Congress passes tax bill addressing TCJA extensions and business tax relief

Executive summary: Tax reform will deeply affect business strategy and wealth planning

Congress on July 3 passed Republicans’ taxation-and-spending bill, including a broad package of tax benefits and revenue raisers that will affect virtually every business and individual in the country. The bill commonly known as the One Big Beautiful Bill Act (OBBBA) is one of the most significant pieces of federal tax legislation since the Tax Cuts and Jobs Act of 2017 (TCJA).

Key tax items in the tax bill:

• Make permanent many provisions of the TCJA
• Restore favorable tax treatment of various business provisions
• Change the international tax framework substantially
• Curb clean energy business tax incentives

President Donald Trump is expected to sign it into law on July Fourth. Business and individual taxpayers should work with their advisors to understand how this tax legislation could affect their cash flows, tax obligations and corresponding business or wealth objectives.

Congress passes tax bill containing extensive package of tax changes and revenue raisers.

Congress on July 3 passed a broad taxation-and-spending package that includes new and extended tax benefits for businesses and individuals, various tax modifications, as well as some revenue raisers.

Below is a rundown of key tax provisions in the OBBBA.

Business taxation in the One Big Beautiful Bill Act

The OBBBA includes tax changes with wide-ranging business implications. Most notably, it restores favorable tax treatment of several types of business expenses. Areas of focus and the corresponding provisions include:

• Capital expenditures and investments: Reinstates 100% expensing of qualified assets in the year they were put into service—also known as bonus depreciation—for property acquired beginning Jan. 20, 2025. The provision is permanent. Another provision expands the scope of qualified assets to cover manufacturing buildings, but only for buildings placed in service before Jan. 1, 2031.
• Business interest: Restores TCJA’s original, more favorable EBITDA-type calculation of the business interest deduction limit for tax years beginning in 2025. The provision is permanent. It also provides specific rules for how the business interest expense limitation interacts with other tax provisions that capitalize interest.
• Innovation and research and development: Allows for immediate expensing of domestic research costs, while providing an ability to accelerate the remaining unamortized amounts of previously capitalized research costs incurred in 2022 through 2024. The provision is permanent.
• Pass-through businesses: Makes permanent the section 199A qualified business income deduction, with no change to the current 20% deduction percentage. Additionally, the bill expands the limitation phase-in window from $50,000 for single filers ($100,000 for married filing jointly) to $75,000 for single filers ($150,000 for married filing jointly). The new itemized deduction threshold does not impact determination of deduction for QBI purposes.
• Charitable contribution deduction: Instates a 1% floor on corporate charitable deductions, allowing deductions only for contributions exceeding 1% of taxable income. It also adds a 0.5% floor for individual itemizers.
• Employer-provided meals: Amends the TCJA rule, effective for 2026, that will disallow deductions for various expenses related to on-premises employer-provided meals, so that certain businesses will be exempt from the disallowance.
• Moving expenses: Permanently repeals the income exclusion and deduction, except for certain members of the Armed Forces.
• Taxable real estate investment trust subsidiaries (TRS): Increases the percentage of a REIT’s total assets that may be represented by securities of one or more TRSs from 20% to 25% effective for taxable years beginning after Dec. 31, 2025.

International taxation in the One Big Beautiful Bill Act

The OBBBA changes the U.S. international tax framework substantially by modifying certain deductions and rules that affect effective tax rates and foreign tax credits. Areas of focus and corresponding provisions include:

• Foreign tax credits (FTCs)

  • Increases deemed paid credits under section 960 from 80% to 90%
  • Disallows FTC on 10% of foreign taxes related to distributions of previously taxed income (PTEP) derived from section 951A, aligning with the increased 90% deemed paid credit. This applies to distributions made on or after June 28, 2025.
  • Limited sourcing rule applies to U.S.-produced inventory sold abroad via foreign branches to the extent the income is attributable to the foreign sales functions. Only up to 50% of such income may be treated as foreign-source.

• Global intangible low-tax income (GILTI)

  • Permanently decreases the section 250 GILTI deduction to 40%
  • Renames GILTI to “net CFC tested income” (NCTI)

• Foreign derived intangible income (FDII)

  • Permanently decreases the section 250 FDII deduction to 33.34%
  • Renames FDII to “foreign-derived deduction eligible income” (FDDEI)
  • Excludes income recognized on an outbound transfer of an intangible subject to section 367(d) and other property of a type that is subject to depreciation, amortization or deletion by the seller from deduction eligible income
  • Limits expense apportionment to properly allocable deductions, no interest or research and experimentation (R&E) included

• Base erosion and anti-abuse tax (BEAT)

  • Permanently changes the BEAT rate to 10.5%
  • Permanently continues the taxpayer-favorable status of the R&D credit, the low-income housing tax credit, the renewable electricity production credit, and the section 48 credit for BEAT taxpayers with regular tax liability
  • Maintains the current base erosion percentage threshold at 3%.

• Look-through rule

  • Makes permanent the section 954(c)(6) subpart F look-through rule for related party payments

• Specified foreign corporations (SFCs)

  • Repeals one-month deferral election under section 898(c)(2) for SFCs and provides transition rules to align taxable years with the required year

• Downward attribution

  • Restores section 958(b)(4), a pre-TCJA provision, which generally prohibits downward attribution from a foreign person for purposes of determining U.S. shareholder and CFC status
  • Introduces section 951B, which would allow “foreign controlled U.S. shareholders” to be taxed on subpart F and GILTI from a CFC based on downward attribution from a common foreign parent. A “foreign controlled U.S. shareholder” is a U.S. person that would be a U.S. shareholder if the definition of U.S. shareholder applied with a threshold of more than 50% (rather than 10% or more).

• Pro rata share inclusion rules

  • Requires pro rata subpart F income to be allocated based on actual stock ownership during the CFC’s income generating period. The bill also coordinates section 951A and section 951 pro rata rules to reflect the new income sourcing and ownership timing mechanics.

Clean energy tax credits and incentives in the One Big Beautiful Bill Act

The OBBBA curbs many clean energy tax credits and incentives that were enacted in recent years. Areas of focus and corresponding proposals include:

• Phaseout of certain credits: Accelerates the phaseout for primarily wind, solar, and electric vehicle (EV) clean energy tax incentives created or modified by the Inflation Reduction Act (IRA)

• Clean fuel producer credit: Extends the section 45Z clean fuel producer credit through Dec. 31, 2029, with modifications, including:

  • Prohibiting feedstocks other than those produced in the U.S, Canada or Mexico
  • Prohibiting negative emissions rates, except in the case of transportation fuel derived from animal manure
  • Removing indirect land use change penalties for emissions
  • Reducing the credit rate for sustainable aviation fuel and extending the SAF excise tax blender’s credit through Sept. 30, 2025 (with coordinating section 45Z rules)
  • Extending the small producer biodiesel credit through 2026
  • Directing the U.S. Department of the Treasury to issue regulations on other areas needing clarification, including sales to related persons and preventing “double credits”

• Clean hydrogen producer credit: Phases out the section 45V clean hydrogen production credit by requiring construction on facility to commence before Jan. 1, 2028

• Carbon oxide and sequestration credit: Provides parity in credit rates ($17 per metric ton base credit; $85 per metric ton if labor requirements met) for all carbon capture processes including sequestration, utilization, enhanced oil recovery operations, and direct air capture for facilities and equipment placed in service after the date of enactment

• Energy generation and storage credits: Permits credits for nuclear, geothermal and energy storage and provides an increased credit for certain advanced nuclear facilities in communities with a threshold amount of employment at such facilities

• Wind and solar investment and production credits: Ends wind and solar investment and production tax credits for facilities placed in service after Dec. 31, 2027. There is an exception for facilities that begin construction within 12 months from the date of enactment.

• Critical mineral addition to advanced manufacturing production credit: Includes metallurgical coal that is suitable for use in the production of steel as a critical mineral produced and sold before Jan. 1, 2030, for purposes of the section 45X advanced manufacturing production credit. The credit rate is 2.5% of the costs incurred by the taxpayer for production of such coal.  Additionally, the bill modifies the definition of battery module for purposes of this credit, modifies rules for integrated components, and applies restrictions related to material assistance from prohibited foreign entities.

• Energy-efficient commercial buildings: Terminates the section 179D deduction for energy-efficient commercial buildings for property the construction of which begins after June 30, 2026

• New energy efficient home credit: Terminates the section 45L credit for qualified property acquired after June 30, 2026

• Alternative fuel vehicle refueling property: Terminates the section 30C credit for property placed in service after June 30, 2026

• Qualified commercial clean vehicles credit: Terminates the section 45W credit for vehicles acquired after Sept. 30, 2025

• Transferability of clean energy credits: Generally allows taxpayers to transfer credits under section 6418 as long as the underlying credits are still available

• Clean energy provisions affecting individuals: Terminates the individual clean energy credits, including those for:

  • Electric vehicles acquired after Sept. 30, 2025
  • Residential clean energy property (including solar energy property) placed in service after Dec. 31, 2025
  • EV charging equipment placed in service after June 30, 2026

• Foreign entity of concern rules: Makes additional changes to the proposed foreign entity of concern rules applicable to most energy credits, including certain facilities where construction begins after Dec. 31, 2025

Individual taxation in the One Big Beautiful Bill Act

The OBBBA modifies and/or makes permanent several individual tax provisions that the TCJA established. Areas of focus and corresponding tax proposals include:

• Individual state and local tax deduction limitation (SALT cap): The SALT limitation is increased to $40,000 ($20,000 for married separate filers) and indexed for inflation through tax year 2029, after which the limitation would revert to $10,000 ($5,000 for married separate filers). The limitation is phased down for taxpayers with modified adjusted gross income over $500,000—under this phase down, the $40,000 limitation is reduced by 30% of the excess of modified adjusted gross income (AGI) over the threshold amount, not to be reduced below $10,000.  For tax years after 2029, the limitation returns to $10,000.
• Pass-through entity tax (PTET) elections: No new limitations are placed on pass-through entity taxes
• Excess business loss (EBL) limitations: Makes permanent the current limitations on business losses allowed to offset other income treating EBLs as net operating losses (NOLs).
• Personal income tax: Makes permanent the tax rates and brackets enacted by the TCJA effective Dec. 31, 2025, with certain inflation adjustments
• Standard deduction: Makes permanent the standard deductions enacted by the TCJA effective Dec. 31, 2025, and further increase to $15,750 for a single filer, $23,625 for a head of household filer, and $31,500 for married individuals filing jointly, adjusted for inflation for taxable years beginning after 2025
• Itemized deductions: Simplifies the overall limitation on itemized deductions. It also eliminates miscellaneous itemized deductions, except for expansion of itemized deductions for educator expenses. Creates a percentage cap on deductions for higher income individuals.
• Personal exemptions: Permanently eliminates personal exemptions other than a temporary $6,000 senior deduction for qualified individuals over the age of 65 with phaseouts for modified adjusted gross income exceeding $75,000 ($150,000 married filing jointly).
• Alternative minimum tax (AMT): Makes permanent the increased AMT exemption and phaseout thresholds, effective Dec. 31, 2025. Reverts the exemption phaseout thresholds to 2018 levels of $500,000 ($1,000,000 in the case of a joint return), indexed for inflation thereafter. Phaseouts have also been adjusted to phase out this exemption more quickly for high income taxpayers.
• Child tax credit: Makes permanent the TCJA increased child tax credit and makes permanent the additional child tax credit ($1,700 in 2025) adjusted for inflation thereafter. The nonrefundable child tax credit is increased to $2,200 effective in 2026.
• Charitable deductions: Starting in 2026, individuals who do not itemize deductions can claim a charitable deduction of up to $1,000 (or $2,000 for married couples filing jointly). For those who do itemize, charitable contributions are deductible to the extent they exceed 0.5% of AGI. The disallowed portion may be carried forward if the taxpayer has other charitable carryforwards from the year. In addition, the 60% AGI limitation for cash contributions to public charities would be made permanent.
• Tips and overtime pay: Introduces above-the-line deductions for 2025–2028 tax years, up to certain dollar amounts, for tips ($25,000 per individual) and overtime compensation ($12,500 per individual or $25,000 for joint filers), phased out at certain adjusted gross income levels.
• Individual trust accounts (Trump accounts): Creates a new type of tax-favored account designed to benefit children under age 18 for education, small business investments and first home purchases. The annual contribution limitation to the accounts would be $5,000. This provision also includes a one-time government funded $1,000 deposit for qualifying children born between Dec. 31, 2024, and Jan. 1, 2029, and enables employers to make tax free contributions to such accounts annually.
• Qualified elementary and secondary scholarships tax credit: Establishes a tax credit for U.S. citizen or U.S.-resident individuals that is equal to the individual’s qualified contributions to a scholarship-granting organization, taking into account various requirements and restrictions.

Estate taxation in the One Big Beautiful Bill Act

The OBBBA addresses estate tax provisions that were established by the TCJA and are scheduled to expire at the end of 2025.

• Estate planning: Increases the estate, gift, and generation-skipping tax exemption amounts to $15 million, adjusted for inflation, and makes them permanent, compared to the TCJA's temporary $10 million exemption that was adjusted for inflation to $13.99 million in 2025, effective Dec. 31, 2025.

Taxation of exempt organizations in the One Big Beautiful Bill Act

OBBBA provisions that would directly affect exempt organizations include:

• Increased private college and university endowment excise tax: The section 4968 endowment excise tax increases from 1.4% to as much as 8% for large endowments. The bill removes the qualified religious institution exemption and exclusion of foreign students. It also requires a school to have at least 3,000 tuition-paying students (up from 500 under current law) to be subject to the excise tax.
• Expanded definition of covered employee: Covered employees, for purposes of the section 4960 excise tax on excess remuneration, include all current and former employees of an applicable tax-exempt organization rather than the five highest compensated in each year. The bill further clarifies that the look-back for former employees is limited to taxable years beginning after Dec. 31, 2016.

Notably, the final version of the OBBBA does not include any changes to the private foundation excise taxes (i.e., net investment income tax or excess business holdings) or unrelated business taxable income (i.e., qualified transportation fringes or the research exclusion).

Other notable tax provisions in the One Big Beautiful Bill Act

The OBBBA addresses a variety of issues, including tax enforcement, economic development, disaster relief and more. Specifically, those areas and proposals include:

• Qualified small business stock (QSBS) provision of section 1202: Expands the section 1202 benefit in three ways:

  • Provides a tiered gain exclusion for QSBS, allowing a 50% exclusion for shares held more than three years, a 75% exclusion for shares held more than four years, and a 100% exclusion for shares held more than five years.
  • Increases the per-issuer dollar cap from $10 million to $15 million (indexed to inflation beginning in 2027).
  • Increases the corporate-level gross assets ceiling from $50 million to $75 million (indexed to inflation beginning in 2027). The proposed changes would be generally effective with regard to stock issued or acquired on or after the date of enactment.

• Employee retention tax credits (ERTC): Expands the scope of existing penalties to address ERTC-specific misconduct after date of enactment, as well as expands 20% erroneous refund penalty under section 6676 to include employment tax refunds. The bill bars allowance of ERTC refunds for the third and fourth quarters of 2021 claimed after Jan. 31, 2024. It also extends the statute of limitations to six years from the date of the claim, giving the IRS significant additional time to make adjustments to ERTC claims for the third and fourth quarters of 2021 and related income tax deductions.

• Disaster relief and casualty losses: Makes permanent the TCJA rules related to casualty loss. The bill designates any federally-declared disasters through date of enactment as “qualified disaster losses” for personal property. Casualty losses from state-declared disasters (even if not federally declared) will qualify for personal property casualty loss deduction.

• Opportunity zones (OZ): Establishes a permanent OZ policy that builds off the original OZ structure. The bill creates rolling, 10-year OZ designations beginning on Jan. 1, 2027. It updates definitions of low-income community (LIC) and eliminates the ability for contiguous tracts that are not LICs to be designated as OZs. The bill narrows the LIC qualifications, expands the tax benefits and allows investors to defer gain recognition on the amount invested in the qualified opportunity fund (QOF) for up to five years, then receive a basis increase after a five-year hold. The bill creates special rules for investments in qualified rural opportunity funds that provide extra tax benefits. It also adds reporting requirements for the OZ program and provides funding to the IRS to carry out the requirements.

• Collected excise tax on remittance transfers: Establishes a 1% collected federal excise tax on certain electronic transfers of money sent from within the U.S. to a foreign country where the sender provides cash, money order, cashier’s check or other similar physical instruments, with exception to tax for noncash transfers, such as those withdrawn from certain financial institutions or if such transfer is funded by a U.S.-issued debit or credit card.

• Taxes on transferring and making certain firearms:  Effectively eliminates federal excise tax imposed on short barrel shotguns, short barrel rifles and silencers.

Notable tax items omitted from the One Big Beautiful Bill Act

The final version of the OBBBA does not address the following tax items that have either been a focus of previous tax policy conversations or appeared in various drafts of the OBBBA in the House or Senate:

• Corporate tax rate changes
• Tax rate for domestic manufacturers
• Carried interest
• Capital gains tax rate
• A higher tax rate for high income individuals
• Corporate SALT limitations
• Countering unfair foreign taxes (section 899). Section 899 was removed from the Senate bill after the Secretary of the U.S. Department of the Treasury announced a tax agreement with G7 countries regarding Pillar Two taxes, including the undertaxed profits rule (UTPR).
• Litigation financing excise tax
• Wind and solar facility excise tax

How the OBBBA affects you

The OBBBA contains tax changes and extended provisions that could have wide-ranging effects on business and individual taxpayers.

In the immediate term, businesses should work with their tax advisor to understand how the effective dates of certain provisions could affect their third-quarter reporting and estimated payments. Many businesses may be able to reduce their third-quarter estimated tax payments, improving their cash flow.

With a long-term view, businesses should work with their tax advisor to understand how the legislation factors into core business functions and strategy, including objectives related to:

• Cash flow
• Profitability
• Expansion, including capital expenditures and global footprint
• Capital structure, particularly debt versus equity
• Choice of entity for tax purposes
• Innovation and R&D
• Supply chain
• Compliance and reporting
• Workforce

Individual taxpayers should work with their advisor to understand how the OBBBA could affect their wealth goals, estate plan, and tax profile, including the following areas:

• Personal income tax and after-tax cash flow planning
• Pass-through business ownership
• Transition readiness and succession planning
• Estate planning

Discuss with your advisor what you can do in the short and long terms to incorporate OBBBA changes into your individual tax strategy, business strategy or wealth plan.