Among other things, the law extends many of the provisions in the Tax Cuts and Jobs Act of 2017, giving business owners greater certainty as they tackle tax planning going forward. 

Bonus Depreciation and Section 179 Expansions

Prior Law: Bonus depreciation has been phasing out since 2023. In 2025, it was scheduled to drop to 40%. Section 179 expensing was available up to $1.25 million with a phaseout starting at $3.13 million.

OBBBA Changes:

• Permanently reinstates 100% bonus depreciation for qualified assets acquired after January 19, 2025.
• Introduces a special depreciation allowance for “qualified production property” placed in service after the date of enactment and before 2031.
• Increases the Sec. 179 deduction limit to $2.5 million with a new phaseout threshold of $4 million for assets purchased and placed in service in 2025, with annual inflation adjustments after 2025.

What This Means for You: Businesses can be more strategic when timing capital purchases, without the pressure to take advantage of temporary opportunities for immediate expensing.

Research & Experimental Expensing: Section 174 Changes

Prior Law: Since 2022, domestic research costs were required to be amortized over five years (15 years for foreign costs), significantly reducing near-term deductions.

OBBBA Changes:

• Permanently reinstates the deduction for domestic R&E expenses, starting in 2025.
• Optional amortization remains available but is no longer mandatory.
• Allows small businesses (with average annual gross receipts of $31 million or less for 2025) to retroactively claim the deduction back to 2022. (This may require the filing of amended returns for 2022, 2023 and 2024.)
• Permits all businesses that incurred domestic R&E expenditures in 2022 to 2024 to elect to accelerate the remaining deductions for those expenses over one or two years, if the business chooses to not amend prior year returns.

What This Means for You: Start budgeting now for eligible R&E activities that can be immediately deducted again.

QBI Deduction: Section 199A Expansion

Prior Law: The 20% deduction for qualified business income from pass-through entities was set to expire in 2026 and was subject to income thresholds and limitations.

OBBBA Changes:

• Makes the QBI deduction permanent.
• Modifies W-2 and capital investment limitations, easing their impact for specified service trades or businesses (SSTBs) and other entities subject to the limitations.
• Creates a minimum QBI deduction of $400 for taxpayers with at least $1,000 of QBI from one or more active businesses in which they materially participate.

What This Means for You: This provides long-term planning certainty for owners of pass-through entities, such as partnerships, LLCs and S corporations.

Interest Expense Limitation Relief

Prior Law: Business interest deductions were generally capped at 30% of adjusted taxable income (ATI), which was calculated based on EBIT (earnings before interest and taxes).

OBBBA Changes:

• Beginning in 2026, ATI will be calculated based on EBITDA (adding back depreciation and amortization), effectively increasing the interest deduction base.

What This Means for You: Companies with significant depreciation and amortization may benefit from greater deductions.

ERTC Fraud Crackdown

Prior Law: Fraud related to Employee Retention Tax Credit (ERTC) claims has led to intense IRS scrutiny, with penalties for promoters who help file invalid claims.

OBBBA Changes:

• Prohibits the IRS from issuing refunds for certain ERTC claims filed after January 31, 2024.
• Gives the IRS at least six years from the date of filing to challenge claims.
• Imposes a promoter penalty of $1,000 for each failure to comply with due diligence requirements for ERTC claim eligibility, without a cumulative limit. 

What This Means for You: You may not receive expected refunds on previously filed ERTC claims. Consult a tax advisor to explore your alternatives and avoid costly penalties.

Opportunity Zones

Prior Law: The Qualified Opportunity Zone (OZ) program provides tax benefits to those who invest U.S.-derived capital gains in eligible distressed communities through qualified opportunity funds. Benefits include a temporary tax deferral on the gains until the earlier of:

• December 31, 2026, or
• The occurrence of an inclusion event, such as the sale or disposal of the asset. 

Investors also can obtain a step-up in basis on the fund assets for longer holding periods and a permanent exclusion of taxable income on the gains for investments held at least 10 years. The initial OZ round was scheduled to expire after 2026. 

OBBBA Changes:

• Creates a permanent OZ policy based on the original program, with rolling, ten-year OZ designations beginning on January 1, 2027.
• Continues existing tax benefits and adds incremental reductions in gain beginning on the first anniversary of their investment.
• Modifies the eligibility requirements, creates rural qualified opportunity funds and adds reporting requirements. 

What This Means for You: Taxpayers interested in long-term, tax-reducing investment strategies should explore these opportunities.

Clean Energy Tax Incentives

Prior Law: The Inflation Reduction Act established a variety of business tax incentives intended to encourage investments in clean energy.

OBBBA Changes: The OBBBA significantly scales back many incentives, accelerating the scheduled phaseouts and imposing shorter deadlines. Affected incentives include the:

• Qualified commercial clean vehicle credit,
• Alternative fuel refueling property credit, and
• Sec. 179D deduction for energy-efficient commercial buildings.

The expiration dates vary.

What This Means for You: If you anticipated claiming any of the affected incentives, you should act now to make sure you fulfill the requirements on a timely basis. If you can’t, you may need to adjust your tax and business planning.

International Tax Updates

Prior Law: The TCJA included several international tax provisions, including deductions for foreign-derived intangible income (FDII) and global intangible low-tax income (GILTI), as well as the Base Erosion and Anti-Abuse Tax (BEAT). For 2025, the FDII deduction is 37.5% (13.125% effective tax rate), GILTI deduction is 50% (10.5% rate) and BEAT is 10.1%. These benefits were scheduled to diminish after 2025.

OBBBA Changes:

• FDII deduction is set permanently at 33.4% (14% rate).
• GILTI deduction is set at 40% (14% rate).
• BEAT is set permanently at 10.5%.

These changes take effect in 2026.

Notably, the final bill doesn’t include proposed Section 899, which would have penalized corporations connected to “discriminatory foreign countries” that impose so-called unfair foreign taxes on U.S. persons (for example, digital services taxes or OECD Pillar 2). 

What This Means for You: If you operate internationally or are affiliated with non-U.S. shareholders, these changes could increase your U.S. tax liability. Early tax planning is critical to help mitigate those effects.

Frequently Asked Questions About the OBBBA

1. Should my business accelerate asset purchases before year-end 2025?

   It depends. The cost of eligible equipment acquired after January 19, 2025, and placed in service before year-end will be fully deductible for 2025. But, if other considerations (for example, tariffs or expected revenue increases in coming years) weigh against making such expenditures now, you can delay with the knowledge that you won’t lose any portion of the deduction. 

2. How do the proposed R&E expensing changes affect software developers?

   Domestic software development costs are fully deductible starting in 2025 — reversing current amortization rules and increasing near-term cash flow.

3. What types of businesses benefit most from the QBI changes?

   Self-employed taxpayers and pass-through entities like LLCs, partnerships and S corporations — particularly SSTBs and entities subject to the wage and income limitations — are likely to benefit the most.

4. Will the updated interest deduction rules help capital-intensive businesses?

   Probably. The shift from EBIT to EBITDA should allow many manufacturers and real estate firms to deduct more interest expense.

5. How can my business take advantage of the clean energy tax incentives before they expire?

   Check with your tax advisor to confirm the expiration dates and ensure you satisfy the applicable requirements.

Looking for the Individual Tax Provisions?

The OBBBA also includes sweeping tax changes for individuals. For a closer look at how provisions related to income tax brackets, the Child Tax Credit, new deductions and estate tax thresholds could influence your personal tax planning, read our full breakdown of the individual tax provisions in the OBBBA.

Stay Tuned - This overview captures just a portion of the numerous tax provisions in the OBBBA, and some of these will require implementing regulations and guidance from the IRS. But, with so many aspects now nailed down, businesses can begin their mid-year tax planning with greater certainty than they’ve had for several years. Contact us for additional information about these and other tax provisions that may apply to your circumstances.