On July 4th, President Trump signed the budget reconciliation bill, informally known as the “One Big Beautiful Bill Act” (OBBBA), whose tax provisions are estimated to increase the deficit by approximately $4.5 trillion. This legislation is likely to be remembered more for its controversial process and lasting impacts than for the much-anticipated tax cuts for US individuals and businesses.

The OBBBA reflects many of President Trump’s campaign promises on tax cuts and domestic policies. Notable for this budget reconciliation bill is the absence of substantial revenue raisers, other than changes to green energy incentives. Despite differing concerns and views with the House and Senate Republicans, they ultimately, perhaps not surprisingly, united to pass the bill by the leadership’s self-imposed deadline. The specifics of the last-minute deals (or really those occurring over the last seven-plus hours) that secured the necessary House Republican votes remain unclear. Perhaps some Republicans, who previously opposed certain aspects of the OBBBA, believed there will be an opportunity to reverse course in future reconciliation bills. Their concerns about a potential midterm election calamity are evident, especially considering certain tactics, such as delaying contentious Medicaid and SNAP changes until after the elections.

To fully understand the ramifications of the OBBBA, it is important to not only consider how the revised laws might affect business and tax planning opportunities but also how the process will shape future budget reconciliation bills. In this alert, we highlight the final provisions,[1] what was left on the cutting room floor, which could resurface in future legislation, and process implications.
 

TCJA Provisions (Permanent with Modifications)

• Research and Experimental (R&E) Costs: Restores the immediate expensing of certain research and experimental costs, but only for domestic research, retroactively effective for taxable years beginning in 2025, with an option to amortize these expenditures (§§174 and 174A [2]). Additionally, the OBBBA provides certain taxpayers with transition rules to elect to deduct the unamortized domestic R&E expenses for amounts paid or incurred prior to January 1, 2025.
• Bonus Depreciation: Reinstates 100 percent bonus depreciation for certain property, generally effective for property acquired after January 19, 2025 (i.e., the day President Trump was inaugurated), and for taxable years ending after that date (§168(k)).
• Business Interest Expense Deduction: Returns to the 30 percent limit on business interest expense (§163(j)) that is based on an EBITDA-like calculation instead of an EBIT-like calculation, while also excluding interest for floor plan financing for certain trailers and campers, effective for taxable years beginning in 2025. Additionally, more interest could be subject to the limitation for taxable years beginning in 2026 by:
  • Including capitalized interest, except for interest attributable to a straddle (§263(g)) or subject to UNICAP (§263A).
  • Calculating the limit without including subpart F income (§951), global intangible low-taxed income (GILTI) (§951A), and the gross-up for deemed paid foreign taxes (§78).
     

A&M Insight: At a high level, the changes to the TCJA provisions were anticipated. While capital-intensive and research-intensive businesses operating in the US have the most reasons to celebrate, all companies should thoroughly examine and reassess their capital investment, research and development, and debt financing strategies, in conjunction with available accounting method changes and elections to identify opportunities. Additionally, the modifications to the TCJA provisions could significantly impact a company’s deferred tax assets and liabilities. It is also important to note that the more restrictive changes to the business interest deduction limit begin in 2026, which could affect decisions to capitalize interest, as well as financing strategies and legal entity organization structures for multinational companies. Companies should assess the potential benefits of accelerating income into 2025, while also considering the effects of the OBBBA’s changes to the international tax provisions discussed below.
 

Corporate Tax Provisions

• Deductibility of Compensation: Applies the $1 million deduction limitation on a public corporation’s compensation by aggregating all members of a controlled group (§162(m)). Further, the controlled group aggregation applies to the determination of the five highest compensated employees during the taxable year (with certain exceptions for current and historic officers), beginning in 2027. Any resulting deduction limit would be allocated proportionately across all controlled group members paying compensation to the relevant individuals.
• Charitable Contributions: Establishes a 1 percent floor for deductibility of corporate charitable contributions while maintaining the 10 percent ceiling (§170(b)(2)). Taxpayers may carry forward disallowed contributions for up to five subsequent years, which would be reduced to the extent the carryforward reduces taxable income and increases net operating loss carryover to a succeeding taxable year.
   

A&M Insight: As noted in our prior alerts discussing the House passed bill here and the Senate Finance Committee’s initial draft here, the OBBBA does not contain any of the corporate tax provisions that many were hoping for: a reduced corporate income tax rate (including for domestic manufacturers) or the repeal or adjustments to the excise tax on stock repurchases and to the corporate alternative minimum tax (CAMT). With that said, in light of the G7 Pillar 2 understanding, discussed here, it seems unlikely that the CAMT will be repealed in the near future, raising pressure on Treasury and the IRS to provide updated (and potentially final) guidance that responds to the comments that have been submitted. Furthermore, while US-parented companies can breathe a tentative sigh of potential relief from Pillar 2, they now need to prepare for potential increased scrutiny and compliance requirements related to CAMT as the global tax landscape continues to evolve.
 

International Tax Provisions

• GILTI and Foreign-Derived Intangible Income (FDII): Increases the deduction percentages (§250) for GILTI from 37.5 percent to 40 percent and for FDII from 21.875 percent to 33.34 percent and modifies the associated foreign tax credit for GILTI (§§78, 904, and 960). Additionally, the reductions related to tangible income returns are eliminated in the calculations of GILTI and FDII, and the rules governing expense allocation are modified, thereby increasing the amount of the associated income and potential foreign tax credits. In addition, GILTI and FDII are no longer terms defined in the Code.
• Base Erosion Anti-Abuse Tax (BEAT): Sets the effective tax rate for BEAT at 10.5 percent (§59A).
• Controlled Foreign Corporations (CFCs): Reinstates the prohibition on downward attribution for determining CFC status (§958), while maintaining the rule for taxing foreign-controlled US shareholders (§951B). The expiration of the exclusion for certain CFC-to-CFC dividends (§954(c)(6)) which was set for 2026, is eliminated thereby making it permanent. Additionally, the rules for calculating a US shareholder’s pro rata share of subpart F and GILTI are revised (§951). For taxable years after November 30, 2025, certain foreign corporations must align their taxable year with that of the majority US shareholder (§898).
• Foreign Tax Credits (FTCs): Provides that up to 50 percent of the total taxable income from the sale outside the US of US produced inventory attributable to an office or other fixed place of business outside the US is foreign source income for FTC purposes (§904).
   

A&M Insight: As a result of the G7 understanding mentioned above, as discussed here, the most significant international tax development as part of the legislative process is what was left on the cutting room floor – the §899 retaliatory tax targeting countries that impose “unfair foreign taxes.” With that said, the international tax provisions included in the OBBBA are a mixed bag depending on the taxpayer’s particular situation. For instance, the elimination of the tangible income return for GILTI could counterbalance the reduction in the effective GILTI tax rate. Additionally, the requirement to change the CFC’s taxable year removes the ability to potentially defer recognition of CFC income. Therefore, detailed modeling is essential to understand the consequences and determine whether the OBBBA changes are beneficial, as well as to explore potential planning strategies in the current year. Further, under the new FTC rules, companies with export sales may want to examine the implications of where title passage for export sales occurs. Given the complexity and potential impact of these changes, proactive tax planning and strategic analysis are crucial to navigate the evolving international tax landscape effectively.
 

Other Business Incentives

• Bonus Depreciation: Temporarily allows full 100 percent bonus depreciation for certain production, manufacturing, and refinery facilities (§168(n)), effective for property for which construction began after January 19, 2025, and before January 1, 2029. Additionally, the OBBBA prevents a lessor from treating its leased property as qualified production activity.
• Qualified Business Income (QBI): Permanently extends the 20 percent deduction for passthrough business income (§199A) and increases the income cap for phase-in of the deduction limitation, effective immediately.
• Semiconductor Manufacturing Credit: Increases the credit for semiconductor-related manufacturing from 25 percent to 35 percent of the qualified property placed in service (§48D) after December 31, 2025.
• Expensing Business Assets: Raises the limits for expensing certain property (§179) placed in service in taxable years beginning after December 31, 2024.
• Opportunity Zones (OZones): Makes OZones permanent with a rolling ten-year designation cycle beginning in 2027 and entitles taxpayers to an incremental step-up in basis beginning in year one (§1400Z-1). Additionally, the provision establishes a “qualified rural opportunity funds” category that will potentially triple a taxpayer’s step-up in basis and lower the required improvement percentage to 50 percent.
• Residential Construction Contracts: Eliminates the requirement for the percentage of completion method of accounting (§460(e)) for certain residential construction contracts (condominiums) for contracts entered into in taxable years beginning after July 4, 2025.
• Taxable Real Estate Investment Trust (REIT) Subsidiary: Increases the portion of assets a taxable REIT subsidiary can represent of a REIT from 20 percent to 25 percent (§856(c)).
   

A&M Insight: The OBBBA introduces several provisions aimed at boosting investment and manufacturing in the US, offering significant opportunities for businesses to optimize their tax positions and enhance financial strategies. The real estate sector benefits from enhanced tax incentives for community development investments, including the low-income housing tax credit and the new markets tax credit. Further, the OZone provisions are much more favorable than those in the TCJA but also pose a trap for the unwary due to their delayed effective date. The semiconductor manufacturing industry gains from an increased investment tax credit under the 2022 CHIPS and Science Act, alongside the ability to fully depreciate certain production facilities in the US. Additionally, the extension and enhancement of bonus depreciation and QBI deductions provide immediate benefits, while expanded expensing limits encourage investment in critical sectors.
 

Green Energy Provisions

• Investment and Production Tax Credits - General: Reduces eligibility for clean electricity production and investment tax credits (§§ 45Y and 48E) for wind and solar projects, requiring those projects to be placed in service by December 31, 2027, to qualify for either credit. This placed in service deadline does not apply if the projects begin construction on or before July 4, 2026. Other technologies remain fully eligible for these credits if construction begins before 2034.
• Advanced Manufacturing Production Tax Credit: Eliminates the production credit (45X) for wind components sold after 2027 and phases out the critical minerals production credit beginning in 2031 and through 2033. Metallurgical coal is now eligible for the credit from 2026 through 2029 for worldwide production, though at a 2.5 percent rate.
• FEOC (Foreign Entity of Concern): Applies FEOC rules that limit the availability of the clean electricity production and investment tax credits (§§45Y and 48E) and the advanced manufacturing production tax credit (§45X) where certain foreign entities meet ownership or control thresholds or are the source of manufactured products and components. The ownership or control limitations are also applicable to the carbon capture and sequestration credit (§45Q), the zero-emission nuclear power production credit (§45U), and the clean fuel production credit (§45Z).
• Clean Hydrogen Production Credit: Terminates the clean hydrogen production credit (§45V) for facilities that begin construction after December 31, 2027.
• Limited Expansion for Clean Fuels: Extends the clean fuel production credit (§45Z) by two years; the credit is now available for production through the end of 2029. Certain operational changes were made to be effective for fuel produced after December 31, 2025.
• Carbon Capture and Utilization Rate Parity: Modifies the carbon capture credit (§45Q) by increasing the base credit rate from $12 to $17 per metric ton for carbon that is used first and then sequestered; applicable for facilities placed in service after July 4, 2025.
• Vehicle Credit Terminations: Terminates the credit for qualified commercial vehicles (§45W) acquired after September 30, 2025. Same termination date applies for the new clean vehicle credit (§30D) and the used clean vehicle credit (§25E).
• Other Credit Terminations: Terminates the credit for alternative fuel vehicle refueling property (charging stations) (§30C) for property placed in service after June 30, 2026. Terminates credits for energy-efficient home improvements (§25C) and residential clean energy expenditures (§25D) at the end of 2025. Terminates the credit for new energy-efficient homes (§45L) for homes acquired after June 30, 2026.
• Other Provisions: Eliminates the deduction for energy efficient commercial buildings (§179D) for property that begins construction after June 30, 2026. Changes to accelerated depreciation for energy property (as defined under (§48)) that begins construction after December 31, 2024, are not applicable to the §45Y or §48E qualified facilities.
• Transferability of Credits: Retains the ability to transfer certain credits for cash but with a restriction that buyers cannot be certain foreign entities.
   

A&M Insight: The OBBBA introduces significant changes to green energy incentives, scaling back many initiatives from the Inflation Reduction Act of 2022. Market participants had anticipated that there would be changes, but the extent of repeals and limitations was unknown. Differing opinions among Republicans nearly delayed the passage of the bill, with some advocating for less restrictive measures and others pushing for more stringent restrictions. Unfortunately, these differences remain unresolved, which essentially puts the industry in limbo. Like the international tax provisions described above, the final version of the OBBBA does provide some relief as it removes the proposed excise tax on wind and solar energy facilities. However, the addition of various ownership and supply chain restrictions on FEOCs has raised industry concerns. Lastly, the phase out of the critical minerals production credit is curious, as the Trump administration has been trying to encourage such mineral production in the US.
 

Individual Tax Provisions

• Increase in State and Local Tax (SALT) Deduction Cap: Temporarily raises the $10,000 cap on SALT deductions to $40,000 (through 2029), with a phaseout that begins for taxpayers with income above $500,000 (§164). However, the OBBBA does not impose any restrictions on workarounds (e.g., passthrough entity tax (PTET) regimes).
• Permanent Tax Rates: Makes the current individual tax rates (§1) permanent and permanently increases the standard deduction amounts (§63(c)).
• New Limits on Itemized Deductions: Caps the maximum benefit for itemized deductions at 35 percent, down from the current 37 percent (§68). Additionally, similar to the corporate provision, establishes a 0.5 percent floor for the deductibility of charitable contributions (§170(b)).
• Enhanced High-Net-Worth Benefits: Sets the gift and estate tax exemption for 2026 at $15 million, with subsequent adjustments for inflation (§2010).
• Gain Exclusion for Small Business Stock: Expands the gain exclusion rules for the sale of qualified small business stock (QSBS) (§1202), for stock issuances after July 4, 2025, by allowing a 50 percent gain exclusion if stock is held for at least three years, 75 percent if held for four years, and 100 percent if held for at least five years. Increases the limit on eligible gain per issuer to the greater of $15 million (from $10 million) or 10 times the taxpayer’s original basis in the shares and increases the limit on the corporation’s aggregate gross assets from $50 million to $75 million.
• Targeted Exemptions and Credits: In line with Trump’s campaign pledges, reduces taxes for certain individuals by allowing deductions, which are subject to limitations and phased out based on income, for tip income (§224), overtime pay (§225), and loan interest for certain vehicles (§163)) for 2025 through 2028, along with providing tax credits that advance certain social priorities (§530A).
• Business Loss Limitation: Permanently extends limitation on excess business losses of noncorporate taxpayers (§461(l)) without changes to the rules as initially proposed by both the House and the Senate.
   

A&M Insight: The SALT deduction cap appeared to be the provision that was going to dictate whether the OBBBA was going to pass. However, in the end, the Congressional Republicans folded and in part kicked the can down the proverbial road. With that said, the individual tax provisions are very favorable. The expanded gain exclusion and reduced mandatory holding period for QSBS benefits is particularly noteworthy for investors and entrepreneurs. Therefore, it is anticipated that the use of QSBS will increase, but potentially not before much-needed guidance is provided. In addition, as previewed in the initial House and Senate bills, no changes were made to the rules governing carried interest.
 

The New Normal: Reconciliation Bill Observations

The budget reconciliation process has long been effectively used when the party controlling Congress and the White House seeks to either extend its fiscal policies or aims to repeal and replace the prior administration’s policies. Reconciliation provides an expedited process and requires only a simple majority vote in the Senate. However, a reconciliation bill is subject to a myriad of rules, often referred to as the Byrd rules (and thus the Byrd bath), including the limitation that there can only be one reconciliation bill per fiscal year that addresses a particular category (either changes in spending, revenues, or the federal debt limit). Therefore, while there could be up to three reconciliation bills considered in a fiscal year, as the OBBBA addresses all three categories, Republicans will have to wait until the next fiscal year, which begins October 1, 2025, to attempt to pass another reconciliation bill (potentially including further tax legislation).

While reconciliation bills have been frequently used by both parties (24 bills have been signed into law and 4 were vetoed by the president), the Republicans significantly altered the governing principles associated with the rules for determining the effect that changes in the law have on the deficit, which is limited under the Byrd rule. By adopting a current policy baseline for the OBBBA instead of the standard current law baseline, the “cost” of many of the tax provision changes was substantially reduced, essentially eliminating the cost of extending certain TCJA provisions. In fact, under the current policy baseline, the cost of the tax provisions within the OBBBA was only approximately $715.2 billion or approximately 16 percent of the estimated impact on the deficit.

A&M Insight: Without adopting the current policy baseline, the OBBBA, as passed by the Senate, would likely have required substantial changes and delayed the passage of the legislation. However, this approach has now opened the door on a going-forward basis for either party to adopt legislation for a short period of time within the budget window (even just for a year) to avoid violating the budget rules, only to turn around in the next fiscal year (which could only be a few weeks or months later) and extend the legislation without any cost implications for the budget reconciliation process. As a result, this could lead to increased legislative volatility and could complicate long-term fiscal planning, as more frequent and short-term legislative changes that circumvent traditional budget constraints are adopted. This evolving strategy may also encourage a more tactical approach to fiscal policy, where short-term gains are prioritized over long-term stability (including attempting to drive voter turnout), potentially leading to a more fragmented and unpredictable legislative environment.
 

A&M Tax Says

The budget reconciliation process was full of twists and turns. While frequent discussions were held regarding a variety of potential provisions that could be included in the bill (e.g., limitations on corporate SALT deductions and an excise tax on litigation financing), for better or worse, the Republicans delivered on what many envisioned would be the tax provisions. With that said, several provisions were added to get the package across the finish line (e.g., increasing the amount of expenses by whaling captains certified by the Alaska Eskimo Whaling Commission that can be characterized as a charitable deduction (§170(n))). Additionally, there were other provisions tucked away that could impact taxpayers, including a new 1 percent excise tax on cash or similar remittances made from the US to outside the US (§4475) and increased enforcement of the employee retention tax credit (ERTC) and an extension of the associated statute of limitations (§70605 of the OBBBA). Now all eyes turn to Treasury and the IRS as they will need to expeditiously promulgate guidance, while navigating the new regulatory landscape in light of the 2024 Supreme Court decisions in Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce, discussed here, and dealing with delays as its guidance needs to be reviewed by the Office of Information and Regulatory Affairs (OIRA).

Now that the OBBBA has passed, taxpayers should assess how the changes affect their business and tax planning for 2025 and beyond, and where applicable, revisit strategies to take advantage of potential opportunities or to mitigate imminent risks. If you would like to discuss how the OBBBA and continually evolving legislative and regulatory landscape could impact your business strategies and tax planning, please feel free to reach out to Kevin M. Jacobs of our National Tax Office.

[1]Unless otherwise noted, OBBBA provisions are applicable beginning in 2026.

[2]Unless otherwise noted, all references to “§” are references to sections of the Internal Revenue Code of 1986, as amended.