Sweeping Budgetary and Tax Legislation Enacted, Impacting All Sectors

On July 3, 2025, the U.S. House of Representatives passed H.R.1, referred to as the “One Big Beautiful Bill Act” (“OBBBA”). The following day, President Trump signed the bill into law, marking a key milestone in his second-term agenda.

OBBBA introduces sweeping changes to numerous areas of U.S. federal income tax law in addition to a large number of non-tax budgetary measures. Among its many provisions, the Act extends and modifies several key tax provisions enacted in the Tax Cuts and Jobs Act of 2017 (“TCJA”) and introduces new limitations and sunsets on certain energy-related tax incentives established under the Inflation Reduction Act of 2022 (“IRA”).

At 870 pages, the One Big Beautiful Bill Act (OBBBA) spans a broad range of issues—from broad-based tax changes to Medicaid, healthcare, defense, education, federal land and resource management, and infrastructure—and will bring significant changes across multiple industries and sectors. While the full impact of the law will become clearer over time, its practical effects will depend heavily on forthcoming regulations, IRS guidance, and other administrative interpretations. The President has already issued an executive order directing the Treasury Department and other agencies to enforce the new limitations on renewable energy incentives “strictly”, including revisiting prior guidance for determining when a project is “under construction”.  In addition, the full impact of a number of policies contained in OBBBA will depend on how state governments respond (including, for the tax changes, which changes each state government decides to conform to for state tax purposes).

Below is a summary of the key tax provisions of the bill that are most relevant to business and investment activity. The Winthrop & Weinstine attorneys listed at the end contributed to this summary and would be pleased to discuss how these changes may affect you, including for any specific transactions and planning strategies.  We will be monitoring closely any implementing guidance as it is issued, as well as relevant state legislative activity.

Headline Business Tax Provisions

• Business Interest Limitation – 163(j): The limitation on the business interest deduction has been returned to 30% of EBITDA. Since 2022, businesses were limited to 30% of EBIT absent falling under an exception, e.g. certain real estate trades or businesses, which meant that businesses with significant depreciation and amortization deductions were put at a disadvantage in deducting business interest. The change is effective taxable years beginning after 2024. OBBBA permanently adopts the more generous EBITDA-based limit used prior to 2022. However, the definition of Adjusted Taxable Income (ATI) is modified to exclude income inclusions under Sections 951(a), 951A, and 78 (i.e., certain controlled foreign corporation income), which could reduce the ATI base for some taxpayers. Note that OBBBA expands the deductibility cap to apply to business interest that must be capitalized, along with other changes that further reduce the cap in certain situations. The OBBBA also establishes a new ordering rule that requires that the Section 163(j) limitation be determined before the application of any interest capitalization provisions, except for interest capitalized under Sections 263A(f) and 263(g) (i.e., for certain produced property and straddles).
• Bonus Depreciation – 168(k): The OBBBA permanently reinstates elective expensing (100% bonus depreciation) for qualifying business property, such as machinery, equipment, and other short-lived assets, acquired and placed in service after January 19, 2025. This provision allows businesses to immediately deduct the full cost of such property in the year it is placed in service, rather than depreciating it over time. Originally introduced by the TCJA, this provision was set to phase down starting in 2023 and expire after 2026.
• Qualified Production Activities – Temporary Expensing: Additionally, the OBBBA provides elective temporary 100% expensing for certain newly constructed nonresidential real property used in “qualified production activities.” These activities generally include the manufacturing, production, and refining of tangible personal property in the U.S., excluding agricultural and chemical production. To qualify, construction must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031.
• 199A Pass-Through Business Deduction: The OBBBA permanently extends the 20% deduction for qualified business income for noncorporate taxpayers.  This deduction generally applies to business income (excluding employee wages or income from specified services) and certain passive income, subject to limitations.  Initially, introduced in the TCJA, the deduction was set to expire after 2025. OBBBA also eases the income-based phaseout of the deduction and introduces additional taxpayer-friendly adjustments.
• SALT Deductions: The OBBBA increases the federal deduction cap for state and local taxes (SALT) from $10,000 to $40,000 ($20,000 for married individuals filing separately) for tax years 2025 through 2029. The cap increases by 1% annually beginning in 2026 and reverts to $10,000 ($5,000 for separate filers) in 2030. For tax years 2025 through 2029, the increased cap is phased down for taxpayers with modified adjusted gross income over $500,000. The $40,000 cap is reduced by 30% of the excess over the threshold, but not below $10,000.  Ultimately, the OBBBA did not make any changes regarding the “pass-through entity tax” workaround to the cap on SALT deductions for business and investment income earned by certain pass-through entities.

Research & Development Credits and Expensing

• Full Expensing Reinstated: The OBBBA permanently restores the ability to fully deduct domestic research and experimentation (“R&E”) costs in the taxable year they are paid or incurred, reversing the five-year amortization requirement introduced by the 2017 TCJA. This change is retroactive to tax years beginning after December 31, 2021, and is codified in the revised language of Section 174(a), effectively reinstating pre-TCJA treatment for domestic R&E expenditures.
• Transition Relief for Amortized Costs: The OBBBA provides transition relief for taxpayers with domestic R&E costs that were capitalized and amortized under the TCJA regime between 2022 and 2024. Under a new rule in Section 174A(c)(2)(A), taxpayers may fully recover any remaining unamortized domestic R&E expenditures incurred during that period. The catch-up deduction may be taken entirely in the first taxable year beginning after December 31, 2024 (typically 2025 for calendar-year taxpayers), or spread evenly over two years—2025 and 2026—at the taxpayer’s election.
• Foreign R&E Still Amortized: The OBBBA’s reinstatement of full expensing applies only to domestic research expenditures. Foreign R&E costs remain subject to the existing amortization requirement under Section 174A(d), which mandates a 15-year straight-line amortization period for research conducted outside the United States. This distinction underscores the legislative intent to incentivize U.S.-based innovation and may impact how multinational companies allocate their global research activities. Taxpayers engaged in cross-border R&D should carefully evaluate their cost tracking systems and consider whether certain activities can be restructured to meet the criteria for domestic treatment and qualify for more favorable tax benefits.

Energy Credits

• Wind and Solar Energy – 45Y and 48E: The OBBBA repeals the clean electricity production (45Y) and investment (48E) tax credits for solar and wind facilities placed in service after 2027. Previously, these credits were available through 2032, followed by a phasedown.  Other non-solar or wind technologies under 45Y and 48E remain eligible for the full credit through 2032, with a phasedown beginning thereafter.  For the solar/wind 45Y/48E repeals, the 12/31/27 placed-in-service deadline applies only to facilities for which construction has not started by 7/3/2026.
• Energy Efficient Homes – 45L: The Section 45L new energy efficient home tax credit is repealed for homes constructed and acquired after June 30, 2026. Previously, the credit was available through 2032.
• Residential Clean Energy – 25D: The Section 25D residential clean energy tax credit is repealed for expenditures made after December 31, 2025. Previously, the credit was available for property placed in service before December 31, 2034.
• Qualified Commercial Clean Vehicles – 45W: The Section 45W qualified commercial clean vehicles tax credit is repealed for vehicles acquired after September 30, 2025. Previously, the credit was available through 2032.
• Alternative Fuel Refueling Property – 30C: The Section 30C alternative fuel vehicle refueling property tax credit is repealed for property placed in service after June 30, 2026. Previously, the credit was available through 2032.
• Clean Hydrogen Production – 45V: The Section 45V clean hydrogen production tax credit is repealed for hydrogen produced at facilities beginning construction on or after January 1, 2028. Under prior law, the credit was available for facilities that began construction before January 1, 2033.
• Advanced Manufacturing – 45X: The Section 45X advanced manufacturing production tax credit is repealed for eligible components that are integrated, incorporated, or assembled into another eligible component, effective for components sold in tax years beginning after 2026. A phasedown of the credit for sales of critical minerals begins in 2031. In addition, no credit is available for wind energy components sold after 2027.
• Clean Fuels – Section 45Z: The Section 45Z clean fuel production tax credit is extended for fuel sold through December 31, 2029 (previously scheduled to end December 31, 2027).
• Foreign Entity Restrictions – Sections 45Y, 48E, and 45X: New limitations disallow clean energy tax credits if the taxpayer is a specified foreign entity or foreign-influenced entity. Foreign entities include entities from China, Iran, North Korea, and Russia. Additionally, for Sections 45Y, 48E, and 45X, credits are unavailable if the taxpayer receives material assistance from a prohibited foreign entity. This restriction applies to facilities beginning construction and components sold after 2025. Material assistance is defined relative to a threshold cost ratio.
• Transferability Restrictions: Transfer of clean energy tax credits to specified foreign entities is prohibited across applicable provisions.  Otherwise, transferability of tax credits was unaffected by OBBBA.
• Elective (Direct) Pay – Sections 45Q, 45X, and 45V: Elective pay remains available for applicable entities (e.g., tax-exempt organizations) and for eligible taxpayers under:
  • Section 45Q (carbon oxide sequestration),
  • Section 45X (advanced manufacturing production), and
  • Section 45V (clean hydrogen production), while the credit remains in effect.

Other Tax Credits

• Low-Income Housing Tax Credit (“LIHTC”): The OBBBA increases the 9% LIHTC allocation by 12% for calendar years after 2025. In addition, for private activity bond-financed projects, the 50% test is effectively reduced to 25% for buildings placed in service after December 31, 2025, provided that bonds financing at least 5% of the aggregate basis of the building and land are issued in 2026 or later.
• New Markets Tax Credit (“NMTC”): The OBBBA permanently extends the NMTC program, establishing a $5 billion annual allocation limitation for each calendar year after 2019. It also allows unused credit allocation authority to be carried forward for up to five calendar years, with any unused authority from 2025 or earlier treated as if it occurred in 2025.
• Advanced Manufacturing Investment Credit – 48D: Tax credit increased from 25% to 35% for property placed in service after December 31, 2025, but credit termination date of December 31, 2026 is retained.

Opportunity Zones

• Permanent Extension of the QOZ Program: The OBBBA eliminates the sunset provision for the Qualified Opportunity Zone (“QOZ”) program, which was originally scheduled to expire on December 31, 2026. This change makes the QOZ program permanent, with most modifications taking effect on January 1, 2027.
• Rolling 10-Year Designation Period: The first designation date is July 1, 2026, by which time state governors must specify QOZs to be effective from January 1, 2027, through December 31, 2036. Subsequent re-designations will occur every ten years, with each designation effective for the next ten calendar years.
• New Rolling Gain Deferral: In conjunction with the permanent extension of the QOZ program, for investments made after December 31, 2026, deferred gains from QOZ investments will be recognized on the fifth anniversary of the investment, rather than on a fixed date.
• Basis Step-Up: The OBBBA modifies the basis step-up, removing the 5% step-up. Investors will still receive a 10% step-up in basis if the Qualified Opportunity Fund (“QOF”) investment is held for at least five years. However, for investments held for at least five years in newly defined “qualified rural opportunity funds,” investors will receive a 30% step-up in basis.
• Stricter Eligibility Criteria for QOZ Designations: The OBBBA tightens the criteria for QOZ eligibility. After December 31, 2026:
  • Tracts will qualify as QOZs only if the median family income does not exceed 70% of the applicable state or metropolitan area median family income (down from 80%).
  • The poverty rate test (20% or more) remains but is now supplemented with an “anti-gentrification” trigger, disqualifying tracts if the median family income exceeds 125% of the applicable state or metropolitan area median family income.
  • The “contiguous tract” exception from the original 2017 designation process is eliminated.
  • The blanket QOZ designation for all low-income communities in Puerto Rico is repealed, effective December 31, 2026.
• Gain After 30 Years: Under the OBBBA, gains realized on QOF investments that are sold or exchanged after holding the investment for at least 10 years are not subject to tax. However, any appreciation occurring after 30 years will be taxable. Specifically:
  • • For investments sold or exchanged before 30 years, the step-up will reflect the fair market value as of the date of sale or exchange.
    • For investments held for 30 years or more, the basis step-up will be fixed at the fair market value on the 30th anniversary of the investment.
• New Reporting Requirements (and Penalties for Non-Compliance): The OBBBA introduces new reporting requirements for QOFs and businesses. QOFs will need to report to the IRS various details, including the value of total assets, the value of QOZ property, the applicable North American Industry Classification System (“NAICS”) codes, the QOZ census tracts they invest in, investment amounts in each QOZB, the value of tangible and intangible property (owned or leased), the number of residential units they own, and the approximate number of full-time employees. Non-compliance with these reporting requirements may result in penalties of up to $10,000 per return, or up to $50,000 for QOFs with assets over $10 million, with harsher penalties for willful non-compliance.

Other Noteworthy Domestic Business Tax Changes

• Excess Business Losses: The OBBBA permanently retains the limitation on excess business losses for noncorporate taxpayers, a provision originally introduced in the TCJA, which was set to expire in 2028. Under this provision, the “one and done” rule still applies, meaning the limitation is only applicable in the year the loss occurs, and any disallowed loss is carried forward as a net operating loss in future years.
• Qualified Small Business Stock (QSBS) Expansions —1202: The OBBBA increases the gross asset value cap for QSBS issuers from $50 million to $75 million and introduces an inflation adjustment. Additionally, the Act modifies the formula for the per-issuer cap on the QSBS exclusion, raising the dollar-based limit on excluded gain to $15 million (adjusted for inflation), up from the current $10 million limit. The OBBBA also shortens the holding period required to qualify for QSBS benefits by introducing a 50% exclusion for gain recognized if the stock is held for three years, and a 75% exclusion for gain recognized if held for four years. The 100% exclusion under current law remains in place for stock held for five years or more. The changes to the gross asset value cap apply to QSBS issued after July 4, 2025, and the other modifications apply to taxable years beginning after July 4, 2025.
• Section 179: The OBBBA increased the maximum Section 179 expensing amount to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million, both of which will be adjusted for inflation.  (Section 179 applies to a slightly broader class of depreciable capital investment than bonus depreciation.)
• Restoration of Taxable REIT Subsidiary Asset Test: The taxable REIT subsidiary threshold is increased to 25 (from 20) % of a REIT’s assets for taxable years beginning after December 31, 2025.
• Tax-Exempt Organizations: The OBBBA adds two new graduated rates (4% and 8%) for the TCJA’s university endowment excise tax on investment income based on the size of endowment per student.   Expanded the list of “covered employees” of certain tax-exempt organizations subject to excessive compensation restrictions to include all employees or former employees.
• Reduced Tax Rate for Agricultural Lending: The OBBBA provides a 25% gross income exclusion for interest earned by domestic banks and insurance companies on loans secured by agricultural real property, effective for taxable years ending after the enactment of the OBBBA.
• Increased Reporting Threshold for Forms 1099-MISC and 1099-NEC:  The reporting threshold for Forms 1099-MISC and 1099-NEC is increased from $600 to $2,000 with the new threshold adjusted annually for inflation.
• Reinstatement of Third-Party Settlement Reporting Thresholds: The OBBBA reinstates the previous Section 6050W reporting thresholds for third-party settlement organizations, requiring reporting only when gross payments exceed $20,000 and the number of transactions exceeds 200.

U.S. International Tax Provisions

• GILTI &FDII: The OBBBA introduces significant modifications to the taxation of global intangible low-taxed income (now renamed “net CFC tested income” (“NCTI”)) and foreign-derived intangible income (now renamed “foreign-derived deduction eligible income “FDDEI”)). These changes include adjustments to tax rates, taxable income computations, and the Section 250 deduction for both regimes, plus new acronyms for both types of income. Under prior law, the NCTI and FDDEI tax rates were determined by applying a deduction under Section 250, which reduced the amount of income subject to tax. The OBBBA permanently adjusts the Section 250 deduction for both NCTIand FDDEI:
  • For NCTI, the deduction is changed to 40%, from 50% (with a previously planned decrease to 37.5% for taxable years beginning after December 31, 2025).
  • For FDDEI, the deduction is now set at 33.34%, replacing the prior 37.5% deduction (which was set to decrease to 21.875% after 2025).

As a result, the post-Section 250 NCTI tax rate is now 12.6% (which rises to an effective rate of 14% when taking into account the revised 10% haircut – reduced from 20% – on associated foreign tax credits) and the effective FDDEI rate is also approximately 14% following the enactment of the OBBBA. The OBBBA also eliminates the ability to reduce NCTI and FDDEI by a deemed return on qualified business asset investment (“QBAI”) when determining the amount of income subject to tax under the NCTI and FDDEI regimes.

In a taxpayer favorable change, interest expense deductions and research & experimentation expenditures are no longer required to be apportioned to NCTI for foreign tax credit purposes.  Instead, NCTI and FDDEI is only reduced by the Section 250 deduction and directly allocable expenses.

• BEAT: OBBBA permanently establishes the Base Erosion and Anti-Abuse Tax (“BEAT”) at a rate of 10.5%, which is an increase from the prior 10% rate.
• CFC-Rules–951, 951B, 954(c)(6), 958: The OBBBA reinstates the rule turning off “downward attribution” in measuring CFC status, which had unintended and burdensome U.S. tax compliance obligations on foreign-controlled enterprises with U.S. subsidiaries. The Act also requires that all U.S. shareholders must include a pro rata share of a CFC’s subpart F income and net CFC tested income (“NCTI”) for their period of ownership as U.S. shareholders (i.e. not just U.S. shareholders on the final day of the CFC’s taxable year). In addition, the Act makes permanent the frequently extended “CFC look-through” rule under Section 954(c)(6).
• New Sourcing Rule: Sales income for inventory produced in the U.S. and sold through a foreign office or fixed place of business are treated as 50% foreign source for foreign tax credit limitation purposes.

Headline Individual Tax Provisions

• Permanent Extension of TCJA Changes: The OBBBA makes the existing individual income tax rates and brackets permanent.  It also increases the standard deduction by $750 for single filers and $1,500 for married filing jointly filers, with the increased amounts made permanent and subject to inflation adjustments.
• Child Tax Credit Expansion: Increases the Child Tax Credit by $200 and makes the change permanent.  The provision also requires that a valid Social Security number be provided for each qualifying child.
• 35% Cap on Itemized Deductions: Limits the tax benefit of itemized deductions for taxpayers in the top marginal bracket (37%) by capping the value of those deductions at 35%.
• Permanent Non-Deductibility of Miscellaneous Itemized Deductions: Permanently eliminates certain miscellaneous itemized deductions that were scheduled to expire under the TCJA, including unreimbursed employee expenses, investment advisory fees, tax preparation fees, certain legal fees, hobby expenses, and safe deposit box rentals.  However, a new exception is introduced for certain unreimbursed expenses incurred by eligible educators.
• No Tax on Tips and Overtime:  The OBBBA provides temporary above-the-line deduction of up to $25,000 for reported tips and up to $12,500 for overtime pay.  The deduction begins on January 1, 2025 and expires on December 31, 2028.  These deductions are subject to a phase-down based on income levels.
• Deduction for Car Loan interest: Provides a temporary deduction of up to $10,000 for interest on car loans associated with vehicles that were finally assembled in the United States.  The deduction applies to interest paid on cars purchased in 2025 and is set to expire at the end of 2028.  The deduction is subject to a phase-down based on income levels.
• Special Tax Deduction for Seniors: Permanently eliminates personal exemptions. For tax years 2025 through 2028, individuals aged 65 and older are allowed a $6,000 deduction, which phases out for taxpayers with modified adjusted gross income exceeding $75,000 ($150,000 for joint filers).
• Trump Accounts: The OBBBA establishes new tax-favored savings vehicles known as Trump Accounts for children under age 18.  Annual contributions are limited to $5,000 per child (indexed for inflation), and distributions are generally prohibited until the child reaches age 18.  Employers may contribute up to $2,500 per employee on a nontaxable basis. Like IRAs, Trump Accounts allow investments to grow tax-deferred.  Under the Trump Accounts Contribution Pilot Program, the federal government will make a one-time $1,000 contribution to accounts for U.S. citizen children born between 2025 and 2028.
• Remittance Tax–4475:  A 1% excise tax is imposed on individuals sending remittances. The tax does not apply to transfers withdrawn from accounts at financial institutions or other funded by U.S.-issued debt or credit cards.
• Tax Credit for Contributions to Scholarship-Granting Tax-Exempt Organizations: Beginning in 2027, the OBBBA establishes a permanent federal income tax credit for up to $1,700 per year for individual contributions to qualified scholarship granting organizations (“SGOs”). The credit is dollar-for-dollar and not subject to an aggregate national cap.  The U.S. Treasury Department will administer the program.  States must opt in and provide a list of eligible SGOs.  Contributions may only be used for scholarships in states that have opted in.  Further guidance will be issued by the Treasury Department through regulations.