Business Provisions in the One Big Beautiful Bill Act of 2025

Last week, we provided a general overview of the major tax provisions of the One Big Beautiful Bill (OBBB), which was signed into law on July 4, 2025. Today, we delve deeper into the specific business tax provisions. As with any form of sweeping tax legislation, there are still many questions regarding the specifics of these provisions, and as such we would alert readers that there may be a technical corrections bill in the next 90 days to address these concerns. Our team will continue to monitor updates and provide answers and solutions as they become available.

In this article, topics include:

• Qualified Business Income (QBI) Deduction (Section 199A)
• Limit on Business Interest Deduction
• Bonus Depreciation & Sec. 179
• 100% Depreciation for Real Property Used for Producing Tangible Personal Property
• Research and Development (R&D) Expensing
• Qualified Small Business Stock (QSBS)
• Charitable Contributions for Corporations
• 1099 Reporting
• Estate and Gift Tax Exemption

Qualified Business Income (QBI) Deduction (Section 199A)

The 20% QBI deduction for pass-through entities (S corporations, partnerships, and sole proprietorships) is made permanent. There is also a new minimum deduction of $400 for active business owners with at least $1,000 in QBI, starting in 2026. The Act increased the phase in threshold for single filers from $50,000 to $75,000 and joint filers from $100,000 to $150,000, which will allow more taxpayers to take advantage of the deduction.  QBI was originally scheduled to sunset at the end of 2025.

Limit on Business Interest Deduction

The limitation on the deductibility of business interest reverts to the more relaxed rule that was in effect between 2017 and 2022 (generally, 30% of EBITDA).  For tax years beginning after December 31, 2021, depreciation and amortization deductions were not added back to tentative taxable income when calculating ATI. This effectively made ATI a tax-adjusted “EBIT” (Earnings Before Interest and Taxes) measure. This change generally resulted in a smaller ATI, and consequently, a lower allowable business interest deduction for many businesses. This is an important modification based on the next change we’ll discuss.

Bonus Depreciation & Sec. 179

The OBBB permanently reinstates 100% bonus depreciation for eligible business property acquired and placed in service after January 19, 2025. This allows businesses to deduct the full cost of qualifying assets in the year they are placed in service, encouraging investment. For property acquired or subject to a binding contract before January 20, 2025, the original phase-down schedule applies (i.e., 40% for 2025, 20% for 2026).

• Increased Sec. 179 Expensing Limits – The Act increases the statutory expensing limit to $2,500,000 and increases the phase-down threshold to $4,000,000. This is effective for property placed in service in tax years beginning after December 31, 2024. For comparison, in the 2024 tax year, the maximum Section 179 expense deduction was $1,220,000 with a basis threshold of $3,050,000.

100% Depreciation for Real Property Used for Producing Tangible Personal Property

The Act allows for a temporary, elective, 100% expensing provision for certain newly constructed nonresidential real property used in qualified production activities. This provision applies to property where construction began after January 19, 2025, and before January 1, 2029, and is placed in service by the end of 2030. Qualified production activities, in general, include the manufacturing, production, and refining of tangible personal property within the United States, excluding agricultural and chemical production. It is important to note if a construction contractor builds a general commercial or office building for rental purposes (e.g., an office complex, a retail strip mall), these properties are not generally used for manufacturing, production, by the owner/taxpayer and therefore would not qualify for 100% deduction.

Research and Development (R&D) Expensing

The ability for businesses to immediately expense certain domestic research and experimental expenditures (rather than amortize them over five years) is restored. For taxable years beginning after December 31, 2024, The Act repeals the requirement to capitalize and amortize domestic R&D expenditures and instead allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred during the taxable year. However, expenditures attributable to foreign research must still be capitalized and amortized over 15 years.

Taxpayers who previously capitalized and amortized domestic R&D costs under the prior law are given transition relief: they may elect to deduct any remaining unamortized domestic R&D expenditures in the first taxable year beginning after December 31, 2024, or alternatively, deduct such remaining unamortized amounts ratably over the two taxable years beginning after that date.

This election is available to all taxpayers, but the bill provides a special retroactive option for certain small businesses, allowing them to apply the new expensing rules retroactively to taxable years beginning after December 31, 2021, by filing amended returns within one year of enactment. This retroactive relief is not available to large taxpayers, who must apply the new rules prospectively. We recommend working with your tax advisors to determine the most suitable approach. Given current IRS staffing levels, the processing of amended returns may take considerable time, so it may be more practical to claim the deduction in 2025. We are currently awaiting guidance on how to proceed for taxpayers who have filed extensions in 2024. 

Qualified Small Business Stock (QSBS)

The tax benefits associated with QSBS are significantly enhanced. This includes a new three-tiered capital gain exclusion (50% for 3+ years, 75% for 4+ years, 100% for 5+ years), an increased maximum capital gain exclusion from $10 million to $15 million per issuer, and an increase in the aggregate gross asset test for QSBS eligibility from $50 million to $75 million. These changes apply to QSBS issued after July 4, 2025. Historically, QSBS had to be held for more than five years from the date of original issuance to qualify for the gain exclusion.

Charitable Contributions for Corporations

The deduction for corporate charitable contributions is limited to amounts exceeding 1% of modified taxable income, with a cap at 10% of modified taxable income.

1099 Reporting

Payments to non-employees for personal services must be reported on an “information return,” commonly called a Form 1099-NEC, if the payment is $600 or more in a calendar year. Beginning in 2026, the new Act increases the $600 threshold to $2,000, which will then be adjusted for inflation beginning in 2027.

Estate and Gift Tax Exemption

The higher lifetime gift and estate tax exemption (initially doubled by the TCJA) is made permanent and increased to $15 million per person ($30 million per married couple) starting in 2026, with annual inflation indexing. This provides more certainty for wealth transfer planning. The estate and gift tax exemption was scheduled to sunset at the end of 2025 to its pre-2018 level to around $5-6 million per person.

We will continue this series on the One Beautiful Bill Act of 2025 next week. As always, should you have questions on this or other matters affecting you or your business, please call 215.675.8364 or email us today.

DISCLAIMER: All communications by Wouch, Maloney & Co., LLP intend to provide general information, as of the date of the communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, of the information provided. Please be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.