On Dec. 3, 2025, the District of Columbia (DC) Legislature enacted DC Act 26-214 (Opens a new window)(Act) to decouple from significant tax provisions of the One Big Beautiful Bill Act (OBBB) with immediate effect. It was enacted without Mayor Muriel Bowser’s signature and will remain in effect for 90 days, until March 3, 2026. A follow-up temporary bill currently in the DC Legislature would temporarily extend the Act’s provisions, if passed.

Decoupling provisions

The Act decouples from the following significant OBBB tax provisions:

• IRC Section174A – Full Expensing of Domestic Research & Experimental (R&E) Expenditures

For tax years beginning after Dec. 31, 2021, R&E expenses must be amortized over a five-year period for DC purposes. Unlike IRC Section174A enacted under the OBBB allowing for the full deduction of such expenditures incurred after Dec. 31, 2024, the Act continues to require such amounts be amortized over a five-year period for District tax purposes. Furthermore, DC does not conform to the retroactive R&E deduction election for small business taxpayers under IRC Section 174A(f)(1), nor the election to deduct unamortized R&E expenditures under IRC Section 174A(f)(2).

• IRC Section 163(j) – Increase of the Business Interest Deduction Limitation

In determining taxable income for purposes of calculating the IRC Section 163(j) business interest deduction limitation for DC tax purposes, depreciation, amortization, and depletion deductions will continue to be included in the 30% adjusted taxable income limitation amount. This will generally reduce taxable income relative to the federal calculation as well as the corresponding interest deduction. Additionally, the 100% federal deduction for floor plan financing interest will not apply for DC purposes.

• IRC Section 168(n) – 100% Depreciation for Qualified Production Property Placed in Service

DC currently does not conform to the historic bonus depreciation deduction under IRC Section 168(k). The Act would extend such decoupling to the OBBB-specific special depreciation for qualified production property under IRC Section 168(n). Furthermore, the IRC Section 179 deduction will continue to be limited to $25,000 for DC purposes.

Additionally, the Act includes the following changes effective for tax years beginning after Dec. 31, 2024:

• Clarified criteria for Qualified Opportunity Fund (QOF) benefits for amounts invested in an QOF after Dec. 31, 2026.
• Disallowance of charitable contribution deduction permitted under IRC Section 170(p) for individuals/estates/trusts who claimed the standard deduction.
• Disallowance of exclusion for gain from certain small business stock under IRC Section 1202(a).

What does CohnReznick think? 

DC is the latest tax jurisdiction to decouple from significant income tax provisions of the OBBB. While only effective for 90 days as an emergency bill, a forthcoming temporary bill may extend the provisions’ shelf life by 225 days, assuming a permanent bill is not passed in the interim. 

Taxpayers should continue to monitor states’ OBBB conformity, and make sure treasury, financial reporting and tax reporting functions are prepared to respond to future state legislation. For further information, see CohnReznick’s alert (Opens a new window)on the state tax impact of OBBB.