You have probably heard of the “One Big Beautiful Bill Act” which recently passed Congress and was signed by the President. This law has far-reaching effects in taxation for individuals, businesses, and beyond. This month we’re taking a close look at the key changes, so that you can see how you might be affected by them.

In this article, we take a close look at the tax provissions that affect business taxation.

Bonus depreciation: The act 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 act 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 act 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 act 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 act 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 act, Sec. 45S is amended to make the employer credit for paid family and medical leave permanent.

Special depreciation allowance for qualified production property: The act 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 act, the advanced manufacturing investment credit rate increases from 25% to 35%, effective for property placed in service after Dec. 31, 2025.

Spaceports: The act 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.

Employer-provided child care credit: The act 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 act 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 act makes the Sec. 45D new markets tax credit permanent.

Percentage-of-completion method: The act 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 act’s enactment.

Qualified small business stock: The act increases the Sec. 1202 exclusion for gain from qualified small business stock. For qualified small business stock acquired after the date of enactment of the act and held for at least four years, the percentage of gain excluded from gross income will rise from 50% to 75%. If it is held for five years or more, the exclusion percentage will go up to 100%.

Excess business losses: The act 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 act 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 act 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.

This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.