Now that the One Big Beautiful Bill Act (OBBBA) has been signed into law, business leaders should pay close attention to the impact this can have on their corporate taxes. On July 4, President Trump signed H.R. 1 into law, official enacting the OBBBA. The House approved the bill on July 3 without modification to the version previously passed by the Senate on July 1.

H.R. 1 revisits several significant business tax provisions originally changed by the 2017 Tax Cuts and Jobs Act (TCJA). Key measures include the reinstatement of 100% bonus depreciation under Section 168(k), the ability to expense U.S.-based research and experimentation costs under Section 174 and a return to the EBITDA-based limitation on business interest expense under Section 163(j). The final bill made these provisions permanent.

IMMEDIATE IMPACT ON BUSINESSES’ TAXABLE INCOME

Full Expensing of Research and Experimentation Expenditures

OBBBA permanently restores the full expensing of U.S. (not foreign) Research or Experimental (R&E) expenditures paid or incurred after Dec. 31, 2024. Important for eligible small businesses (with gross receipts less than or equal to $31 million), OBBBA also allows retroactive expensing, including deductions of post-2021 R&E expenditures that were previously capitalized. 

For all other corporate taxpayers, new rules allow the acceleration of amortization expense over one or two years. If a taxpayer elected Section 280C with respect to their Section 41 R&D credit, that would reduce the amount of deduction under Section 174. 

GHJ OBSERVATION: For small business taxpayers, the ability to apply this provision retroactively may result in immediate cash savings with the filing of amended returns. The election to retroactively expense domestic R&E costs must be made by July 4, 2026.

Increase in the Business Interest Expense Limitation

In the first few years after TCJA’s passage, taxpayers would determine Adjusted Taxable Income (ATI) for purposes of the limitation without considering depreciation, amortization or depletion expenses. This allowed for a larger limitation, which created greater business interest expense deductions.

Effective for tax years beginning after Jan. 1, 2022, taxpayers were required to add back depreciation, amortization or depletion expenses, which significantly impacted the interest expense limitation for most taxpayers.

OBBBA restores the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) limitation under Section 163(j) on a permanent basis. As a result, for tax years beginning after Dec. 31, 2024, taxpayers may have a greater ability to deduct business interest expense, also allowing them to potentially utilize prior disallowed interest expense carryovers.

GHJ OBSERVATION: 

• Manufacturers and other industries with high capital investment were significantly impacted by the previous shift to EBIT. Reverting to EBITDA, along with the 100% bonus depreciation and special allowances for production property, could significantly boost interest deductions for these companies. Business leaders should work closely with their tax advisors to reassess their 2025 estimates
• For C Corporations, ATI no longer includes Subpart F income or GILTI inclusion or the Section 78 gross-up for deemed-paid foreign tax credits. This change may reduce ATI, potentially limiting the amount of deductible interest under Section 163(j). This should be carefully considered in multinational group planning to avoid unintended limitations on interest deductions

Restoration of 100% Bonus Depreciation

OBBBA permanently restores the 100% bonus depreciation for property acquired after Jan. 19, 2025. This provision also expands the bonus depreciation to include some production property not previously covered.

GHJ OBSERVATION: 

• This provision could incentivize buyers to favor sale transactions that are structured as actual or deemed asset purchases (i.e., under Section 338) over stock acquisitions through recapture of some of the purchase price via immediate bonus depreciation deductions
• When applying bonus depreciation, it is important to model how Section 179 expensing, the NOL limitation under Section 382 and the interest expense limitation under Section 163(j) interact to impact taxable income or loss for each taxpayer
• If property is acquired pursuant to a written binding contract, the acquisition date is deemed to be the date the contract was entered into, not the date the property is placed in service

New 100% Bonus Depreciation for Certain Qualified Production Property 

OBBBA provides a new temporary 100% bonus depreciation deduction for certain Qualified Production Property (QPP) under new Section 168(n), in which construction begins after Jan. 19, 2025 and before Jan. 1, 2029 and property is placed in service by Dec. 31, 2030. This provision provides the first ever bonus deprecation deduction for nonresidential real property. The qualifying nonresidential real property must be used integrally in manufacturing, production or refining of tangible personal property in the U.S. There are significant limitations on the types of production activity and qualifying industries, so be sure to discuss this with your tax advisor.

GHJ OBSERVATION: The production activities occurring on the nonresidential real property must result in a substantial transformation of the product. Previous activities that qualified under repealed Section 199 should be examined for application to this new provision.

Increase in Section 179 Expensing Limits

OBBBA also raises the Section 179 expensing limitation to $2.5 million (and the phaseout threshold to $4 million), adjusted for inflation starting in 2026. These changes apply to property placed in service beginning on or after Jan. 1, 2025.

GHJ OBSERVATION: The Section 179 maximum deduction for the 2024 tax year is $1.22 million; the new provision nearly doubles this limit. Further, the current phaseout begins at $3.05 million, so the new provision increases this by just under $1 million. Although these changes may not substantially increase the number of taxpayers that can elect Section 179 expensing, the raised dollar limit would benefit those that are eligible.

Expansion of Section 1202 Qualified Small Business Stock 

Section 1202 is a powerful provision that allows shareholders of C Corporations that meet certain conditions to exclude some or all gain on a sale of qualified small business stock (QSBS). OBBBA makes this provision even more favorable for shares issued (or acquired) after July 4, 2025. Under the new rules, 50% of the gain would be excluded for QSBS held for at least three years. 75% of the gain would be excluded for QSBS held for at least four years. And lastly, 100% of the gain would be excluded for QSBS held for five or more years.

Taxpayers must meet per-issuer dollar caps and corporate level gross assets tests to qualify for QSBS. OBBBA increases the per-issuer dollar cap from $10 million to $15 million and raises the corporate level gross assets ceiling from $50 million to $75 million. Both provisions will be indexed for inflation beginning in 2027.

Restricts Charitable Contribution Deductions

OBBBA restricts the deduction of aggregate charitable contributions made by corporations by adding a floor equal to 1% of taxable income. If contributions exceed the current 10% ceiling, the disallowed amount may be added under the 1% floor and carried forward to the following year. This change would apply beginning on or after Jan. 1, 2026.

GHJ OBSERVATION: Since the provision requires a contribution of at least 1% of taxable income to be deductible, this could discourage taxpayers from donating smaller amounts to charitable organizations.

CORPORATE TAX ACCOUNTING IMPLICATIONS

When a change in tax law occurs in the U.S., it can have significant implications for accounting under U.S. GAAP, Accounting Standards Codification (ASC) 740 Income Taxes. Under ASC 740, any change in tax law or rates must be recognized in the period that includes the enactment date (the date the President signs the bill into law, July 4, 2025). This may include adjusting deferred taxes, reassessing valuation allowances and evaluating uncertain tax positions. 

GHJ OBSERVATION: Business leaders should calculate the impact of any changes on the estimated annual effective tax rate, taxes currently payable and deferred taxes, as well as any potential state implications. 

STATE TAX IMPLICATIONS

For states that do not conform to the Internal Revenue Code or those that conform as of a date prior to the enactment of the OBBBA, the new rules could result in significant federal/state tax differences. 

ACTION STEPS FOR BUSINESS LEADERS

Now that the OBBBA has been signed into law, business leaders must understand the implications to their cash flow, corporate taxes and compliance needs. To assess these tax changes, please talk to GHJ’s Corporate Tax Services team, who are closely monitoring these tax developments.

This article is for informational purposes only and not to be construed as professional advice. Please consult your tax advisor for guidance. The content in this material is accurate as of the date of publication, and the facts and circumstances of this material are subject to change.