Tax Reform 2025: The One Big Beautiful Bill Act Signed Into Law

President Trump on July 4, 2025, signed into law a budget reconciliation bill now commonly referred to as the One Big Beautiful Bill Act (the "Act"). The Act adopts the version that passed the Senate on July 1, 2025 and the House of Representatives on July 3, 2025. The Act includes material changes from the version originally proposed by the House of Representatives on May 22, 2025 (the "House Version of the Act"). This update summarizes some of the key provisions of the Act (noting, where relevant, if the Act amends and/or extends provisions from the Tax Cuts and Jobs Act ("TCJA") of 2017).

Key Tax Changes for Businesses

• Extension of Bonus Depreciation
  • The TCJA permitted accelerated depreciation of certain "qualified property" placed in service before January 1, 2024. The bonus depreciation percentage phases down by 20% per year in years 2023 through 2026 (2024 through 2027 for long production period property and specified aircraft), and is not available for property placed in service after 2026 (after 2027 for long production period property and specified aircraft). The Act eliminates this phase-out and restores bonus depreciation by permitting taxpayers to immediately deduct 100% of the cost of qualified property placed in service on or after January 20, 2025.
• Relaxing Limitations on Business Interest Expense Deductions
  • The TCJA generally limited deductions of business interest expense to 30% of a taxpayer's "adjusted taxable income" ("ATI"). Since January 1, 2022, a taxpayer is required to calculate its ATI based on an EBIT-like computation, where earnings are reduced by depreciation and amortization deductions. The Act increases this limit for taxable years beginning after December 31, 2024 by permitting a taxpayer to calculate ATI without regard to depreciation and amortization deductions.
• Changes to the GILTI Regime
  • Under the TCJA, for taxable years prior to January 1, 2026, a U.S. corporation is allowed a 50% deduction on the global intangible low-taxed income ("GILTI") amount to be included in income, bringing the effective rate for GILTI to 10.5%. For taxable years beginning after December 31, 2025, the deduction was scheduled to reduce to 37.5%, increasing the effective GILTI tax rate to 13.125%, but the Act instead reduces the deduction to 40%, which raises the effective GILTI tax rate to 12.6% beginning after December 31, 2025. The effective tax rate resulting from GILTI is further modified by a foreign tax credit "haircut," a deemed 10% return on certain qualifying (tangible) business assets, and an allocation and apportionment of certain deductions to GILTI for purposes of the foreign tax credit limitation; the Act reduces the foreign tax credit "haircut" from 20% to 10%, eliminates the deemed 10% return on such qualifying business assets, and limits the allocation and apportionment of certain deductions to GILTI for purposes of foreign tax credit limitation. Lastly, the Act renames GILTI as "net CFC tested income" ("NCTI").
• Elimination of Reduced Deductions for FDII Inclusions
  • Under the TCJA, for taxable years prior to January 1, 2026, a U.S. corporation is allowed a 37.5% deduction on the foreign-derived intangible income ("FDII") amount to be included in income, bringing the effective rate for FDII to 13.125%. For taxable years starting January 1, 2026, the deduction was scheduled to reduce to 21.875%, increasing the effective FDII tax rate to 16.406%. The Act reduces the deduction for FDII to 33.34% for taxable years beginning after December 31, 2025, which increases the effective tax rate on FDII to 14%. Lastly, the Act renames FDII as "foreign-derived deduction eligible income" ("FDDEI").
• Certain Changes to the Controlled Foreign Corporation Rules
  • The Act restores limitations to the "downward attribution" rules applicable to controlled foreign corporations that were eliminated by the TCJA. The rule under TCJA had created significant U.S. tax compliance challenges for foreign-controlled companies with U.S. subsidiaries. This reinstatement is paired with a new rule (Section 951B) that specifically targets Congress's concerns about foreign-controlled U.S. shareholders of CFCs. The Act also changes the rules for determining which U.S. shareholder must report a CFC's Subpart F income and NCTI when the CFC's shares are transferred mid-year. Additionally, the Act permanently adopts the "CFC look-through" rule, which had been repeatedly renewed in the past.
• Locking in the BEAT Rate
  • The base erosion and anti-abuse tax ("BEAT") rate is currently 10% and was scheduled to increase to 12.5% after December 31, 2025. The Act would permanently lock the BEAT rate at 10.5%.
• Elimination of Required Amortization for Domestic Research and Experimental Expenses
  • The TCJA ended the ability of taxpayers to currently deduct domestic research and experimental ("R&E") expenditures and instead required taxpayers to amortize such expenses over a five- or fifteen-year period, depending on the nature of the expenditure. The Act brings back the ability to deduct certain domestic R&E expenditures incurred in taxable years beginning after December 31, 2024. The Act allows taxpayers to elect to (i) immediately expense such costs, or (ii) capitalize and amortize such expenditures ratably over a period selected by the taxpayer (but no less than 60 months) beginning with the taxable year in which such expenses were paid or incurred. Foreign R&E expenditures would continue to be required to be amortized over a fifteen-year period.
• Flooring Corporate Charitable Contribution Deductions
  • Under current law, deductions for charitable contributions by corporate taxpayers are subject to a 10% ceiling. The Act introduces a 1% floor as an additional condition for the deductibility of such contributions, and subjects any disallowed deductions to carryforward rules.
• Deduction for Excessive Employee Compensation
  • The Act adds an aggregation rule to the limitation under Section 162(m) of the Code for executive compensation such that for taxable years beginning after 2025, in the case of a publicly held corporation that is a member of a controlled group, all members of the controlled group would be considered for purposes of the deduction disallowance under Section 162(m).
• Expansion of Qualified Small Business Stock Regime
  • The Act increases the "gross asset value" cap under the Qualified Small Business Stock ("QSBS") regime, which permits 100% capital gains exclusion on dispositions of eligible stock, from US$50 million to US$75 million, with inflation adjustments. The Act also raised the per-issuer cap from US$10 million to US$15 million, adjusted for inflation. Additionally, the Act introduces a phase-in to the capital gains exclusion: 50% for stock held at least 3 years, 75% for stock held at least 4 years, and 100% for stock held 5 or more years. The new "gross asset value" cap applies to QSBS issued after July 4, 2025, while the other QSBS changes apply to taxable years beginning after July 4, 2025.
• Proposed but not Included Provisions for Businesses
  • The House Version of the Act had introduced a new provision (Section 899) to the Code, which would have imposed higher taxes on certain persons associated with countries that impose "unfair foreign taxes", but Section 899, which included the "Super BEAT" provision, did not become part of the Act. See our prior alert for additional details on this proposal here.

Key Tax Changes for Partnerships / Pass-through Entities

• Amendments to Rules Governing Disguised Sale Transactions Between a Partner and a Partnership
  • The law currently provides that "under regulations prescribed by the Secretary," certain transactions between a partner and a partnership will be treated as transactions occurring between the partnership and a person that is not a partner. Current Treasury regulations treat certain related (or deemed related) contributions and distributions of property as taxable "disguised sales" of property. However, no current regulations address similar disguised sales of partnership interests. The Act removes the requirement for regulations (making it expressly effective "except as provided" by the Secretary). While the range of partnership transactions intended to be covered by this change is not immediately clear, the proposal could potentially be intended to address, among other things, disguised sales of partnership interests on which the Treasury has unsuccessfully sought to promulgate regulations in the past.
• Restricting Deductibility of Excess Business Losses
  • The restriction on the ability of noncorporate taxpayers to deduct "excess business losses" (generally, losses attributable to the trade or business of a taxpayer that exceed certain income thresholds) enacted in the TCJA was scheduled to expire in 2028. The Act makes such restrictions permanent.
• Permanent Extension of the Section 199A Qualified Business Income Deduction
  • The TCJA established a temporary 20% deduction for qualified business income (the "Section 199A Deduction") for noncorporate taxpayers through the end of 2025. The Act maintains this deduction at 20% and makes it permanent.
• Proposed but not Included Provisions for Partnerships/Pass-Thru Entities
  • The House Version of the Act would eliminate deductibility for state and local taxes ("SALT") applicable to a pass-through entity tax ("PTET") regime, but such elimination did not become part of the Act.
  • Dividends from real estate investment trusts ("REITs") have generally been eligible for the benefit of Section 199A Deductions. The House of Version of the Act would have expanded Section 199A to apply to the portion of dividends representing net interest income paid by a "business development company" taxable as a regulated investment company, but this proposal did not become part of Act.
  • Similarly to the House Version of the Act, capital gain treatment generally continues to apply to carried interest, as long as the holding period exceeds three years.
  • The Act does not include the Senate's proposed excise tax on certain proceeds received by third-party investors who fund litigation in return for a contingent financial interest. However, the Tackling Predatory Litigation Funding ("TPLF") Act, which, if passed, would impose a 37% plus 3.8% tax on TPLF profits, has been introduced and referred to committees in the both the House and the Senate.

Key Tax Changes for Individuals

• Locking in Marginal Tax Rates
  • The Act locks in the reduced marginal U.S. federal income tax rates introduced by the TCJA, making the maximum rate of 37% for individuals permanent.
• Permanently Expanding Estate and Gift Tax Exemption Amounts
  • The increased estate and lifetime gift tax exemption of US$13.99 million expires after December 31, 2025, after which the exemption amount would revert to the pre-TCJA limit of US$5 million, adjusted for inflation. The Act permanently increases the basic exclusion amount to US$15 million per individual.
• Increase in SALT Deduction Cap
  • The Act makes the SALT deduction cap permanent, removing the scheduled sunset after 2025. For tax year 2025, the cap is increased to US$40,000 ($20,000 for married filing separately), with inflation adjustments through 2029. The limitation reverts to US$10,000 ($5,000 for married filing separately) beginning in 2030. For tax years before 2030, the cap is reduced by 30% of the amount by which modified adjusted gross income exceeds US$500,000 ($250,000 for married filing separately in 2025, indexed for inflation), but cannot be lowered below US$10,000, with the deduction phased out in its entirety for individuals with gross income of at least US$600,000 ($300,000 for married filing separately, indexed for inflation). These changes apply to taxable years beginning after December 31, 2024.
• Narrowing Itemized Deductions
  • The TCJA suspended the Pease limitation from 2018 through 2025, which capped or phased out some itemized deductions for individual taxpayers exceeding certain income thresholds. The Act permanently eliminates the Pease limitation and replaces it with a provision which reduces the value of itemized deductions to US$0.35 on the dollar for individual taxpayers in the highest marginal income tax bracket (37%), though such reduction is not applicable to Section 199A Deductions.
• Permanently Repealing Miscellaneous Itemized Deductions and Personal Exemption
  • The Act permanently eliminates the ability to claim miscellaneous itemized deductions (which was suspended under the TCJA), other than certain educator expenses. The Act also permanently eliminates the personal exemption, though the Act adds a temporary deduction for seniors through 2028 of US$6,000 for each qualified individual (age 65 and older), which deduction is reduced for taxpayers with adjusted gross income in excess of US$75,000 ($150,000 in the case of a joint return).

Key Tax Changes for Tax-exempt Entities

• Increasing Excise Tax on Investment Income of Certain Private Colleges and Universities
  • Under current law, certain private educational institutions are subject to a flat 1.4% tax on their net investment income for the taxable year.
  • The Act creates a tiered-tax system instead based on the institution's student-adjusted endowment. The tax rate ranges from 1.4% in the case of an institution with a student adjusted endowment in excess of US$500,000 but less than US$750,000, to 8% for institutions with student-adjusted endowments of US$2 million or greater.
• Proposed but not Included Provisions for Tax-Exempt Entities
  • The House of Version of the Act would have created a tiered-tax system for levying excise tax on private foundations based on the size of the foundation ranging from 1.39% to 10%, but this proposal did not become part of the Act.

Other Miscellaneous Tax Changes

• Greater Scrutiny of COVID-related Employee Retention Tax Credits
  • To clamp down on promoters who misled those who have no chance of meeting the requirements for Employee Retention Tax Credits ("ERTC") while charging excessive fees, the Act increases the penalty for aiding and abetting the understatement of a tax liability by an ERTC promoter. The penalty on an ERTC promoter that fails to comply with due diligence requirements with respect to a taxpayer's eligibility for (or the amount of) the ERTC is US$1,000 for each such failure.
• Expanding the Qualified Opportunity Zone Program
  • The TCJA introduced the Qualified Opportunity Zone ("QOZ") program to encourage new investments in economically distressed communities, which investments under certain conditions could be eligible for preferential tax treatment such as temporary (and in some cases, permanent) deferral of capital gains taxes and qualified Section 1231 gains through December 31, 2026. The Act allows for the designation of additional QOZs (although narrowing the eligibility requirements for designating a community as a "low-income community") and permanently extends the investment period in the QOZ program while modifying the investment incentives that would be available pursuant to such program.
• Retiring Clean Energy Tax Credits
  • The Act accelerates the expiration of certain clean energy tax credits enacted by the 2022 Inflation Reduction Act such as credits in respect of certain previously owned clean vehicles, new vehicles, commercial clean vehicles, household energy efficient improvements, etc. The Act also terminates the availability of certain other credits, such as the clean electricity production credit and the clean electricity investment credit. In addition to the repeals and accelerated expiration schedules for existing energy credit provisions, the Act introduces complex restrictions relating to certain relationships with "prohibited foreign entities." These restrictions are not merely limited to ownership or control by prohibited foreign entities but would also deny the availability of certain tax credits to projects that rely on "material assistance" from a prohibited foreign entity.
• Modifying the Taxable REIT Subsidiary Test
  • Under current law, no more than 20% of the value of the assets of a REIT may consist of securities of one or more taxable REIT subsidiaries. The Act increases this limit to 25%.
• Miscellaneous Proposed but not Included Provision
  • The House Version of the Act would have limited the 15-year amortization of certain professional sports franchises and related intangible assets, but this did not become part of the Act.

The authors wish to thank associate Javier Pérez Rodríguez for his contributions to this OnPoint.

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.