One Big Beautiful Bill Act

Overview

• On July 4, 2025, the President signed into law the "One Big Beautiful Bill Act" (the "Act")
• Among other things, the Act makes permanent many provisions of the 2017 Tax Cuts and Jobs Act (the "TCJA") that otherwise would have expired this year
• The Act includes tax cuts of $4.5 trillion and spending cuts of $1.2 trillion, for a net cost of approximately $3.3 trillion over the 10-year budget window
• The Act contains a wide range of provisions that will affect nearly every sector of the economy and every type of taxpayer, including individuals, corporations, pass-through entities and tax-exempt organizations
• Although many taxpayers are affected, for the most part, the changes will generally not affect the structure of business or transactions
• A brief overview of some of the more important tax provisions of the Act are set forth below – if you need additional information about any provision or the Act, please feel free to contact a member of the WilmerHale tax group listed below

BUSINESS-RELATED PROVISIONS

Income Exclusion for Qualified Small Business Stock (QSBS) (Section 1202)

• The Act increases the gross asset value cap for QSBS issuers from $50 million to $75 million and introduces an inflation adjustment
• In addition, the Act amends the formula for the per-issuer cap on the QSBS exclusion to $15 million (now also adjusted for inflation), up from $10 million under prior law
• The Act also shortens the holding period required to qualify for QSBS benefits by introducing a 50-percent exclusion for gain recognized if the stock is held for three years and a 75-percent exclusion for gain recognized if the stock is held for four years
• The Act retains the 100-percent exclusion under prior law if the stock is held for five years or more
• The changes to the $75 million gross asset value cap and $15M per-issuer limitation apply to QSBS issued after July 4, 2025 and the other changes apply to taxable years beginning after July 4, 2025
• See prior WH tax alert issued on June 20, 2025

Full Expensing of Domestic Research and Experimental Expenditures (Section 174A)

• The Act also permanently reinstates elective expensing for qualifying domestic research and experimental expenditures with respect to amounts paid or incurred after December 31, 2024
• The TCJA had required any such expenditures to be capitalized and amortized over a five-year period for taxable years beginning after December 31, 2021
• For certain small businesses, the Act makes the above amendment retroactive (by taxpayer election) to amounts paid or incurred after December 31, 2021
• For other taxpayers, the Act provides an election to deduct amounts capitalized in 2022-2024 (and unamortized) either in the first taxable year beginning after December 31, 2024 or ratably over the first two taxable years beginning after December 31, 2024
• Expenditures for research performed outside the U.S. remain amortizable over 15 years

Full Expensing of Eligible Property (Section 168(k))

• The Act permanently reinstates elective expensing (i.e., 100-percent bonus depreciation) for eligible business property acquired after January 19, 2025
• Full expensing had been added by the TCJA, subject to a phase down that started in 2023 and expiration after 2026
• Absent the Act, only 40-percent bonus depreciation would have been available for property placed in service in 2025

Relaxed Limitation on Deductibility of Business Interest (Section 163(j))

• The Act relaxes the limitation on the deductibility of business interest by reverting to the limitation that was in effect between 2017 and 2022 (generally, 30 percent of EBITDA)
• The change is effective for taxable years beginning after 2024
• Unlike the TCJA, which introduced the EBITDA cap (and its scheduled reduction to an EBIT-based cap in 2022), the Act makes the more generous pre-2022 EBTIDA-based limit permanent
• However, the Act also introduces rules that extend the application of the deductibility cap to business interest that is required to be capitalized (among other changes that reduce the cap in certain circumstances)

Deduction for Qualified Business Income (Section 199A)

• The Act permanently extends the 20-percent deduction for qualified business income available to noncorporate taxpayers
• Subject to limitations, the deduction generally is available with respect to business income (other than employee income or income from specified services) and certain passive income
• The deduction was introduced in the TCJA and was scheduled to expire after 2025
• The Act also relaxes the income-based phaseout of the deduction and includes other taxpayer-favorable changes

Semiconductor Manufacturing Investment Tax Credit (Section 48D)

• The Act increases to 35 percent (from 25 percent) the investment tax credit for eligible investments in facilities the primary purpose of which is the manufacturing of semiconductors or semiconductor manufacturing equipment
• Effective for property placed in service after December 31, 2025

Immediate Expensing for Qualified Production Property (Section 168(n))

• To encourage domestic manufacturing and production, the Act contains a special provision for qualified production property that allows for the immediate expensing of 100 percent of the adjusted basis of the qualified production property, including 39-year factory (manufacturing) property
• Qualified production property means the portion of any nonresidential real property (1) used as an integral part of a qualified production activity; (2) placed in service in the U.S.; and (3) the original use of which begins with the taxpayer
• The construction of the property must begin after Jan. 19, 2025, and before Jan. 1, 2029
• The property must be placed in service after July 4, 2025 and before Jan. 1, 2031
• Qualifying production activities include manufacturing, production or refining of tangible personal property and agricultural or chemical production

What Stays the Same?

• Carried Interest – holders of carried interests generally continue to enjoy capital gain treatment, assuming a more than 3-year holding period

INDIVIDUAL PROVISIONS

Rate Structure for Individuals made permanent

• Ordinary income and capital gains tax rates stay the same
• • Maximum ordinary income tax rate stays at 37%
  • Maximum capital gains tax rate stays at 20%
  • Net investment income tax / NIIT stays at 3.8%
  • Medicare tax on income in excess of $250,000 stays at 0.9%

State and Local Tax Deduction

• The state and local tax deduction for itemizers increases to $40,000, but phases down to $10,000 for taxpayers with over $500K of adjusted gross income
• The pass-through entity tax work around ("PTET") for the state and local tax deduction enacted by most states was not affected by the Act and is still available for eligible taxpayers
• • Some states' tax laws may need to be amended, some state laws sunset at the end of 2025

Charitable Contributions

• Individuals
• • The deduction for charitable contributions for itemizers is now limited to charitable contributions in excess of 0.5% of modified adjusted gross income
  • • Effective for taxable years beginning after Dec. 31, 2025
  • Taxpayers who cannot itemize deductions will get a deduction of $1,000 ($2,000 for married taxpayers) effective for tax years beginning after Dec. 31, 2025
• Corporations
• • The deduction for charitable contributions for corporations is now limited to amounts in excess of 1% of the corporation's modified taxable income
  • The deduction is capped at 10% of the corporation's modified taxable income as was the case prior to the Act

Exempt-Organization Highlights

• Existing 1.4% excise tax on net investment income of private colleges and universities changed to a tiered-rate system (from 1.4% up to 8%) based on amount of "student adjusted endowment" (Section 4968)
• Excise tax on excess tax-exempt organization executive compensation expanded to apply to any employee or former employee of tax-exempt organization (as opposed to only top-5 highest compensated) (Section 4960)
• Not included in the Act:
• • Provision permitting Treasury Secretary to designate non-profits as a terrorist-supporting organizations and revoke tax-exempt status
  • Increase to excise tax on net investment income of private foundations

INTERNATIONAL PROVISIONS

• The Act introduces several key changes aimed at refining existing frameworks and implementing new rules to better align with the global economic environment
• The provisions are effective for taxable years beginning after December 31, 2025
• The key changes relate to Foreign Tax Credit, Global Intangible Low-Taxed Income ("GILTI"), Foreign-Derived Intangible Income ("FDII"), Base Erosion and Anti-Abuse Tax ("BEAT") and Controlled Foreign Corporation ("CFC") Rules and Subpart F
• No Section 899 (a/k/a the "Revenge Tax") – both the initial House-passed bill and the initial Senate version of the bill added a provision that would have significantly increased the rate of withholding taxes and certain other taxes on governments and residents of countries that enact an "unfair foreign tax" (but this was dropped from the final version of the Act)
• A detailed alert on the international provisions is located here

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.