The One Big Beautiful Bill Act and What It Means for You

Prior to OBBBA

OBBBA

The Section 199A 20% deduction for pass-through income is scheduled to expire after 2025.

Makes the Section 199A deduction permanent and increases wage and property limitation threshold amounts.

For stock acquired after Sept. 27, 2010, Section 1202 excludes from income 100% of the gain from the sale of qualified small business stock (QSBS) held for at least five years. QSBS acquired prior to that date is eligible for a 50% or 75% exclusion depending on the date acquired. The maximum gain exclusion per issuer was the greater of $10 million (reduced by prior exclusions for that issuer) or 10 times the aggregate adjusted basis of QSBS disposed of in the year. Stock is not QSBS if the corporation has aggregate gross assets exceeding $50 million 1) at any time on or after Aug. 10, 1993, and before issuance of the stock or 2) immediately after the issuance of the stock.

For QSBS acquired after July 4, 2025, a 50% exclusion is allowed for stock held for at least three years, a 75% exclusion is allowed for stock held for at least four years, and a 100% exclusion is allowed for stock held for at least five years. For stock acquired after the date of enactment, the per-issuer limit is increased to $15 million (indexed for inflation after 2026). For stock issued after July 4, 2025, increases the gross asset test amount to $75 million.

For tax years beginning after Dec. 31, 2021, adjusted taxable income (ATI) computed roughly on the basis of earnings before interest and taxes (EBIT) for purposes of calculating interest expense limitation under Section 163(j) (previously computed on basis of earnings before interest, taxes, depreciation, and amortization (EBITDA)). Taxpayers can elect to capitalize interest expense and avoid application of Section 163(j). Trailers and campers are not included in the definition of motor vehicles for purposes of the floor plan financing exception.

Effective for tax years beginning after Dec. 31, 2024, permanently reinstates calculation of ATI on the basis of EBITDA, rather than EBIT. Effective after Dec. 31, 2025, removes the ability to elect to capitalize interest expense; however, interest expense capitalized under Sections 263A and 263(g) will still be allowed. Floor plan financing rules also are expanded to include certain trailers and campers.

For tax years beginning after Dec. 31, 2021, capitalization and amortization of Section 174 expenditures required (previously immediate expensing was allowed).

New Section 174A permanently reinstates the deduction for domestic research and experimental (R&E) expenditures for amounts paid or incurred in taxable years beginning after Dec. 31, 2024. Section 280C(c) was amended to bring back reduction to domestic R&E expenditures by the amount of the research and development credit unless a reduced credit election is made. This applies to taxable years beginning after Dec. 31, 2024.

100% bonus depreciation for eligible property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023, phases out as follows: 2023: 80%, 2024: 60%, 2025: 40%, 2026: 20%, 2027: 0%.

Makes permanent the 100% bonus depreciation for qualified property acquired after Jan. 19, 2025, though for the first tax year after Jan. 19, 2025, taxpayers can elect a reduced bonus depreciation percentage of 40% (or 60% in the case of certain plants).

A $1 million depreciation deduction is allowed for Section 179 property, with a maximum $2.5 million deduction for Section 179 property additions.

Increases the deduction for Section 179 property to $2.5 million and the maximum for Section 179 property additions to $4 million (adjusted for inflation), effective for property placed in service in tax years beginning after Dec. 31, 2024.

No provision.

Adds a new 100% depreciation deduction for qualified production property to boost certain U.S. manufacturing if construction begins after Jan. 19, 2025, and before Jan. 1, 2029, and the property is placed in service before Jan. 1, 2031.

Generally, condominium developers are required to use the percentage of completion method (PCM) for calculating taxable income, which can result in phantom income because expenses cannot be immediately claimed against income from pre-sold units.

Eliminates the requirement to use the PCM for almost all residential construction contracts, including condos, entered into in tax years beginning after July 4, 2025.

An employee retention credit (ERC) is generally available to eligible employers with respect to qualifying wages paid after March 12, 2020, through June 30, 2021. Section 3134 provides rules for the ERC for the third and fourth quarters of 2021.

After July 4, 2025, disallows payment of an ERC refund with respect to wages paid for the third and fourth quarters of 2021, unless the claim was filed on or before Jan. 31, 2024. Additionally, extends the period for the IRS to assess tax with respect to Section 3134, amends the erroneous refund penalty under Section 6676 to include employment tax, and adds rules for ERC promoters.

Corporate deductions by C corporations are limited to 10% of taxable income.

Adds a new corporate charitable deduction floor allowing a deduction for amounts above 1% of taxable income.

Section 707 specifically references regulations prescribed by the secretary, creating uncertainty regarding whether the disguised sale rules can be enforced without regulations.

For services performed and property transferred after July 4, 2025, clarifies (without inference regarding proper treatment prior to that date) that Section 707 is self-executing and the IRS can enforce the rules to address disguised sales without regulations.

For payments made prior to 2022, Form 1099-K, “Payment Card and Third Party Network Transactions,” reporting was required if a payee received payments of more than $20,000 and there were more than 200 transactions with the payee. This reporting threshold was reduced to $600 regardless of the number of transactions for payments made after 2021, though transition relief was provided through 2025.

Replaces the $600 threshold for Form 1099-K reporting with the previous higher threshold retroactive to 2021 and later years. Beginning with payments made in 2026, raises the general information reporting and backup withholding threshold for payments of income from $600 to $2,000 (indexed for inflation).

Under Section 162(m), a public corporation’s deduction for compensation paid to certain covered employees is limited to $1 million per year. The $1 million threshold applies on a company-by-company basis and is not aggregated within a group.

For tax years beginning after Dec. 31, 2025, amends Section 162(m) to apply the limit to all members of the controlled group, even nonpublic members, and creates a new allocation rule for the $1 million limit among all entities in the group making payment to a specified covered employee.

Section 45F provides employers a credit of 25% of qualified child care facility expenses up to $150,000.

For amounts paid or incurred after Dec. 31, 2025, increases the percentage to 40% (50% for eligible small businesses) and increases the credit limit to $500,000 ($600,000 for eligible small businesses).

Under Section 45S, employers can claim a credit of up to 25% of wages paid to employees on qualifying family or medical leave that is scheduled to expire after Dec. 31, 2025. Eligible employees had to have been employed for at least one year.

Makes the Section 45S credit permanent and reduces the one-year employment requirement to six months.

Prior to OBBBA

OBBBA

Section 951A taxes U.S. shareholders on controlled foreign corporation (CFC) income attributable to global intangible low-taxed income (GILTI). GILTI is calculated as the excess of the shareholder’s net CFC-tested income (NCTI) over the net deemed tangible income return (DTIR) for the year. DTIR is 10% of the U.S. shareholder’s pro rata share of the qualified business asset investment (QBAI) of each CFC, reduced by certain interest expenses. The effective tax rate (ETR) imposed on GILTI is 10.5% (a 50% deduction under Section 250 on income taxed at the 21% corporate tax rate), scheduled to increase to 13.125% after 2025. 80% of the foreign taxes deemed paid can be claimed as a credit against GILTI. There is an exclusion for high-taxed income.

For tax years beginning after Dec. 31, 2025, changes Section 951A NCTI, increases the base by eliminating DTIR, permanently increases the ETR to 12.614% (by decreasing the Section 250 deduction to 40%), and increases the foreign taxes deemed paid that can be claimed as a credit against NCTI to 90%. The high tax exclusion remains. For foreign tax credit, expense allocations on NCTI are limited to the Section 250 deduction, certain taxes on NCTI, and directly allocable deductions excluding interest and R&E expenses.

Foreign-derived intangible income (FDII) is income U.S. corporations (other than S corporations, regulated investment companies (RICs) and real estate investment trusts (REITs)) earn from the sale of property or services to foreign persons or with respect to property located outside the U.S. The ETR imposed on FDII is 13.125% (a 37.5% deduction under Section 250 on income taxed at the 21% corporate tax rate), scheduled to increase to 16.406% after 2025. FDII is determined by multiplying the corporation’s deemed intangible income (DII), by the ratio of foreign-derived deduction eligible income (FDDEI) to deduction eligible income (DEI). DII is the excess of DEI over a 10% deemed return on qualified business asset investment (QBAI). DEI is generally the corporation’s gross income less certain exclusions including subpart F income and GILTI. If the sum of GILTI and FDII exceeds taxable income, the Section 250 deduction is limited, and GILTI and FDII are reduced proportionally.

For tax years beginning after Dec. 31, 2025, changes Section 250 deduction to FDDEI, increases the base by eliminating the concepts of DII, FDII, and QBAI, and permanently increases the ETR to 14% (by decreasing the Section 250 deduction to 33.34%). DEI does not include income and gain from sale or other disposition after June 16, 2025, of intangible and property subject to amortization, depreciation, and depletion. Deductions for interest and R&E expenses are not allocable in determining DEI.

The Section 59A base erosion and anti-abuse tax (BEAT) is 10% (11% for certain banks and securities dealers), scheduled to increase to 12.5% (13.5% for certain banks and registered securities dealers) after 2025.

For tax years beginning after Dec. 31, 2025, permanently increases the BEAT to 10.5% (11.5% for certain banks and registered securities dealers).

Income from the sale of inventory produced in the U.S. and sold outside the U.S. is generally sourced in the U.S.

For tax years beginning after Dec. 31, 2025, allows up to 50% of income from U.S.-produced inventory sold abroad through a foreign branch or fixed place of business for foreign use to be treated as foreign-source income.

The “look-thru” rule in Section 954 allowing dividends, interest, rents, and royalties received or accrued by a CFC from a related CFC to be excluded from foreign personal holding company income (FPHCI) to the extent the payment was attributable to income of the payer that was not subpart F income or effectively connected income is scheduled to expire for tax years beginning after Dec. 31, 2025. 

For tax years of foreign corporations beginning after Dec. 31, 2025, permanently extends the “look-thru” exception for certain dividends, interest, and royalties paid between related CFCs.

Generally, the required tax year for specified foreign corporations (including CFCs) is the tax year of a majority of U.S. shareholders, unless an election is made to adopt a tax year that begins one month earlier than the required year.

For tax years of specified foreign corporations beginning after Nov. 30, 2025, the one-month deferral election is eliminated.

TCJA repealed Section 958(b)(4) to allow CFC stock owned by a foreign person to be attributed to a U.S. person (downward attribution) under the constructive ownership rules under Section 318.

For tax years beginning after Dec. 31, 2025, restores Section 958(b)(4), preventing downward attribution of constructive stock ownership from foreign persons to U.S. persons for CFC determinations and adds new Section 951B to require a subpart F inclusion for foreign-controlled U.S. shareholders of a foreign-controlled foreign corporation.

If a foreign corporation is a CFC at any time during the taxable year, every U.S. shareholder who owns stock in the CFC on the last day in the year is required to include in gross income their pro rata share of the CFC’s subpart F income for that year. 

For tax years of foreign corporations beginning after Dec. 31, 2025, amends the pro rata share rules to require a subpart F inclusion for U.S. shareholders who own CFC stock on any day during the tax year.

Prior to OBBBA

OBBBA

Section 179D provides a deduction for energy efficient commercial buildings.

Terminates the Section 179D deduction effective for property, the construction of which begins after June 30, 2026.

Section 25C provides an energy efficient home improvement credit that terminates for property placed in service after Dec. 31, 2032.

Terminates the Section 25C credit for property placed in service after Dec. 31, 2025.

Section 25D provides a residential clean energy credit that terminates for property placed in service after Dec. 31, 2034.

Terminates the Section 25D credit for expenditures made after Dec. 31, 2025.

Section 45L provides an energy efficient home credit that terminates for property acquired after Dec. 31, 2032.

Terminates the Section 45L credit for property acquired after June 30, 2026.

Section 25E provides a previously owned clean vehicle credit that terminates for vehicles acquired after Dec. 31, 2032.

Terminates the Section 25E credit for vehicles acquired after Sept. 30, 2025.

Section 30C provides an alternative fuel refueling property credit that terminates for property placed in service after Dec. 31, 2032.

Terminates the Section 30C credit for property placed in service after June 30, 2026.

Section 30D provides a clean vehicle credit that terminates for vehicles placed in service after Dec. 31, 2032.

Terminates the Section 30D credit for vehicles acquired after Sept. 30, 2025.

Section 45Q provides a credit for eligible carbon capture and sequestration, the construction of which begins before Jan. 1, 2033.

For tax years beginning after July 4, 2025 disallows the credit for a specified foreign entity or a foreign-influenced entity. No change to the requirement that construction begins before Jan. 1, 2033.

Section 45U provides a zero emission nuclear power production credit for tax years beginning after Dec. 31, 2023, and before Jan. 1, 2033.

For tax years beginning after July 4, 2025, disallows the credit for a specified foreign entity. For tax years beginning after July 4, 2027, disallows the credit for a foreign-influenced entity. No change to the applicability date (tax years beginning after Dec. 31, 2023, and before Jan. 1, 2033).

Section 45V provides a clean hydrogen production tax credit for eligible facilities, the construction of which begins before Jan. 1, 2033.

Accelerates the time for construction of eligible facilities and requires construction to begin before Jan. 1, 2028.

Section 45W provides a commercial clean vehicle credit that terminates for vehicles acquired after Dec. 31, 2032.

Terminates the Section 45W credit for vehicles acquired after Sept. 30, 2025.

Section 45X provides an advanced manufacturing production credit for most eligible components that begins phasing out after Dec. 31, 2029, and fully phases out after 2032. For critical minerals, the phase-out begins for minerals produced after Dec. 31, 2030, and fully phases out after 2033. For wind energy components, the credit terminates for components produced and sold after Dec. 31, 2029.

Accelerates the termination date for wind energy components to components produced and sold after Dec. 31, 2027. Adds coal as a critical mineral eligible for the credit for tax years beginning after July 4, 2025. The credit for coal terminates for coal produced after Dec. 31, 2029. For tax years beginning after July 4, 2025, disallows the credit for a specified foreign entity or a foreign-influenced entity.

Section 45Y provides a technology-neutral clean electricity production tax credit.

Terminates the Section 45Y credit for wind and solar beginning Jan. 1, 2028. For tax years beginning after July 4, 2025, disallows the credit for a specified foreign entity or a foreign-influenced entity.

Section 45Z clean fuel production tax credit available through Dec. 31, 2027.

Extends Section 45Z clean fuel production tax credit through Dec. 31, 2029. For tax years beginning after July 4, 2025, disallows the credit for a specified foreign entity. For tax years beginning after July 4, 2027, disallows the credit for a foreign-influenced entity. Also, prohibits credits for clean fuels that are produced using foreign feedstocks after Dec. 31, 2025.

Section 48E provides a clean electricity investment tax credit that terminates for property placed in service after Dec. 31, 2032.

Terminates the Section 48E credit with respect to wind and solar facilities (except eligible energy storage property) for property placed in service after Dec. 31, 2027, unless construction begins before July 4, 2026. For tax years beginning after July 4, 2025, disallows the credit for a specified foreign entity or a foreign-influenced entity.

Preferential treatment for amounts invested in qualified opportunity zone funds ceases after 2026.

Renews preferential treatment for amounts invested in qualified opportunity funds beginning after 2026, adds new benefits for rural opportunity zones, and increases reporting and compliance obligations.

The new markets tax credit is scheduled to expire after 2025.

Makes the new markets tax credit permanent.

Prior to OBBBA

OBBBA

Section 4960 imposes a 21% excise tax on applicable taxable exempt organizations (ATEOs) that pay remuneration exceeding $1 million or excess parachute payments to covered employees. A “covered employee” is defined as one of the five highest-compensated employees (including former employees) of the ATEO for the current or any prior tax year starting after 2016.

• They have 500 or more tuition-paying students
• More than 50% of the tuition-paying students are in the U.S.
• They have $500,000 or more in assets per student

Several income sources, such as royalties from research, student loan interest, and housing income, are excluded from NII.

For tax years beginning after Dec. 31, 2025, replaces the flat 1.4% rate with a tiered tax structure based on the student adjusted endowment (SAE), which is the endowment assets per eligible student:

• $500,000-$749,999 = 1.4% tax
• $750,000-$1,999,999 = 4% tax
• $2,000,000 or more = 8% tax

Additionally, increases the tuition-paying student threshold to 3,000, expands NII to include interest from student loans and royalty income from federally funded research or intellectual property creation, and requires institutions to disclose student counts and eligible SAE data on Form 990, “Return of Organization Exempt From Income Tax.”

Enacts a new federal income tax credit under Section 25F for individuals who contribute to qualified scholarship granting organizations (SGOs) for tax years beginning after Dec. 31, 2026. Scholarships distributed from SGOs will be tax-free to recipients beginning in 2027. The annual credit limit is $1,700 and unused credits can be carried forward for five years. Donors must choose between a charitable deduction or the Section 25F credit, and the federal credit is reduced by any state credit received.

To qualify as an SGO, the organization must be a 501(c)(3) public charity, spend 90% or more of its income on K-12 scholarships, and be certified by a state that opts in to the federal tax credit.