One Big Beautiful Bill Act: Key Tax Impacts for Businesses

The OBBBA is one of the most significant pieces of tax legislation since the Tax Cuts and Jobs Act (“TCJA”) was enacted in 2017 and the Inflation Reduction Act (“IRA”) was enacted in 2022. The OBBBA will have broad impacts across a wide range of businesses and industries. Among other changes, the OBBBA makes permanent many of the taxpayer-favorable provisions of the TCJA and expands certain other favorable business tax provisions, with the cost of these taxpayer-favorable provisions offset in part by modifications to the renewable energy tax credit legislation enacted as part of the IRA.

This client alert summarizes certain of the tax legislative changes for businesses included in the OBBBA and also identifies certain tax provisions that were not included in the final legislation. For a discussion of the impacts of the OBBBA specific to the renewable energy and real estate sectors, please see our renewable energy coverage and real estate coverage.

Tax Provisions Included in the OBBBA

Permanent Extension of the Qualified Business Income Deduction

Section 199A² provides a 20% deduction for certain individuals, trusts, and estates with respect to both (i) their “qualified business income” from partnerships, S corporations, and sole proprietorships and (ii) 20% of their aggregate qualified REIT dividends and MLP income. The 20% deduction provided for under Section 199A was set to expire for taxable years beginning after December 31, 2025, but the OBBBA makes this 20% deduction permanent. While the House of Representatives had initially proposed increasing the deduction to 23%, the final version of the OBBBA retains the 20% deduction.

Observation: The TCJA permanently decreased the tax rate applicable to corporations from 35% to 21%. The 20% Section 199A deduction was introduced to provide a corresponding rate reduction for qualifying income from flow-through businesses. However, as noted above, this rate reduction was scheduled to expire at the end of 2025 in order to navigate the budget reconciliation process in 2017 in connection with the TCJA. The permanent rate reduction under Section 199A provided for in the OBBBA is a welcome change that introduces certainty (at least for the foreseeable future) as to the income tax rates applicable to flow-through business income and investments in publicly traded securities issued by MLPs and REITs.

Permanent 100% Bonus Depreciation and New Expensing for Certain Real Property

The OBBBA provides businesses the permanent ability to elect 100% bonus depreciation under Section 168(k) for qualified property (e.g., certain machinery, equipment, and other short-lived assets) acquired and placed in service after January 19, 2025. This provision allows businesses to immediately deduct the full cost of such qualified property in the year it is placed in service, rather than depreciating such property’s cost over time.

Further, the OBBBA provides for elective temporary 100% expensing for certain newly constructed nonresidential real property used in “qualified production activities.” In general, qualified production activities include the manufacturing, production, and refining of tangible personal property in the United States other than agricultural and chemical production. To qualify, construction must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031.

Observation: The implementation of 100% bonus depreciation on a permanent basis should provide taxpayers with additional flexibility and certainty in determining the expected after-tax cost of their capital expenditures. However, due to limitations in the ability of corporate taxpayers to deduct net operating loss carry forwards (e.g., net operating losses resulting from taking bonus depreciation in excess of current period taxable income) against taxable income, corporate taxpayers generally will need to conduct a modeling exercise to determine whether to elect bonus depreciation or expensing based upon their expected benefits. Bonus depreciation has been a common tool utilized by Congress to attempt to stimulate the economy during periods of economic distress. However, with bonus depreciation now permanent, this tool will no longer be in the “tool box” in the event of a future recession.

Permanent Modification to Business Interest Deduction Limitation

Section 163(j) generally limits the deduction for business interest expense to 30% of a taxpayer’s adjusted taxable income. For taxable years beginning before January 1, 2022, adjusted taxable income was calculated without regard to deductions for interest, taxes, depreciation, and amortization (i.e., on an EBITDA basis). For taxable years beginning after January 1, 2022, however, taxpayers were not permitted to add back depreciation and amortization in determining their adjusted taxable income (i.e., the limitation was applied on an EBIT basis), which generally reduced the Section 163(j) limitation for taxpayers. The OBBBA permanently restores the EBITDA-based interest deduction limitation for taxable years beginning after December 31, 2024.

However, the OBBBA also establishes a new ordering rule that requires that the Section 163(j) limitation be determined before the application of any interest capitalization provisions, except for interest capitalized under Sections 263A(f) and 263(g) (i.e., for certain produced property and straddles).

Observation: The movement back to the more favorable EBITDA-based interest deduction limitation should be a beneficial change for many taxpayers. However, the change to the interest capitalization provisions described above may limit certain tax planning strategies utilized to manage the Section 163(j) limitation and any such strategies may need to be reevaluated in light of this change.

Permanent Expensing of Domestic Research and Experimental Costs

The OBBBA permanently restores the ability of taxpayers to immediately expense certain domestic research and experimental expenditures (“R&E”) paid or incurred in tax years beginning after December 31, 2024, subject to certain taxpayer elections to capitalize and amortize such R&E. The treatment of R&E was modified as part of the TCJA, which generally required businesses to capitalize and amortize such domestic R&E expenses over a five-year period.

Observation: The required capitalization and amortization of domestic R&E was an unfavorable change contained in the TCJA and negatively impacted cash flows of impacted businesses. The permanent restoration of the deductibility of domestic R&E should be a beneficial change for taxpayers, especially those in research-heavy businesses and industries.

Adjustment of Corporate Alternative Minimum Tax for Oil and Gas Companies

The OBBBA modifies the calculation of adjusted financial statement income (“AFSI”) for taxpayers with oil and gas operations that are subject to the corporate alternative minimum tax (“CAMT”). Specifically, for taxable years beginning after December 31, 2025, the OBBBA provides that AFSI is computed by disregarding the depletion expense that is taken into account on the taxpayer’s applicable financial statements with respect to intangible drilling and development costs and by instead reducing AFSI by any deduction allowed for expenses under Section 263(c) to the extent of the amount allowed as deductions in computing regular taxable income.

Observation: The inability for oil and gas companies to adjust their AFSI to reflect the deductions taken for intangible drilling and development costs in computing regular taxable income put such taxpayers at a significant disadvantage under the CAMT as compared to taxpayers in other industries. This disadvantage impacted both “scope” determinations (i.e., the determination as to whether a taxpayer was in scope of the CAMT as a result of satisfying the applicable AFSI thresholds) and determinations of the resulting CAMT tax liability. This leveling of the playing field with respect to the CAMT is likely to reduce the impact of CAMT on large oil and gas companies. 

Expansion of Qualifying Income for MLPs

The OBBBA expands the scope of activities that generate qualifying income for MLPs for taxable years beginning after December 31, 2025. This qualifying income expansion includes income and gains from:

• the transportation or storage of certain biofuels, alcohol fuels, and sustainable aviation fuels;
• the transportation or storage of liquified hydrogen or compressed hydrogen;
• the generation and storage of electricity, and the capture of carbon dioxide by, certain “qualified facilities” if not less than 50% of the facility’s total carbon oxide production is considered “qualified carbon oxide” (as defined in Section 45Q(c));
• the production of electricity from certain advanced nuclear facilities;
• the production of electricity or thermal energy from geothermal or qualified hydropower resources (as described in Section 45(c)(1)(D) and (H)); and
• the operation of certain geothermal energy property (as described in Section 48(a)(3)(A)(iii) and (vii)).

Observation: This expansion of the scope of activities giving rise to qualifying income should allow for certain MLPs to expand their existing activities and may provide an opportunity for initial public offerings by additional MLPs. As with the analysis of any qualifying income activities, a careful review of such activities under the revised statute and the current (and any future) Treasury regulations applicable to qualifying income will be required for MLPs wanting to engage in these expanded activities.

Changes to the GILTI, FDII, and BEAT Regimes

The OBBBA modifies the tax rates and taxable income computations applicable to global intangible low-taxed income (“GILTI”) and foreign derived intangible income (“FDII”).

• In general, the tax rate applied to GILTI and FDII is determined by applying a deduction under Section 250 equal to a certain amount of such income. The OBBBA modifies the Section 250 deduction for GILTI by permanently changing the deduction to 40% (under prior law, this deduction was equal to 50% (with a planned decrease to 37.5% for taxable years beginning after December 31, 2025)), and for FDII by permanently changing the deduction to 33.34% (under prior law, this deduction was equal to 37.5% (with a planned decrease to 21.875% for taxable years beginning after December 31, 2025)). When taking into account the foreign tax credits available with respect to GILTI, the effective U.S. tax rate on GILTI and FDII is approximately 14% following the enactment of the OBBBA.

• Prior to the modifications by the OBBBA, the determination of the amount of income subject to tax under the GILTI regime and the amount of income eligible for the FDII deduction were both determined by taking into account the amount of a taxpayer’s qualified business asset income (“QBAI”). The OBBBA eliminates QBAI from the determination of GILTI and FDII, which generally increases the amount of income subject to tax under the GILTI regime but which reduces the effective tax rate applicable to FDII. The Joint Committee on Taxation estimates that the loss of revenue from the changes to QBAI with respect to FDII (effectively a tax cut) will outweigh the revenue increase from the changes to QBAI with respect to GILTI (effectively a tax increase).³

• The OBBBA renames GILTI as “net CFC tested income” and FDII as “foreign-derived deduction eligible income.”

The OBBBA also permanently sets the base erosion and anti-abuse minimum tax (the “BEAT”) to 10.5%. Prior to the enactment of the OBBBA, the BEAT tax rate was equal to 10% (with a planned increase to 12.5% for taxable years beginning after December 31, 2025).

Observation: The changes described above with respect to the GILTI, FDII, and BEAT regimes will impact the effective tax rates applicable to multinational corporations. The OBBBA also makes other changes with respect to the application of these regimes to U.S. taxpayers, including changes relevant in determining whether a foreign corporation is a controlled foreign corporation and the pro rata share of income taken into account by U.S. taxpayers that hold interests in controlled foreign corporations. As such, while the modifications to the international tax regime in the OBBBA were more limited than initially expected, taxpayers will need to analyze the application of these changes to their business to determine the impact.

Expansion of Benefits for Qualified Small Business Stock

Under Section 1202 as in effect prior to the enactment of the OBBBA, non-corporate taxpayers generally may exclude a specified percentage of their gains (generally 100% for stock acquired after September 24, 2010) from the sale or exchange of qualified small business stock (“QSBS”) held for at least five years, which generally includes stock issued by domestic “C” corporations with gross assets that do not exceed $50 million and that do not conduct certain non-qualifying trades or businesses. With respect to any issuer of QSBS, under Section 1202 as in effect prior to the enactment of the OBBBA, the amount of gain that may be excluded by a taxpayer is generally limited to the greater of $10 million or 10 times the aggregate adjusted bases of the QSBS issued by such corporation and disposed of by the taxpayer during the taxable year.

The OBBBA enacts certain taxpayer-friendly changes to the QSBS rules with respect to stock issued after the enactment of the OBBBA, including:

• lowering the five-year holding period described above to three years and introducing a tiered system for gain exclusion pursuant to which (i) 50% of gain is excluded for QSBS held for three years, (ii) 75% of gain is excluded for QSBS held for four years, and (iii) 100% of gain is excluded for QSBS held for five years or more;

• increasing the gross asset threshold described above from $50 million to $75 million (and providing that this threshold in indexed for inflation); and

• increasing the single issuer exclusion described above from $10 million to $15 million (and providing that this exclusion amount is indexed for inflation).

Observation: These changes to the QSBS rules should provide additional opportunities for the utilization of the QSBS exclusion for taxpayers that might not have previously considered the availability of QSBS due to the holding period and gross asset limitations described above.

Tax Provisions Not Included in the OBBBA

Imposition of the Revenge Tax under Section 899

The OBBBA omits the previously proposed “revenge tax” under Section 899, which would have authorized a range of retaliatory tax increases on companies from foreign countries deemed to impose “unfair foreign taxes” on U.S. persons or their controlled foreign corporations.

Section 899 was dropped from the OBBBA after Treasury Secretary Scott Bessent announced an agreement with the leaders of the G7 countries.⁴ Under the agreement, the G7 countries agreed that the Pillar 2 rules agreed by the OECD/G20 Inclusive Framework on BEPS would be revised to exempt U.S. parented groups from the application of certain Pillar 2 taxes.⁵ As a result of this agreement, Treasury Secretary Scott Bessent instructed the Senate and the House of Representatives to remove Section 899 from the OBBBA.

Changes to the Tax Treatment of Carried Interests

Throughout the 2024 presidential campaign and in the first months of his administration, President Trump repeatedly called for changes to the preferential tax treatment of carried interests (i.e., the share of profits of a partnership received by private equity and hedge fund managers). Nevertheless, the OBBBA does not make any changes to the treatment of carried interests.

Increases in the Stock Buyback Excise Tax Rate

The IRA enacted an excise tax equal to 1% percent of the aggregate fair market value of stock repurchased by certain publicly traded corporations after December 31, 2022. While an increase in this excise tax rate was seen as a potential revenue raiser, neither the House of Representatives nor the Senate proposed such an increase as part of the OBBBA budget reconciliation process.

Observation: While the provisions above were not included in the OBBBA, these provisions were further reviewed and analyzed during the process of drafting the OBBBA and could be included in future legislative proposals. Republican leadership in the House of Representatives and the Senate have expressed a desire for further legislation later this year, either in a bipartisan bill or another budget reconciliation bill. As such, while the focus may now turn to the regulatory guidance needed to implement the OBBBA, taxpayers should stay alert for further legislative changes later this year.

¹ Public Law No. 119-21.

² All references to “Section” refer to provisions of the Internal Revenue Code of 1986, as amended.

³ https://www.jct.gov/publications/2025/jcx-34-25/

⁴ The G7 countries include the United States, Canada, the United Kingdom, France, Italy, Germany and Japan.

⁵ https://home.treasury.gov/news/press-releases/sb0181