On July 4, 2025, President Donald J. Trump signed into law "An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14.," commonly referred to as the "One Big Beautiful Bill Act" (OBBBA). The OBBBA includes important tax legislation, which not only permanently extends certain provisions of the 2017 Tax Cuts and Jobs Act (TJCA), but also makes extensive amendments to the Internal Revenue Code. This summary, while not exhaustive, highlights several of the OBBBA's key changes to the tax law.
1. Business Taxation
a. Expensing of Qualified Assets
i.100% Bonus Depreciation
The 100% bonus depreciation deduction for qualified property under Internal Revenue Code Section 168(k) is restored and made permanent. The deduction would apply retroactively to property acquired and placed in service on or after January 20, 2025.
Under new Section 168(n), elective 100% bonus depreciation is allowed for qualified production property (QPP) placed in service after July 4, 2025. QPP is generally defined as nonresidential real property:
- Used as an integral part of manufacturing, production, or refining of tangible personal property;
- Placed in service in the U.S. before January 1, 2031;
- The original use of which commences with the taxpayer; and
- The construction of which begins after January 19, 2025, and before January 1, 2029.
ii. Election to Expense Certain Depreciable Trade or Business Assets
The maximum amount a taxpayer may deduct under Section 179 is increased from $1 million to $2.5 million, and the threshold for the phaseout of the deduction is increased to property costing more than $4 million. These changes apply to property placed in service in taxable years beginning after December 31, 2024.
b. Research and Experimental Expenditures
Under new Section 174A, domestic research and experimental expenditures paid or incurred in taxable years beginning after December 31, 2024, can be either immediately deductible or, if the taxpayer makes an election, amortized over at least 60 months.
Certain small businesses can elect, no later than July 4, 2026, to expense domestic research and experimental expenditures retroactively for taxable years beginning after December 31, 2021. In addition, a taxpayer may elect to expense, over one or two years starting with the first taxable year beginning after December 31, 2024, unamortized domestic research and experimental expenditures capitalized in any taxable year beginning after December 31, 2021 and before January 1, 2025.
c. Business Interest Expense
Effective for taxable years beginning after December 31, 2024, the relaxed limitation on deducting business interest under Section 163(j), which permits the addback of depreciation and amortization in computing the limitation, is permanently restored.
d. Qualified Business Income Deduction
The 20% qualified business income deduction under Section 199A is made permanent.
e. Pass-Through Entity Tax
The federal tax treatment of pass-through entity tax (PTET) regimes remains unchanged under the OBBBA. Under state and local PTET laws, partnerships and S corporations pay, or may elect to pay, state and local taxes on behalf of their individual owners, which has the effect of providing the owners with deductions in computing their individual federal taxable income without subjecting such taxes to the state and local tax deduction limitation (discussed below).
f. Qualified Small Business Stock
The five-year holding period requirement for eligibility for the exclusion of gain from the sale of qualified small business stock is modified to a tiered system which permits 50% of the gain from such sale to be excluded after a three-year holding period, 75% after a four-year holding period, and 100% after a five-year holding period. Also, the per-issuer exclusion limit is increased from $10 million to $15 million and the corporate gross asset limitation (to determine whether a business is a "qualified small business") is increased from $50 million to $75 million, with both revised limitations indexed for inflation after 2026. These changes are effective for stock issued or acquired after July 4, 2025.
g. Qualified Opportunity Zones
The Qualified Opportunity Zone program is made permanent, with certain modifications, including rolling, ten-year opportunity zone designations commencing after 2026.
h. Real Estate Investment Trusts
Effective for taxable years beginning after December 31, 2025, the percentage of a real estate investment trust's (REIT) assets that may consist of securities in taxable REIT subsidiaries is increased from 20% to 25%.
i. Deduction for Charitable Contributions Made by Corporations
The OBBBA amends Section 170 to impose a 1% floor (in addition to the current 10% ceiling) on charitable contributions made by corporations. Generally, charitable contributions in excess of 10% of a corporation's taxable income are carried forward to the following taxable year, but charitable contributions disallowed by the 1% floor (i.e., less than or equal to 1% of the corporation's taxable income) are only carried forward from years in which charitable contributions exceed the 10% ceiling. This change is effective for taxable years beginning after December 31, 2025.
2. Individual Taxation
a. State and Local Tax Deduction
The limitation on the deduction for state and local taxes under Section 164(b)(6) is increased from $10,000 to $40,000 for tax years 2025 through 2029, with a 1% increase in the $40,000 limitation each year. However, the $40,000 cap is phased down, but not below $10,000, for taxpayers with adjusted gross income of more than $500,000. The $500,000 threshold is also increased by 1% each year. However, the limitation reverts to $10,000 for tax years after 2029.
b. Excess Business Losses
The limitation on the deduction of excess business losses of noncorporate taxpayers under Section 461(l) is made permanent.
c. Individual Tax Rates
The current individual tax rates, including the maximum individual rate of 37%, which were enacted by the TCJA, are made permanent.
d. Itemized Deductions
Effective for taxable years beginning after December 31, 2025, itemized deductions of individuals who are in the 37% tax bracket will be reduced by up to 2/37ths. This rule effectively caps the tax benefit of itemized deductions to such individuals at 35%.
e. Miscellaneous Itemized Deductions
The disallowance of miscellaneous itemized deductions is made permanent.
f. Deduction for Charitable Contributions Made by Individuals
The OBBBA amends Section 170 to impose a 0.5% floor on charitable contributions made by individuals. The 0.5% floor is in addition to the current applicable ceiling, which is generally a percentage – ranging between 20% and 100% – of an individual's adjusted gross income (AGI). Charitable contributions in excess of the ceiling are carried forward to the following taxable year, but charitable contributions disallowed by the 0.5% floor (generally, contributions that are less than or equal to 0.5% of the individual's AGI) are only carried forward from years in which charitable contributions exceed the ceiling. The OBBBA also reinstates and expands Section 170(p), which, as amended, would allow a charitable contribution deduction of up to $1,000 for individual taxpayers who do not elect to itemize deductions. These changes are effective for taxable years beginning after December 31, 2025.
3. International Taxation
a. Global Intangible Low-Taxed Income
Global intangible low-taxed income (GILTI) under Section 951A is redesignated as net CFC tested income (NCTI) and the deduction under Section 250 for NCTI is reduced from 50% to 40%, resulting in an effective federal tax rate for U.S. corporations of 12.6% on NCTI. In addition, the exclusion from the former definition of GILTI of "net deemed tangible income return" (10% assumed return on a CFC's qualified business asset investment) is eliminated. These changes are effective for taxable years beginning after December 31, 2025.
b. Foreign-Derived Intangible Income
Foreign-derived intangible income (FDII) is renamed to foreign-derived deduction eligible income (FDDEI) and the deduction under Section 250 for FDDEI is reduced from 37.5% to 33.34%, resulting in an effective federal tax rate for U.S. corporations of 14% on FDDEI. Additionally, the reduction of the former FDII deduction for "net deemed tangible income return" (10% assumed return on a foreign corporation's qualified business asset investment) is eliminated, and interest expense and research and experimental expenditures are excluded from the computation of FDDEI. These changes are effective for taxable years beginning after December 31, 2025.
FDDEI also excludes any income or gain from the sale or other disposition (including transactions subject to Section 367(d)) of intangible property, or any other depreciable or amortizable property. This rule is effective for sales or other dispositions (and transactions subject to Section 367(d)) occurring after June 16, 2025.
c. Controlled Foreign Corporation Look-through Rule
The look-through rule of Section 954(c)(6) is made permanent. The look-through rule decreases subpart F inclusions by excluding from foreign personal holding company income specific types of passive income, such as dividends, interest, rents, and royalties, earned by one Controlled Foreign Corporation (CFC) from a related CFC.
d. Downward Attribution
Section 958(b)(4), which prevents so-called downward attribution to treat a U.S. person as constructively owning stock of a foreign person in determining the CFC status of a foreign corporation, is restored.
New Section 951B, however, allows downward attribution from foreign persons in determining whether a U.S. person is a foreign controlled U.S. shareholder (FCUS) and whether a foreign corporation is a foreign controlled foreign corporation (FCFC). An FCUS is a U.S. person who owns more than 50%, by vote or value, of a foreign corporation. Under Section 951B, an FCUS could have subpart F or NCTI inclusions from an FCFC. Both the new Section 951B and the restoration of Section 958(b)(4) are effective for taxable years of foreign corporations beginning after December 31, 2025.
e. Pro Rata Share Inclusion
Under Section 951(a), as amended by the OBBBA, U.S. shareholders who own stock (within the meaning of Section 958(a)) during any part of the CFC year are required to include in income their pro rata share of subpart F income or NCTI. The change is effective for taxable years of foreign corporations beginning after December 31, 2025.
f. Foreign Tax Credit
i. Sourcing of Sale of Certain Inventory Produced in the U.S.
For purposes of computing the foreign tax credit limitation under Section 904(b), if a U.S. taxpayer sells through its fixed place of business outside the U.S. inventory produced in the U.S., and such inventory is for use outside the U.S., a portion (not more than 50%) of the income from such sale could be treated as foreign source income. This rule is effective for taxable years beginning after December 31, 2025.
ii. Foreign Taxes Attributable to NCTI
The deemed paid credit under Section 960(d)(1) is increased from 80% to 90% of foreign taxes attributable to NCTI. This change is effective for taxable years beginning after December 31, 2025.
iii. Foreign Taxes Attributable to Previously Taxed NCTI
New Section 960(d)(4) limits the foreign tax credit by disallowing 10% of foreign income taxes paid or accrued (or deemed paid) with respect to distributions of previously taxed NCTI. This change is effective for distributions made after June 28, 2025.
iv. Allocation and Apportionment of Expenses to NCTI
For purposes of allocating and apportioning deductions between U.S. and foreign source income to compute the foreign tax credit limitation, only the Section 250 deduction and deductions directly allocable to NCTI are allocated to NCTI. Any other expenses that would otherwise be allocated to NCTI, including interest expense and research and experimental expenditures, must be allocated to U.S. source income. These changes are effective for taxable years beginning after December 31, 2025.
g. One-Month Deferral Election for Specified Foreign Corporations
The one-month deferral election for specified foreign corporations (SFCs) under section 898(c)(2) is repealed. This change is effective for taxable years of SFCs beginning after November 30, 2025. A transition rule applies to an SFC's first taxable year beginning after November 30, 2025.
h. Base Erosion Anti-Abuse Tax
Effective for taxable years beginning after December 31, 2025, the tax rate for the base erosion anti-abuse tax (BEAT) under Section 59A is permanently increased from 10% to 10.5%, and the taxpayer-favorable treatment of certain credits is made permanent.
i. 1% Excise Tax on Remittance Transfers
A 1% federal excise tax under new Section 4475 is imposed on certain transfers of cash or cash equivalents from within the U.S. to recipients in any foreign country. The tax does not apply to transfers withdrawn from accounts held by or with certain financial institutions or to transfers funded with a debit or credit card issued in the U.S. The new tax applies to transfers made after December 31, 2025.
4. Estate and Gift Taxation
The lifetime estate and gift tax exemption is permanently increased to $15 million per individual for gifts made, and decedents dying, after December 31, 2025. The $15 million exemption amount is subject to annual inflation adjustments beginning in 2027.
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.
