As reported by The Journal of Accountancy, The One Big Beautiful Bill Act, was signed into law on Friday, July 4 by President Donald Trump.
The bill extends many of the expiring provisions from the Tax Cuts and Jobs Act (TCJA). It also addresses other tax priorities of the Trump administration, including providing deductions to eliminate income taxes on certain tips and overtime pay.
The bill also revamps some of the TCJA’s provisions on the taxation of corporations’ foreign income and terminates a large number of clean energy tax incentives.
Business Tax Provisions
Bonus depreciation: The bill permanently extends the Sec. 168 additional first-year (bonus) depreciation deduction. The allowance is increased to 100% for property acquired and placed in service on or after Jan. 19, 2025, as well as for specified plants planted or grafted on or after Jan. 19, 2025.
Sec. 179 expensing: The bill increases the maximum amount a taxpayer may expense under Sec. 179 to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million.
Research-and-development expenses: The bill allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred in tax years beginning after Dec. 31, 2024. However, research or experimental expenditures attributable to research that is conducted outside the United States will continue to be required to be capitalized and amortized over 15 years under Sec. 174.
Small business taxpayers with average annual gross receipts of $31 million or less will generally be permitted to apply this change retroactively to tax years beginning after Dec. 31, 2021. And all taxpayers that made domestic research or experimental expenditures after Dec. 31, 2021, and before Jan. 1, 2025, will be permitted to elect to accelerate the remaining deductions for those expenditures over a one- or two-year period.
Limitation on business interest: The bill reinstates the EBITDA limitation under Sec. 163(j) for tax years beginning after Dec. 31, 2024. Therefore, for purposes of the Sec. 163(j) interest deduction limitation for these years, adjusted taxable income would be computed without regard to the deduction for depreciation, amortization, or depletion. The bill would also modify the definition of “motor vehicle” to allow interest on floor plan financing for certain trailers and campers to be deductible.
Paid family and medical leave credit: Under the bill, Sec. 45S is amended to make the employer credit for paid family and medical leave permanent.
Special depreciation allowance for qualified production property: The bill allows an additional first-year depreciation deduction equal to 100% of the adjusted basis of “qualified production property.” Qualified production property is generally nonresidential real property used in manufacturing.
Advanced manufacturing investment credit: Under the bill, the advanced manufacturing investment credit rate increases from 25% to 35%, effective for property placed in service after Dec. 31, 2025.
Spaceports: The bill amends Sec. 142(a)(1) to ensure spaceports are treated like airports under the exempt-facility bond rules. A spaceport is defined as a facility close to a launch or reentry site that is used to manufacture, assemble, or repair spacecraft or space cargo or is used for flight control operations, to provide launch or reentry services, or to transfer crew, spaceflight participants, or space cargo to or from a spacecraft. This is a new provision that was not in the Senate Finance Committee’s version of the bill.
Employer-provided child care credit: The bill increases the amount of qualified child care expenses taken into account for purposes of the Sec. 45F employer-provided child care credit from 25% to 40%. The maximum amount of the credit increases from $150,000 to $500,000 ($600,000 for eligible small businesses) and will be adjusted for inflation.
Opportunity zones: The bill makes opportunity zones permanent but with several changes, including narrowing the definition of “low-income community.” The changes would generally take effect Jan. 1, 2027.
New markets tax credit: The bill makes the Sec. 45D new markets tax credit permanent.
Percentage-of-completion method: The bill provides an exception to the Sec. 460(e) requirement to use the percentage-of-completion accounting method for certain residential construction contracts entered into after the date of the bill’s enactment.
Qualified small business stock: The bill expands the Sec. 1202 exclusion for gain from qualified small business stock. For qualified small business stock acquired after the date of enactment of the bill and held for at least three years, the percentage of gain excluded from gross income will be 50%. If it is held for at least four years, the percentage of gain excluded from gross income increases to 75%. If it is held for five years or more, the exclusion percentage will be 100% as in the past. Note that smaller exclusion percentages apply to stock acquired prior to 9/28/2010. See our 2016 blog article for more.
Excess business losses: The bill makes Sec. 461(l)(1) limitation on excess business losses of noncorporate taxpayers permanent. It was scheduled to expire after 2028.
Clean energy incentives
The bill terminates a large number of clean energy tax incentives:
- Sec. 25E previously owned clean vehicle credit (terminates after Sept. 30, 2025);
- Sec. 30D clean vehicle credit (terminates for vehicles acquired after Sept. 30, 2025);
- Sec. 45W qualified commercial clean vehicle credit (terminates after Sept. 30, 2025);
- Sec. 30C alternative fuel vehicle refueling credit (terminates after June 30, 2026);
- Sec. 25C energy-efficient home improvement credit (terminates after Dec. 31, 2025);
- Sec. 25D residential clean energy credit (terminates for expenditures made after Dec. 31, 2025);
- Sec. 179D energy-efficient commercial buildings deduction (terminates for property the construction of which begins after June 30, 2026);
- Sec. 45L new energy-efficient home credit (terminates after June 30, 2026);
- Sec. 45V clean hydrogen production credit (terminates after Jan. 1, 2028); and
- Sec. 6426(k) sustainable aviation fuel credit (terminates after Sept. 30, 2025).
The Sec. 168(e)(3)(B)(vi) provision allowing cost recovery for certain energy property and qualified clean energy facilities, property, and technology will be terminated after Dec. 31, 2025, for energy property and after the date of enactment for qualified clean energy facilities, property, and technology.
The bill places restrictions on claiming the Sec. 45U nuclear power production credit for foreign entities and for facilities that use imported nuclear fuel.
The Sec. 45Y clean electricity production credit is terminated for wind and solar facilities placed in service after Dec. 31, 2027. No credit will be allowed to facilities that are owned or controlled by certain foreign entities. The Sec. 48E clean electricity investment credit is also terminated for wind and solar facilities placed in service after Dec. 31, 2027. Restrictions are also placed around claims by facilities owned or controlled by certain foreign entities.
The Sec. 45Z clean fuel production credit is extended through 2029, and prohibitions are placed on the use of foreign feedstocks.
International Tax Provisions
Foreign tax credit limitation: The Senate Finance Committee version of the bill would have limited the deductions of a U.S. shareholder allocable to income in the global intangible low-tax income (GILTI) category when determining its foreign tax credit limitation. It would also have modified the determination of deemed paid credit for taxes properly attributable to tested income and change the rules for sourcing certain income from the sale of inventory produced in the United States. The adopted bill revises that provision and treats those deductions as allocable to “net CFC tested income” (which is what the bill turns GILTI into, see below).
Deemed paid credit: The bill amends Sec. 960(d)(1) to increase the deemed paid credit for Subpart F inclusions from 80% to 90%.
GILTI and FDII: The bill decreases the Sec. 250 deduction percentage for tax years beginning after Dec. 31, 2025, to 33.34% for foreign-derived intangible income (FDII) and 40% for GILTI, resulting in an effective tax rate of 14% for both FDII and GILTI. The bill also proposes changing the definition of deduction-eligible income for purposes of determining FDII. The bill also eliminates the use of a corporation’s deemed tangible income return for determining FDII and the use of net deemed tangible income return in determining GILTI. These changes result in the elimination of the terms FDII and GILTI, which will be renamed “foreign-derived deduction eligible income” and “net CFC tested income,” respectively.
BEAT: The bill increases the base-erosion and anti-abuse tax (BEAT) rate from 10% to 10.5% (the Senate Finance Committee version would have increased it to 14%). Other BEAT changes that were included in the Senate Finance Committee version have been eliminated.
Business interest limitation: The bill provides that the Sec. 163(j) business interest limitation will be calculated prior to the application of any interest capitalization provision.
Remedies against unfair foreign taxes: The provision of the Senate Finance Committee version of the bill that would have enacted a new Sec. 899 to impose increased rates of tax (up to 15%) on certain affected taxpayers connected to countries that are deemed to impose unfair foreign taxes was dropped from the final bill.
Administrative Provisions and Excise Taxes
Third-party network transaction reporting threshold: The bill reverts to the prior rule for Form 1099-K reporting, under which a third-party settlement organization is required to report, unless the aggregate value of third-party network transactions with respect to a participating payee for the year exceeds $20,000 and the aggregate number of such transactions with respect to a participating payee exceeds 200.
Form 1099 reporting threshold: The bill increases the information-reporting threshold for certain payments to persons engaged in a trade or business and payments of remuneration for services to $2,000 in a calendar year (from $600), with the threshold amount to be indexed annually for inflation in calendar years after 2026.
Firearms transfer tax: The bill reduces the Sec. 5811 transfer tax on certain firearms.
Farmland sales: The bill adds a new Sec. 1062 that allows income tax resulting from the sale of farmland to a qualified farmer to be paid in four annual installments. This is a new provision.
Remittance transfer tax: The bill imposes a 1% tax on “remittance transfers,” imposed on the sender. A remittance transfer for these purposes is a transfer of cash, a money order, a cashier’s check, or similar physical instrument. It does not include funds withdrawn from an account held with a financial institution or charged to a credit or debit card.
Under Section 919(g) of the Electronic Fund Transfer Act, a remittance transfer is an electronic transfer of funds requested by a sender to a designated recipient that is initiated by a remittance transfer provider. A remittance transfer provider is any person or financial institution that provides remittance transfers for consumers in the normal course of its business, whether or not the consumer holds an account with the financial institution.
Employee retention credit enforcement: The bill requires employee retention credit (ERC) promoters to comply with due diligence requirements with respect to a taxpayer’s eligibility for (or the amount of) an ERC. The bill applies a $1,000 penalty for each failure to comply. It also extends the penalty for excessive refund claims to employment tax refund claims. It also prevents the IRS from issuing any additional unpaid claims under Sec. 3134, unless a claim for a credit or refund was filed on or before Jan. 31, 2024.
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