA
While this article does not highlight specifics, the OBBBA also made taxpayer favorable adjustments to ABLE accounts and 529 plans and permanently allows for exclusion of student loan debt discharged on account of disability or death. For taxable years ending after December 31, 2026, the OBBBA also provides a new tax credit (up to greater of $5,000 or 10 percent of taxpayer’s AGI) under Section 25F for charitable contributions to scholarship-granting organizations, and creates a new Section 139K that provides an income exclusion for provision of any amounts to the taxpayer or dependent pursuant to a scholarship for qualified elementary or secondary education expenses.
Disaster Relief Expansion
The Act broadens the definition of eligible disasters for purposes of deducting personal casualty losses. For taxable years beginning after December 31, 2025, not only will Federally declared disasters (as declared by the President under the Stafford Act qualify) qualify, but so too will those formally recognized by the Secretary of the Treasury in coordination with state declarations that meet certain criteria.
The Act also expands the date range for disasters to constitute qualified disasters for which losses are deductible without the application of the 10 percent AGI threshold. The Act expands the eligible date range to the “date of enactment of this Act”, which was July 4, 2025. This expansion allows individuals impacted by recent major disaster events, such as the 2024 and 2025 California wildfires, to claim personal casualty loss deductions without being subject to the 10 percent AGI limitation. These losses must still exceed $500 per event and be net of insurance or other reimbursements.
Section 199A Qualified Business Income Deduction
The TCJA introduced a new 20 percent deduction for qualified business income (QBI). The deduction, which is available to active and passive owners of passthrough entities, was meant to provide parity for such business with C corporations that have an income tax rate of 21 percent, which remains permanent. The initial House bill would have increased the 20 percent deduction rate to 23 percent; however, the final legislation maintains the 20 percent rate.
For taxable years beginning after December 31, 2025, the OBBBA modifies the taxable income limitations for the phase-in of deduction limitations, whereby the 20 percent deduction is limited based on a passthrough entity owner’s allocable W-2 wages and unadjusted basis immediately after acquisition of qualified property (commonly referred to as UBIA). The taxable income limitation is the sum of a threshold amount, which is indexed for inflation (in 2025 such amount is $197,300 for single filers and $394,600 for married filing jointly), plus a set amount. The legislation increases the set amount from $50,000 to $75,000 ($100,000 to $150,000 if married filing jointly).
The Act also provides a new minimum deduction of $400 for active qualified business income for those taxpayers who have aggregate QBI with respect to all active qualified trades or businesses for such taxable year of at least $1,000. An active qualified trade or business is defined as any qualified trade or business (thereby excluding specified service trades or businesses) in which the taxpayer materially participates. The $400 and $1,000 amounts are set to be indexed for inflation.
Excess Business Loss (EBL) Limitation
The Act makes the EBL limitation permanent, as the limitation had been set to sunset after the 2028 tax year. However, the final legislation eliminated the recharacterization of an EBL in a future tax year. Initial draft legislation in the Senate and the House legislation would have treated an EBL as an EBL in a subsequent tax year. Due the elimination of such modification in the final legislation, an EBL will continue to be treated as an NOL in future tax years.
C. Individual Tax Credits
Child Tax Credit (CTC) Adjustments
The OBBBA increases the CTC from $2,000 to $2,200 per qualifying child under the age of 17 and makes the credit permanent. Of this amount, up to $1,400, as adjusted for inflation, is refundable. The nonrefundable portion is also indexed for inflation beginning in 2026. The refundable component remains subject to income-based phase-ins and phase-outs.
Other Children Related Credits
The Act provides the following child-related credit enhancements.
Residential Energy Credits
The OBBBA provides earlier termination dates for the residential energy tax incentives. The energy efficient home improvement credit under Section 25C, which provides a tax credit up to $1,200 for expenditures related to residential energy efficient improvements (up to $2,000 for heat pumps, heat pump water heaters, biomass stoves, and boilers), including home energy audits, was set to expire for property placed in service after December 31, 2032. The legislation accelerates the expiration date by negating the credit for property placed in service after December 31, 2025.
Similarly, the legislation provides for an earlier termination of the residential clean energy credit under Section 25D. The incentive, which provides a tax credit equal to 30 percent of qualified expenditures was set to begin to phase down to 26 percent in 2033 and 22 percent in 2034 before terminating for property placed in service after December 31, 2034. As a result of the legislation, the tax credit is now terminated for expenditures made after December 31, 2025. The language modification references expenditures made after December 31, 2025, as opposed to property placed in service after such date. However, Section 25D(e)(8), which was not modified by the legislation, provides that expenditures are treated as made when the original installation of an item is completed or when original use commences in the case a constructed or reconstructed building. Therefore, taxpayers seeking to claim this incentive would be advised to ensure any such property is placed in service or original use commences in the case of construction before January 1, 2026.
Clean Vehicle Credits
The legislation eliminates the $7,500 clean vehicle credit under Section 30D, as well as the recently introduced credit for the purchase of used clean vehicles under Section 25E. Both credits are repealed for vehicles placed in service after September 30, 2025.
D. Estate and Gift Tax Exemption Amount Increased
The TCJA had increased the estate and gift tax exemption amount from $5 million to $10 million as indexed annual for inflation ($13.99 million in 2025, $27.98 million for married couples). However, the exemption was set to reset to the pre-TCJA exemption amount for gifts made and estates of decedents dying after December 31, 2025. The OBBBA provides for a permanent exemption of $15 million for gifts made and estates of decedents dying after December 31, 2025. For married couples, this provides a unified credit or exemption amount of $30 million, indexed annually for inflation.
E. Trump Accounts
The OBBBA introduces a new savings vehicle, referred to as Trump Accounts, which are structured similarly to regular IRAs. No such contributions may be made until 12 months after the date of enactment of the legislation (July 4, 2025), and no contributions may be made after the account beneficiary turns 18. The account beneficiary or eligible individual must have a Social Security number and be under the age of 18 in the year an election is made to create the account.
The legislation allows for qualified rollover contributions but otherwise caps contributions at $5,000 per year, as adjusted for inflation after 2027. Employers may also contribute up to $2,500 per year, as adjusted annually for inflation, with such contribution counting towards the $5,000 cap, if made pursuant to a separate written plan. The employer contribution may be made to an employee or dependent of such employee and is not includable in the employee’s gross income.
Investments may be made in any mutual fund or exchange traded fund that tracks the returns of qualified index (e.g., Standard and Poor’s 500 stock market index), does not use leverage, does not have annual fees in excess of 0.1 percent of the investment fund’s balance, and meets other criteria established by Treasury.
Distributions are not allowed before the first day of the calendar year in which the account beneficiary turns 18. Such distributions are includable in income in the same manner as regular IRA distributions.
Additionally, the Act creates a new pilot program in which the federal government will make a one-time $1,000 contribution to a newly established Trump Account for a child born between January 1, 2025, and December 31, 2028.
F. Qualified Opportunity Zone Benefits Made Permanent
The OBBBA makes qualified opportunity zones and respective investment funds permanent by eliminating the sale or exchange election deadline of December 31, 2026, for investments made after December 31, 2026, and providing a new set of rules for investments made in a qualified opportunity fund (QOF) after such date. No election may be made with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect.
Under the rules in effect for post 2026 investments, the deferred gain is included in gross income in the taxable year that includes the earlier of the date that the qualified investment is sold or exchanged or the date which is five years after the date of the investment in the QOF. The amount recognized is the excess of the lesser of the gain previously excluded and invested or the fair market value of such investment on such date over the taxpayer’s basis in the investment. For purpose of the gain recognition computation, if the deferred gain QOF investment is held for at least five years, the basis (which is $0 due to the gain recognition deferral) is increased by 10 percent or by 30 percent if the post 2026 investment is made in a qualified rural opportunity fund. This basis increase permanently eliminates a portion of the deferred gain that would otherwise have been recognized in the taxable year that includes the recognition date.
The Act defines a qualified rural opportunity fund as a QOF that holds at least 90 percent of its assets in qualified opportunity zone property (QOZP) residing in a rural area (whether the QOF holds directly as qualified opportunity zone business property or indirectly through the QOF’s investment in a qualified opportunity zone business). A rural area is defined as a city or town that does not have a population greater than 50,000 inhabitants and that is not a contiguous urban area to such rural area. The Act also reduces the substantial improvement requirement for QOZBP to 50 percent where the QOZ is comprised entirely of a rural area (applicable to any such property placed in service after July 4, 2025).
The Act also introduces a new 30-year investment limit for purposes of gain exclusion. Under the amended provisions, if an investment is held at least 10 years, then the basis of investment shall equal the fair market value of the investment on the date it is sold or exchange. However, if an investment is held for 30 years, then the basis of the investment becomes the fair market value of the investment on the date that is 30 years after the date of investment, effectively preventing further gain exclusion on continued investment growth after such 30-year anniversary date.
The OBBBA also introduces new reporting rules for QOFs, QOZBs, and investors, as well as penalties for non-compliance. These rules will apply to tax years beginning after July 4, 2025 (the date of the Act’s enactment).
II. Business Tax Provisions
A. Domestic Investment Incentives
The OBBBA includes a broad range of business tax reforms that reflect a shift toward promoting domestic investment and innovation. The final legislation provides for permanent 100 percent bonus depreciation, current deduction of domestic research and development (R&D) expenditures, and defining the 30 percent adjusted taxable income (ATI) limitation for purposes of deducting business interest expense based on an EBITDA (earnings before interest, tax, depreciation, and amortization) concept as opposed to EBIT (earnings before interest and taxes) in that depreciation and amortization are added back to income as part of the ATI computation.
Bonus Depreciation
The Act restores 100 percent bonus depreciation under Section 168(k) for qualified property acquired and placed in service after January 19, 2025. Importantly, property is not treated as acquired after the date on which a binding written contract is entered into for such acquisition. Therefore, property acquired prior to January 20, 2025, would be subject to the bonus depreciation rates in effect under the TCJA (40 percent for property placed in service after December 31, 2024, and before January 1, 2026, 20 percent for property placed in service after December 31, 2025, and before January 1, 2027, and 0 percent thereafter).
Section 179 Expensing
The Act also increases the expensing threshold amounts under Section 179 for taxable years beginning after December 31, 2024. The aggregate cost dollar limitation is increased from $1 million to $2.5 million, and the threshold amount for limitation of the deduction is increased from $2.5 million to $4 million. Both threshold amounts will continue to be adjusted annually for inflation.
Qualified Production Property Deduction
The OBBBA creates a new Section 168(n) that provides for a deduction that equates to 100 percent of the adjusted basis of qualified production property for the taxable year in which such property is placed in service. The deduction applies to property placed in service after July 4, 2025 (the date of legislation’s enactment).
Qualified production property is defined as nonresidential real property used by the taxpayer as an integral part of a qualified production activity, which is placed in service in the United States or any possession of the United States, the original use commences with the taxpayer, the construction of which begins after January 19, 2025, and before January 1, 2029, and placed in service before January 1, 2031. A taxpayer must make an election for such property as will be prescribed in regulations issued by Treasury.
The legislation clarifies that with respect to the “used by the taxpayer” requirement, a lessor will not be considered to meet this requirement where such property is used by a lessee. It also provides a taxpayer can meet the original use and begin construction requirements with respect to acquired property if such property was not used as a part of a qualified production activity by any person during the period of beginning January 1, 2021, and ending on May 12, 2025, the taxpayer did not use such property prior to acquisition, and the acquisition meets the requirements of Section 179(d) (i.e., was not acquired from a related person as defined under Sections 267 and 707(b) or from component member of a controlled group or was not acquired in a manner that provides for carryover basis or in a transaction in which the basis is determined by reference to basis of other property held at any time by the taxpayer acquiring the property). Like bonus depreciation, qualified production property is not considered acquired later than the date on which the taxpayer enters a written binding contract for such acquisition.
A qualified production activity includes the manufacturing, production, or refining of a qualified product, which is defined as tangible personal property except for “food and or beverage prepared in the same building as a retail establishment in which such property is sold”. For activities to constitute manufacturing, production, or refining of tangible personal property, they must result in the substantial transformation of the property comprising the product. Production is narrowly defined as agricultural production and chemical production.
Qualified production property does not include the portion of any nonresidential real property used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other any other activities not related to manufacturing, production, or refining tangible personal property.
Research and Development Expenditures
As a result of the TCJA, for tax years beginning after December 31, 2021, taxpayers have had to capitalize and amortize research and development (R&D) expenditures (referred to as specified research or experimental expenditures) under Section 174. The amortization occurs over five years (six tax years due to use of a midyear convention) for domestic activities and 15 years (16 tax years due to midyear convention) for foreign activities.
The OBBBA modifies existing Section 174 by making it pertain only to foreign R&D expenditures, thereby requiring the continued capitalization and amortization of such foreign R&D expenditures as provided under the TCJA. However, it creates a new Section 174A that allows taxpayers to deduct domestic R&D costs for taxable years beginning after December 31, 2024. Taxpayers also have the ability to elect to capitalize and amortize such domestic expenditures over 60 months or more (beginning with the month in which taxpayer first realized benefit from such expenditures) as was provided by former Section 174 prior to the 2022 taxable year. Ten-year amortization under Section 59(e) may also be elected (required for passive owners in an AMT position).
Importantly, the legislation provides two separate opportunities for taxpayers to deduct unamortized domestic R&D expenditures capitalized during the 2022, 2023 and 2024 tax years.
Taxpayers will need to analyze their eligibility for these rules and the impact to their tax profiles. The new section 174A domestic expensing provision and ability to deduct domestic unamortized R&D expenditures over one or two years will constitute accounting method changes.
The legislation also clarifies that any foreign R&D expenditures associated with property that is abandoned, retired, or other disposed of does not reduce an amount realized (i.e., taxpayer may not expedite the cost recovery of such expenditures). Importantly, the legislation also modifies language in Section 280C(c) which will lead many taxpayers to elect the reduced R&D tax credit (the language previously modified by the TCJA created an opportunity for claiming the gross credit without reducing capitalized costs under Section 174).
B. Additional Business Tax Incentives
Business Interest Deduction Limitation
For tax years beginning after December 31, 2024, the OBBBA modifies the definition of adjusted taxable income (ATI) by applying an EBITDA concept to the computation, as had applied through the 2021 tax year (ATI has been computed on an EBIT concept since the 2022 tax year). However, the legislation also updates the definition of ATI for taxable years ending after December 31, 2025, by excluding Subpart F income, income under Section 951A, and Section 78 gross-up income from ATI. This change may have a significant impact for highly leveraged U.S. affiliates of multinationals.
The Act also affirms that capitalized interest must continue to follow underlying asset recovery periods. This occurs via amendments to Section 163(j) effective for taxable years beginning after December 31, 2025.
One item of note is the interplay between the election to deduct unamortized R&D costs (in 2025 tax year or over 2025 and 2026 tax years) and the ATI computation. Since the Act’s language regarding the election refers to such unamortized expenditures by reference to Section 174A (domestic research or experimental expenditures), it would reason that the election to deduct such expenditures reduces ATI, as opposed to such expenditures constituting amortization that is added back to ATI in the limitation computation.
Non-Energy Related Incentives
One important tax incentive that was not addressed in the OBBBA is the Work Opportunity Tax Credit (WOTC) under Section 51. As of now, WOTC is set to expire at the end of 2025. There is the potential that Congress addresses this tax provision, which has bipartisan support, in a separate piece of legislation later this year. However, the legislation does address other existing business tax credits.
Terminated Tax Incentives
The OBBBA also terminates several current business incentives.
C. Qualified Small Business Stock (QSBS)
The OBBBA modifies the gain exclusion rules under Section 1202 for QSBS acquired after the date of enactment. While pre-enactment issued QSBS remains eligible for up to 100 percent exclusion after five years, post-enactment issued stock now follows a tiered structure:
The Act also increases the potential gain limitation. Prior to the law’s enactment, the per-issuer gain exclusion equated to the greater of $10 million or ten times the aggregated adjusted basis of the stock. The Act increases the $10 million exclusion limit to $15 million per taxpayer per issuer and is indexed for inflation (though once taxpayer hits the applicable cap in a taxable year, a future increase of the limitation based on the inflation adjustment will not apply with regard to such stock). This would effectively increase the tax benefit from $2.38 million to $3.57 million based on a 23.8 percent tax rate, which is inclusive of the long-term capital gains rate of 20 percent, plus the net investment income tax rate of 3.8 percent.
Further, for taxable years beginning after July 4, 2025 (date of Act’s enactment), the OBBBA increases the aggregate gross asset limitation from $50 million to $75 million. As a result, even those corporations that had exceeded the $50 million limitation prior to the law’s enactment may now be able to issue stock that qualifies as QSBS if all other eligible requirements are met. The limit is also adjusted for inflation.
D. Green Energy Credit Provisions
The OBBBA implements several modifications to green energy-related tax incentives, focusing on refining eligibility and phasing out several credits over time. The OBBBA takes specific aim at solar and wind energy projects and provides for an earlier sunset of these credits.
Additionally, the Act adds provisions that would negate credits for specified foreign entities (SPE) and foreign influenced entities (FIE) (detailed definitions are beyond the scope of this article). Taxpayers will need to analyze ownership structures to determine whether these new rules will impact anticipated tax credits. Credit eligibility may also be impacted due the sourcing of fuels from certain nations or entities, as well as whether such prohibited foreign entities provide material assistance with regard to an otherwise qualified facility (additional understatement penalties may also apply where such material assistance is later determined when not initially identified). Further, the OBBBA prohibits the transfer of any eligible credit under Section 6418 to an SPE.
The following provides an overview of the some of the modifications the OBBBA made to green-energy credits that have not already been addressed in this article.
| Tax Credit | Notable OBBBA Modifications |
| Section 45Q Carbon Sequestration Credit | New prohibited foreign entity provisions apply for taxable years beginning after July 4, 2025 (applies to SPEs and FIEs). |
| Section 45U Zero-Emission Nuclear Power Production Credit | New prohibited foreign entity provisions apply for taxable years beginning after July 4, 2025 for SPEs (extended to two years after enactment for FIEs). |
| Section 45V Clean Hydrogen Production Credit | Construction must begin before January 1, 2028, which is a change from the prior begin construction date of January 1, 2033. |
| Section 45X Advanced Manufacturing Production Credit | Metallurgical coal is added to the definition of an applicable critical mineral for taxable years beginning after July 4, 2025, with the credit equating to 2.5 percent of its production costs (10 percent is the rate applicable to other applicable critical minerals). The Act also modifies the phase out periods for applicable critical minerals after 2030. The credit is terminated for wind energy components produced and sold after December 31, 2027. It is also terminated for metallurgical coal produced after December 31, 2029. A new provision allows for qualification of sales of an eligible component to an unrelated person if the component is integrated/incorporated/assembled into another eligible component produced within the same facility as the primary component and 65 percent of the direct material costs paid or incurred to produce the secondary component are attributable to primary components mined/produced/manufactured in the United States. New prohibited foreign entity provisions apply for taxable years beginning after July 4, 2025 (applies to SPEs and FIEs). Additionally, for taxable years beginning after July 4, 2025, an eligible component does not include any property which includes material assistance from a prohibited foreign entity. |
| Section 45Y Clean Electricity Production Credit | Set phase-out applicable year as 2032 for all energy types, eliminating the alternative phase-out applicable year of the calendar year in which Secretary determines annual greenhouse gas emissions from domestic electricity production is equal to or less than 25 percent of such emissions in 2022. The credit does not apply to solar or wind facilities placed in service after December 31, 2027. However, if construction begins before July 4, 2026, the December 31, 2027, termination does not apply (i.e., project is grandfathered under a late added provision to the OBBBA). New prohibited foreign entity provisions apply. Additionally, a qualified facility does not include a facility of which construction begins after December 31, 2025 (June 16, 2025, if a solar or wind facility) if its construction includes material assistance from a specified foreign entity or foreign included entity. |
| Section 45Z Clean Fuel Production Credit | The credit is extended through 2029, whereas previously was set to expire at the end of 2027. For taxable years beginning after December 31, 2025, the Act requires that fuel is exclusively derived from a feedstock which is produced in the United States, Canada, or Mexico. |
| Section 48E Clean Electricity Investment Credit | Set phase-out applicable year as 2032 for all energy types, eliminating the alternative phase-out applicable year of the calendar year in which Secretary determines annual greenhouse gas emissions from domestic electricity production is equal to or less than 25 percent of such emissions in 2022. The credit does not apply to solar or wind facilities placed in service after December 31, 2027. However, if construction begins before July 4, 2026, the December 31, 2027, termination does not apply (i.e., project is grandfathered under a late added provision to the OBBBA). New prohibited foreign entity provisions apply. Additionally, a qualified facility does not include a facility of which construction begins after December 31, 2025 (June 16, 2025, if a solar or wind facility) if its construction includes material assistance from a specified foreign entity or foreign included entity. |
III. International Tax Provisions
The OBBBA made some changes to the international tax provisions, including modifying the names and computations of the foreign derived intangible income (FDII) and global low-tax income (GILTI). However, the Act excluded the much-discussed Section 899 “revenge tax” which was pulled from the final legislation before advancing from the Senate due to positive movement on international trade negotiations.
A. FDII and GILTI Modifications
For tax years beginning after December 31, 2025, the OBBBA modifies the language of Section 951A by replacing the term GILTI with net controlled foreign corporation (CFC) tested income and in doing so, eliminates the tax-free deferred return on foreign investment components. Additionally, the Section 250 deduction is modified from 50 percent of GILTI to 40 percent of net CFC tested income resulting in an effective tax rate of 14 percent when also considering the updated 90 percent (from 80 percent) of tested foreign income taxes allowed for the Section 960 deemed paid credit (additional discussion below).
Similarly, the Act reduces the Section 250 deduction percentage from 37.5 percent to 33.34 percent and eliminates the qualified business asset investment (QBAI) component from the computation that had been used in the existing FDII and U.S. shareholder’s GILTI inclusion computations. It also modifies the terminology by referring to foreign-derived deductible-eligible income (FDDEI). As a result, for taxable years beginning after December 31, 2025, the deduction will equate to 33.34 percent of FDDEI. The result is an effective tax rate of 14 percent for FDDEI. The Act also provides that income from intangibles (as defined under Section 367(d)(4)) transferred after June 16, 2025, will not be eligible for FDDEI tax benefits.
B. Foreign Tax Credit and Deemed Gross-Up Modifications
For taxable years beginning after December 31, 2025, Section 904, which concerns the foreign tax credit (FTC) limitation, is amended to provide for the allocation of the 40 percent of net investment income to foreign source net CFC tested income. It also provides that interest expense or research and experimental expenditures shall only be allocated or apportioned to income within the United States for purposes of the FTC. As of the same effective date, the Act also modifies the source rules for inventory produced in the United States and sold through foreign branches by limiting the foreign sourced portion to 50 percent.
The OBBBA also increases the deemed paid credit rate under Section 960(d)(1) for from 80 percent to 90 percent, as well as for the Section 78 gross-up for deemed paid FTC for taxable years beginning after December 31, 2025. Separately, for amounts distributed after June 28, 2025, no FTC is allowed under Section 901 for 10 percent of foreign taxes paid or accrued with respect to any amount of gross income excluded under Section 959(a) by reason of an inclusion under Section 951A(a).
C. Other International Tax Changes
Among other international tax change modifications were the following items.
IV. Other Items of Note
Other tax law changes include an increase in the transaction threshold for issuance of Forms 1099 for third party network transactions with the de minims threshold reset to the amount reported for such transactions exceeds $20,000 and the number of transactions exceeds 200, which is effective for taxable years beginning after December 31, 2024.
For payments made after December 31, 2025, the OBBBA increases the threshold for requiring information reporting to a payee under Section 6041(a) from $600 to $2,000 as indexed for inflation after 2026.
The Act also includes provisions regarding the employee retention tax credit (ERTC). These provisions concern due diligence requirements for ERTC promotors and a potential $1,000 penalty for each failure to comply with such requirements. An ERTC promoter is defined to include one who charged a contingent based fee and whose gross receipts for ERTC services exceed 20 percent of their total gross receipts for a taxable year, as well as one whose gross receipts from such services exceed 50 percent of total gross receipts or whose ERTC gross receipts exceeded 20 percent of total gross receipts as well as exceeded $500,000. The Act denies any claim of refund for third calendar quarter and fourth quarters of 2021 if such credit or refund claim was filed after January 31, 2024 (Section 3134 only applies to wages paid after June 30, 2021 and before October 1, 2021 or before December 31, 2021 if a recovery start-up business). The Act also expands the statute of limitations for ERTC claims under Section 3134 to six years after the latest of the date of the return filing or date on which the claim for credit or refund is made. In doing so, it also extends the date for claiming a deduction for such wages determined not to qualify for the ERTC, as such wages claimed for the ERTC are not otherwise deductible.
An interesting item of note with respect to Subchapter K, which remains relatively unchanged by the OBBBA following the elimination of language aimed at the PTET regime and making such expenditures separately stated items (which also would have created additional complexity as to tracking such expenditures for Section 704(d) loss limitation purposes) concerns the disguised sale rules under Section 707(a)(2). By modifying language with regard to the Treasury regulations, the Code section becomes self-executing with regard to the transfer or partnership interests following the date of the Act’s enactment, as Treasury has never finalized regulations governing such transactions under Section 707(a)(2). In other words, the disguised sale rules applicable to partnership property to which taxpayer have become accustomed may now be used to recharacterize disguised sales of partnership interests in which one partner contributes cash and another partner is partially or fully redeemed with cash.
The Act includes provisions that authorize tax-exempt bond financing for spaceports under the existing framework that applies for exempt facility bonds for airports under Section 142.
A provision providing for additional taxation of litigation financing was removed prior to the legislation passing in the Senate.
And the top tax rate on collegiate and university endowments was reduced to 8 percent after earlier discussion of higher rates (1.4 percent for student adjusted endowments of $500-000-$750,000, 4 percent where over $750,000 but below $2 million, and 8 percent for those in excess of $2 million).
Finally, it should be noted that taxpayers will need Social Security numbers to obtain certain tax benefits, including the new tips and overtime deductions, the $6,000 senior deduction, the exclusion of the discharge of student indebtedness from gross income, the American Opportunity Tax Credit, the Lifetime Learning Credit, and the Child Tax Credit (required for the child and at least one parent if married filing jointly). These reporting requirements reflect the policies set forth by the Trump administration.
V. Tax Planning Moving Forward
The tax law changes provide several tax-planning opportunities, including the potential acceleration of decisions with regard to green energy incentives, analysis as to filing amended tax returns or filing accounting method changes to deduct unamortized domestic R&D expenditures, charitable donation planning, etc. Additionally, the various effective dates of tax provisions will impact the timing of such decisions. Please reach out to your FGMK tax advisor to discuss these opportunities now that we have clarity on the tax law moving forward.
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