The new legislation permanently reinstates 100% bonus depreciation for property placed in service on or after Jan. 19, 2025.

Takeaway: With 100% bonus depreciation  being restored, consider significant fixed asset purchases in 2025 from previously delayed fixed asset purchases in 2024. 

The new legislation allows for 100% bonus depreciation on the adjusted basis of qualified production property. Qualified production property is non-residential real property which is 1) used by the taxpayer as an integral part of a qualified production activity, 2) is located in the U.S., 3) original use begins with the taxpayer, and 4) the construction of the property begins after Jan. 19, 2025 and before Jan. 1, 2029.

 

The new legislation increases the maximum amount of Section 179 expense to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. The amounts will be adjusted for inflation annually, and the new legislation applies to property placed in service for tax years beginning after Dec. 31, 2024.

Takeaway: Consider these new thresholds – along with the changes to bonus depreciation including the new Qualified Production Property – when analyzing fixed asset purchases and placed-in-service dates for projects. Individual tax return factors should also be considered when evaluating Section 179 considerations. 

The new legislation restores the computation of ATI to exclude depreciation, amortization, and depletion for taxable years beginning after Dec. 31, 2024. In addition, the new legislation would exclude subpart F, GILTI inclusions, and Section 78 gross-ups from ATI. 

Takeaway: With the calculation of ATI going back to pre-2022 rules, make sure that any interest limitation calculation is updated for 2nd, 3rd or 4th quarterly estimates or 2025 year-end projections (assuming a calendar year-end taxpayer). Review debt agreements and consider refinancing. 

H.R. 1: The new legislation provides a new ordering rule. It requires that the Section 163(j) limitation is calculated prior to the application of any interest capitalization provision, defined as interest which is 1) required to be charged to capital account or 2) may be deducted or charged to capital account.

 

The new legislation provides restoration of immediate deductibility for domestic R&D costs paid or incurred in such taxable years beginning after Dec. 31, 2024. Additionally, small business taxpayers (average annual gross receipts <$31 million) will be permitted to apply this retroactively to 2022 tax years via an election. In addition, the new legislation would permit all taxpayers to accelerate over a one- or two-year period beginning with the taxpayer’s first tax year beginning after Dec. 31, 2024, the deductions for unamortized domestic R&E expenditures that were capitalized after Dec. 31, 2021, and before Jan. 1, 2025. Foreign R&D costs will still need to be capitalized and amortized over a 15-year period. The new legislation also provides rules on the coordination of deducting domestic R&D expenses with the research credit.

Takeaway: Consider the footprint of the business’s R&D work. With the ability to deduct domestic Section 174 costs available for 2025, consider conducting research domestically rather than abroad, if possible. Also, consider the possible method change opportunities available for the unamortized R&D costs incurred in 2022, 2023, and 2024.

 

The new legislation expands the types of contracts that are eligible to be exempt from the percentage of completion method to cover all “residential construction contracts” as opposed to just “home construction contracts.” 

Takeaway: Certain taxpayers such as apartment/condo building developers should evaluate their current revenue recognition method and determine if they are able to switch to the completed contract method on projects going forward.  

The new legislation states that effective for tax years beginning after Dec. 31, 2025, corporate charitable deductions will be limited when total contributions exceed 1% but do not exceed 10% of the corporation’s taxable income. Contributions that exceed this threshold may be subject to disallowance, although certain carryforward provisions will apply to those disallowed amounts.

 

The new legislation establishes a permanent Qualified Opportunity Zone (QOZ) policy, whereby rolling 10-year QOZ designations with lowered substantial rehabilitation test from 100% to 50% for rural Opportunity Zones will begin on Jan. 1, 2027. Rules that closely mirror those used for the original designations will be utilized; however, additional revisions include new definitions for low-income communities (LICs), updated basis step-up levels based on the holding duration of the investment, and the creation of a new qualified rural opportunity fund (QROF). Additionally, new reporting requirements will be established.

The new legislation didn’t repeal this “work around” or provide any new restrictions for taxpayers.

Takeaway: The new legislation establishes that PTET remains a viable strategy for owners of pass-through entities to potentially reduce their federal tax burden by sidestepping the SALT cap. 

 

The new legislation provides that no Employee Retention Credit (ERC) claims filed after Jan. 31, 2024, will be paid, and would also extend the statute of limitations period to six years for IRS ERC-related assessments.

 

The new legislation permanently extends the New Markets Tax Credit at $5 billion in annual allocation. 

The new legislation will permanently increase the state housing credit ceiling by 12%. Additionally, the tax-exempt bond financing requirements will be reduced from 50% to 25% for projects financed by bonds starting in 2026.

The new legislation retains the post-2025 elimination of the business expense deduction for employer-provided meals (including company cafeteria or executive dining rooms) that are excludable from an employee’s income under Section 119(a) and for food and beverages that qualify as de minimis fringe benefit to the employee under Section 132(e).  However, there are a few very limited exceptions under Section 274 and one exception under Section 274(o) amended by the OBBB.

Takeaway: Taxpayers should consider adjusting their budgets to account for the loss of deductions, potentially reallocating funds to other employee benefits.

 

The new legislation renames the GILTI regime “Net CFC Tested Income Regime” and will make permanent a 40% deduction (down from the prior law of 50%) for global intangible low-taxed income (GILTI), resulting in a sustained effective tax rate of 14% on such income (after considering the GILTI FTC “haircut” change that goes from 20% to 10%). Net CFC tested income will no longer include a tax shield for a 10% return on Qualified Business Asset Investment (QBAI).

 

The new legislation renames FDII to FDDEI and will make permanent a 33.34% deduction (down from the prior law of 37.5%) for FDDEI, resulting in a sustained effective tax rate of 14% on such income. QBAI has been removed from the FDII calculation.

 

The new legislation will make permanent the following BEAT rates: 10.5% for most corporations (up from a previous 10%). It would also preserve the existing treatment of tax credits, repealing the post-2025 changes that would have increased the BEAT rate and limited the ability to offset regular tax liability with income tax credits.

 

The new legislation made substantial changes to the IRA clean energy credits. See a summary of the changes below. 

The new legislation increases the advanced manufacturing investment credit from 25% to 35% for property placed in service after Dec. 31, 2025 (Section 48D). 

 

The following provisions will be repealed on Sept. 30, 2025:

- Credit for previously owned clean vehicles (Section 25E) 

- Clean vehicle credit (Section 30D)

- Credit for qualified commercial clean vehicles (Section 45W)

 

The following provisions will be repealed on Dec. 31, 2025:

- Energy efficient home credit (25C)

- Residential clean energy credit (25D)

 

The following provisions will be repealed on June 30, 2026:

- Alternative fuel refueling property credit (30C)

- Energy Efficient Commercial Buildings Deduction (179D)

- New Energy Efficient Home Credit (45L)

 

Other miscellaneous credits:

- Zero-Emission Nuclear Power Production Credit (45U) - The credit is maintained but with a prohibition on foreign entities beginning for tax years commencing two years after enactment. 

- Clean Hydrogen Production Credit (45V) - Terminates for facilities beginning construction after December 31, 2027.

- Clean Electricity Production Credit (45Y) - The credit would be eliminated for wind and solar projects that begin construction after one year from the enactment of the OBBB and are not placed in service before Jan. 1, 2028. The rules around “Begun Construction” which historically have come out in the form of IRS Notices were added to the Code with a reference for parameters around determination of Begun Construction being tied back to the rules in IRS Notice 2013-29 and IRS Notice 2018-59 (and subsequently issued guidance).

- Clean Electricity Investment Credit (48E) - Follows same credit elimination timing as the Clean Electricity Production Credit under Section 45Y. Placed in service deadline does not apply to energy storage technology. The domestic content requirements under 48E were revised to match those in 45Y.

- Advanced Manufacturing Production Credit (45X) - Phased out starting 2030 (down to zero after Dec. 31, 2032) based on the date that eligible components are sold.

- Clean Fuel Production Credit (45Z) - The credit is now capped at $1.00 per gallon (including for sustainable aviation fuel) with some minor exceptions produced after Dec. 31, 2025. Credit elimination extended to Dec. 31, 2029.

- Carbon Sequestration Credit (45Q) - Updated base rates for direct air capture and for carbon reuse and enhanced oil recovery.

 

Note: For all credits, the new legislation adopts new restrictions based on “prohibited foreign entities” and “foreign-influenced entities.” Transferability of the above credits is maintained until their respective repeal dates except that transfers would be prohibited to a specified foreign entity.

 

The new legislation would maintain five-year MACRS for purposes of Section 48E (Clean Electricity Investment Tax Credit) or Section 45Y (Clean Electricity Production Tax Credit) assets.

 

The new legislation allows individuals to claim a federal income tax deduction up to $25,000 for qualified tips for individuals with a modified adjusted gross income of $150,000 or less ($300,000 for joint filers),received between 2025 and 2028. The deduction will be reduced by $100 for each $1,000 above the adjusted gross income levels mentioned above. The deduction is available only to individuals with a valid Social Security number. This deduction is available to non-itemizers.

Takeaway: Certain taxpayers in industries traditionally compensated with tips could expect a reduced tax liability in 2025 through 2028. 

The new legislation allows a federal income tax deduction up to $12,500 for qualified overtime compensation received by an employee for individuals with a modified adjusted gross income of $150,000 or less ($300,000 for joint filers), received between 2025 and 2028. The deduction will be reduced by $100 for each $1,000 above the adjusted gross income levels mentioned above. The deduction is available only to individuals with a valid Social Security number. This deduction is available to non-itemizers.

 

The new legislation allows a federal income deduction, beginning in 2025, up to $10,000 per year in interest paid on loans for vehicles assembled in the U.S. for individuals with a modified adjusted gross income of $100,000 or less ($200,000 for joint filers). The deduction will be reduced by $200 for each $1,000 above the adjusted gross income levels mentioned above. The deduction applies to vehicles under 14,000 pounds and is available regardless of whether the taxpayer itemizes deductions. Limitations and phase-outs apply.

Takeaway: Certain qualifying taxpayers could have an increase in their itemized deductions that would reduce overall tax liability in 2025 and possibly future tax years. 

The new legislation raises the state and local tax (SALT) deduction cap from $10,000 to $40,000 in 2025 and $40,400 in 2026 for individuals with a modified adjusted gross income of $500,000 or less, beginning in 2025 through 2033 with increases to the deduction and AGI threshold annually. 
Takeaway: The increased SALT cap goes into effect in 2025 so consider revisiting projected 2025 tax toward the end of the year to assess if there is a benefit to prepaying 2025 Q4 estimates by Dec. 31, 2025.

Learn more

 

Although the Pease limitation, the current overall limitation, will be eliminated, it will be replaced by a new limitation whereby itemized deductions will be limited to an effective tax rate of 35%.  

Takeaway: While the increase in the SALT deduction would give taxpayers in high tax jurisdictions a benefit, the benefit of a marginal dollar of additional deduction is limited relative to the tax on a marginal dollar of income at the top tax rates.

The new legislation makes the deduction of qualified business income permanent at 20%, expands the deduction limit phase-in range, eases the impact of limitations for pass-through entities subject to the wage and investment limitation, and introduces an inflation-adjusted minimum deduction for certain taxpayers.

Takeaway: Owners of and investors in businesses may see an increase in their QBI deduction. Owners of and investors in certain specified service trades or businesses (SSTBs) may see an increased deduction under the new legislation as the deduction for SSTBs is not phased out as quickly.

The new legislation makes the Section 461(l) permanent and any excess business losses disallowed in tax years beginning after Dec. 31, 2024, would retain the current law and be classified as NOLs in subsequent years.

 

The new legislation modifies the QSBS gain exclusion by providing a tiered gain exclusion for QSBS acquired after the date of enactment. In particular, the provision allows a 50% exclusion after three years, 75% after four years and 100% after five years. Also, the new legislation increases the per-issuer dollar cap to $15 million for post-enactment shares, indexed to inflation beginning in 2027. For stock issued after the applicable date, the corporate-level aggregate-asset ceiling is increased to $75 million, indexed to inflation beginning in 2027. The provision is generally effective for stock issued or acquired, and to taxable years commencing, on or after the date of enactment.

 

The new legislation makes permanent and expands the partial deduction for charitable contributions of individuals who do not elect to itemize. The amounts are increased from $300 ($600 jointly) to $1,000 ($2,000 jointly). In addition, a new deduction floor is created at 0.5% of the individual's base (i.e., AGI) for the taxable year for taxpayers that itemize. Finally, there are specific requirements on how to apply the new deduction floor in Section 170. These changes shall apply to taxable years beginning after Dec. 31, 2025.

 

The lifetime unified gift/estate tax exemption under the new legislation will be increased to $15 million, linked to inflation for future increases.

Takeaway: This largely represents a continuation of the status quo relative to the lifetime exemption today. Individuals with estates at or above the lifetime exemption may be able to make additional gifts or contribute additional amounts to trusts. Individuals should consider reviewing their estate plan to make sure it meets their needs and goals.

 

The new legislation provides a new type of tax-advantaged savings account called a “Trump” account. The government would put $1,000 into an account for children born between 2025 and 2028. Parents could put up to $5,000 in cash into the account per year, which could be invested subject to certain restrictions. Taxable entities may contribute up to $5,000 annually of after-tax dollars to a Trump account, indexed for inflation.  

Takeaway: This provides another vehicle for families to save for their children’s futures in a tax-advantaged way. The tax benefits are not as strong as in a 529 plan, but the funds can be used for a wider range of activities.