The One Big Beautiful Bill Act (Act), P.L. 119-21, enacted on July 4, 2025, includes a number of changes to the Internal Revenue Code that will impact businesses and their owners. Among other things, the Act permanently extends many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that were scheduled to expire at the end of 2025. This update provides a brief overview of some of the more important tax provisions of the Act that will impact businesses and their owners.
Expansion of Benefits for Qualified Small Business Stock
Holding Period Changes. Under current law, non-corporate taxpayers are entitled to exclude up to 100% of gain from the sale of qualified small business stock (QSBS) held for at least five years if certain requirements described in Section 1202 are met. The Act provides for a partial gain exclusion for QSBS issued after July 4, 2025 that is held for at least three but less than five years. With respect to QSBS issued after this date, non-corporate taxpayers will be able to claim a 50% exclusion for QSBS held for at least three years and a 75% exclusion for QSBS held for at least four years. The 100% exclusion for QSBS held for at least five years remains in effect.
Expansion of Eligible Issuers of QSBS. Under current law, stock issued by a corporation will not qualify as QSBS if the aggregate gross assets of the corporation immediately after the issuance exceed $50 million. For QSBS issued after July 4, 2025, the Act increases this limitation to $75 million, and this limit is now indexed for inflation in subsequent years.
Increase in Maximum Exclusion Limit. Under current law, a taxpayer’s gain exclusion under Section 1202 in any year is subject to a per-issuer limitation equal to the greater of (i) ten times the basis of QSBS sold during the year or (ii) $10 million minus the aggregate gain excluded with respect to such issuer in prior years under Section 1202. For QSBS issued after July 4, 2025, the $10 million limitation increases to $15 million, and this limit is now indexed for inflation in subsequent years. Once a taxpayer reaches the dollar limitation in any year, the taxpayer cannot benefit from the dollar limitation in subsequent years based on an upward inflation adjustment.
Extension of the Qualified Business Income Deduction
The Act permanently extends the 20% qualified business income (QBI) deduction under Section 199A. This deduction was previously scheduled to sunset at the end of 2025. The QBI deduction generally permits non-corporate taxpayers of flow-through businesses such as partnerships and S corporations to deduct up to 20% of their share of income from the business, subject to limitations. Since the Act did not make any changes to federal income tax rates, the QBI deduction continues to allow non-corporate taxpayers in the 37% bracket to pay an effective rate of 29.6% on qualifying income, assuming other QBI limitations do not apply. The Act also provides more taxpayer-friendly thresholds for the phase-in of certain limitations but also precludes taxpayers from claiming a QBI deduction of less than $400 in any year, adjusted for inflation.
Bonus Depreciation
Permanent Extension. The Act permanently reinstates 100% bonus depreciation under Section 168(k) for qualified property acquired after January 19, 2025. Bonus depreciation under this provision was gradually phasing out since 2023 and was scheduled to completely phase out after 2026. This provision will continue to allow business owners to immediately expense many types of assets purchased for use in the business and also permits acquirors in M&A transactions to immediately deduct the purchase price allocated to many types of fixed assets when the transaction is structured as an asset purchase.
Qualified Production Property. The Act also creates a new Section 168(n) that allows an immediate deduction for 100% of the cost of “qualified production property.” Generally, qualified production property is any domestic manufacturing, refining, agricultural production, or chemical production facility that begins construction after January 19, 2025 and before January 1, 2029, and that is placed in service after July 4, 2025 and before January 1, 2031. This new provision will substantially accelerate deductions for qualifying property that otherwise would have been depreciable over periods as long as 39 years.
Domestic Research and Experimental Expenditures
The Act restores immediate expensing of domestic research and experimental expenditures under new Section 174A. This reverses the five-year amortization requirement that took effect in 2022 under the TCJA. The Act also provides retroactive relief for small businesses (those with average annual gross receipts under $31 million) that allows them to amend 2022 through 2024 returns and deduct domestic research and experimental expenditures on those returns that were previously capitalized under the prior law. Alternatively, all taxpayers (even those exceeding the gross receipts threshold) may elect to accelerate deductibility of previously capitalized research and experimental expenditures in lieu of amending prior year returns.
Business Interest Limitation
The Act permanently returns the 30% limitation on deductibility of business interest under Section 163(j) to an EBITDA-based formula, returning to the limitation that was in effect following the TCJA and prior to 2022. This change takes effect for taxable years beginning after 2025. The more restrictive EBIT-based limitation that has been in effect since 2022 remains in effect through the end of 2025.
Excess Business Loss Limitation
The Act makes permanent the $500,000 limitation on excess business losses under Section 461(l) for non-corporate taxpayers, which was set to expire after 2028. Excess business losses that are limited in any year will continue to be carried forward and converted into net operating losses in the subsequent year. As a net operating loss carried forward to a subsequent year, the loss may only offset 80% of taxable income in any year in which it is carried forward.
Increase in State and Local Tax Deduction Limitation
The Act temporarily increases the state and local tax (SALT) deduction limit for non-corporate taxpayers from $10,000 to $40,000 but phases the limitation down to $10,000 for taxpayers with over $500,000 of modified adjusted gross income. The increased limitation is in effect for 2025 through 2029, with cap scheduled to increase by 1% each year through 2029. The Act does not otherwise attempt to limit the pass-through entity tax deductions that many states, including Wisconsin, permit partnerships and S corporations to make to pay state income taxes at the entity level, and thereby effectively provide their owners with a federal income tax deduction for state income taxes paid as a work-around to this SALT limitation.
Qualified Opportunity Zones
The Act retains the current qualified opportunity zone (QOZ) tax incentives for investments made through December 31, 2026, while creating a new, permanent QOZ regime for investments starting January 1, 2027. Under the existing regime, investors may defer capital gains by reinvesting such gains in a qualified opportunity fund (QOF) and potentially exclude post-investment appreciation if they meet certain holding periods. The QOZ regime made permanent by the Act includes a five-year deferral period, enhanced benefits for rural QOZs, a 30-year cap on the exclusion for post-investment appreciation, restricted eligibility for QOZ designations, and new reporting requirements with substantial penalties for noncompliance.
Taxes on International Income
The Act increases the effective U.S. income tax rates under the global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) regimes from 10.5% and 13.125%, respectively, to 14% effective January 1, 2026. The Act also imposes several other changes to these regimes, including limiting the required allocation of interest expense and research and development costs to foreign-derived income, eliminating the qualified business asset investment exemption, and increasing the availability of the foreign tax credit. The extensive nature of these changes warranted re-naming GILTI as the net controlled foreign corporation tested income (NCTI) regime and FDII as the foreign-derived deduction-eligible income (FDDEI) regime.