As 2026 approaches, tax planning has taken on new urgency. The recently enacted OBBB legislation has reset several significant provisions that affect both businesses and individuals; from bonus depreciation and research expenses to interest limitations, charitable deductions, and international tax rules. While many of these updates simplify long-standing challenges, others introduce new layers of timing, documentation, and cross-jurisdictional complexity. And as is often the case, the point where federal and state rules intersect is where taxpayers will feel the most significant friction.

For organizations preparing for year-end and looking ahead to 2026, the tax landscape is shifting quickly. Understanding the mechanics, effective dates, and potential opportunities within these changes will be critical for modeling taxable income, planning capital projects, revisiting entity structures, and aligning international and individual strategies before the next filing season begins.

Reassessing Fixed Assets in a 100% Bonus Depreciation Environment

One of the most consequential updates in the new law is the restoration of 100% bonus depreciation, generally effective for property placed in service on or after Jan. 19, 2025. While this change brings back a familiar planning tool, timing remains critical. Property acquired in 2024 or projects that began before the Jan. 19 effective date may still fall under the reduced 60% or 40% bonus regimes. Written binding contract rules and “begun construction” standards will play a decisive role in determining eligibility.

As taxpayers adjust to this expanded benefit, two long-standing strategies continue to deliver value. Cost segregation studies remain a powerful way to move assets into shorter recovery periods and accelerate deductions often with meaningful state-level advantages due to reduced addbacks. Meanwhile, Tangible Property Regulations (TPR) analyses continue to help companies distinguish deductible repairs from depreciable improvements, particularly for renovation projects.

A new incentive, Qualified Production Property (QPP), adds another dimension. QPP allows 100% deduction of construction costs for qualifying U.S. facilities.
From foundations and roofs to interior buildouts, provided they meet specified timing, location, and usage requirements. Because this deduction can apply across multi-year projects, consistent documentation is essential. With the right records in place, companies may uncover significant deductions they previously could not access.

Small and mid-sized businesses will also benefit from the enhanced Section 179 thresholds, which increase the deduction limit to $2.5 million and the asset phase-out threshold to $4 million. This change gives smaller taxpayers more flexibility when deciding whether to expense or capitalize fixed asset investments.

Section 174: The Return of Domestic Expensing

Beginning in 2025, domestic Section 174 research and experimental (R&E) costs once again become fully deductible. Foreign R&E, however, will remain capitalized and amortized for over 15 years. This shift reopens a key planning opportunity for companies that invest heavily in domestic innovation.
Equally important is the ability to recover 174 unamortized amounts from 2022 through 2024. Taxpayers may deduct these remaining balances on the 2025 return either all at once or split between 2025 and 2026. Small businesses with average receipts of around $31–32 million may even file amended returns to claim refunds for earlier years. Because Section 174 interacts closely with businesses should model several multi-year scenarios before finalizing their approach.

Section 1202: A Timely Moment for Re-Evaluation

The new law also introduces significant adjustments to Qualified Small Business Stock (QSBS) under Section 1202 that expands this opportunity to more taxpayers. While the full impact will become clearer as guidance is issued, taxpayers may benefit from reviewing eligibility, entity structure, holding periods, and potential state conformity concerns now. Given how quickly QSBS benefits can compound, early review may position taxpayers to take advantage of expanded opportunities once the rules are fully clarified.

Interest Expense and Charitable Deduction Limits: Preparing for New Rules

Starting in 2025, interest expense limitation calculations under Section 163(j) revert to an EBITDA-based standard, enabling many businesses to deduct more interest than under the EBIT framework. The law also establishes a new ordering rule, requiring Section 163(j) to apply before any required capitalization of interest or elective capitalization of interest into certain assets such as inventory and/or receivables. This closes a prior planning opportunity and takes effect Jan. 1, 2026.

Charitable contributions will also operate differently. For corporations, the traditional 10% cap remains in place, but a new 1% floor based on taxable income applies before deductions may be claimed. Because the interaction between this floor and other deduction limits remains unsettled, organizations should review donation timing and amounts with more scrutiny than in past years.

State Conformity: One Change, Fifty-One Different Outcomes

While federal changes grab headlines, state conformity will drive the actual tax impact for many businesses in 2025. States vary widely in how and when they update their conformity statutes. Many will not address the new federal changes until their 2026 legislative sessions, leaving taxpayers to file 2025 returns under a patchwork of guidance.

Early state reactions illustrate the range of responses:

• Alabama allows full deduction of R&E costs after Jan. 1, 2024.
• Maryland has decoupled from R&E expensing, QPP, and Section 163(j) for 2025.
• Michigan decoupled from several major provisions and broadened PTET flexibility.
• New Jersey will begin conforming to Section 1202 in 2026.
• Rhode Island decoupled from immediate R&E expensing.

Given this divergence, businesses must closely track state actions, map their footprint, and document applicable differences to avoid unexpected state-level adjustments.

Pass-Through Planning in a Changing SALT Environment

For individuals, the SALT deduction cap increases to $40,000 for 2025, with annual increases of 1% through 2029 before reverting to the $10,000 cap in 2030. A 30% phase-out begins at $500,000 of modified AGI, ensuring that high-income taxpayers may see only a limited benefit.

Because the expanded SALT deduction will still phase out for many high-income earners, the Pass-Through Entity Tax (PTET) regime remains essential. With 36 states (plus New York City) offering PTET workarounds, taxpayers should review PTET elections annually as eligibility, sunset dates, taxable income rules, and credit mechanisms vary widely across the various jurisdictions.

International Tax: Preparing for the Shift to Net CFC Tested Income (NCTI)

International operations face a few changes beginning in 2026, when GILTI transitions to NCTI. Among the most notable updates:

• The Section 250 deduction decreases from 50% to 40%.
• The deemed paid foreign tax credit increases from 80% to 90%.
• The 10% DTIR on QBAI is eliminated, potentially increasing inclusions for capital-intensive CFCs.

At the same time, Foreign-Derived Intangible Income (FDII) likely becomes more favorable because R&D expense and interest expense allocations are no longer required, and the 10% DTIR on QBAI threshold is eliminated. These two changes will likely more than offset the new reduced FDII deduction rate, which decreases from 37.5% to 33.34% starting Jan. 1, 2026.

Finally, U.S. exporters should also review the IC-DISC regime. IC-DISC entities should be established before the tax year begins, to ensure a full year’s export tax benefit for 2026. Companies that manufacture, produce, grow, or extract tangible goods in the U.S. for sale or ultimate use outside the U.S. are prime candidates.

Individual Planning: Navigating a New Set of Rules

Individual taxpayers face several meaningful shifts:

• Effective tax year 2025, for itemized taxpayers the SALT deduction increases to $40,000 with a phase-out that begins at $500,000 for married filing joint taxpayers and completely phase out at $600,000
• A new 0.5% charitable floor applies to contributions made after Dec. 31, 2025.
• Qualified Business Income (QBI) rules expand phase-in ranges including specified services businesses and introduced a minimum deduction of QBI $400 for taxpayers with at least $1,000 of qualified business income.
• The federal estate and gift tax exemption and GST exemption is increased permanently to $15 million per individual ($30 million per married couple) beginning Jan. 1, 2026, and increased for inflation for years after 2026. However, there are states that did not conform to this Federal change, and therefore the state-level exemption may remain significantly lower.

These changes make coordinated individual and business planning more critical than ever.

Planning Priorities for 2025–2026

• Model multi-year interactions of Sections 174, 163(j), and 1202.
• Review capital projects, binding contracts, and cost segregation opportunities early.
• Evaluate QPP qualification across multi-year construction timelines.
• Monitor state conformity and PTET legislation closely.
• Reassess international structures for the CFC Tested Income and FDII transition.
• Align charitable giving, QBI benefits, and estate planning with new effective dates.

For a deeper dive into planning priorities for the remainder of 2025 and 2026, watch our webinar.