On Friday, July 4, 2025, President Trump signed into law the Reconciliation Bill commonly known as the “One Big Beautiful Bill Act” (the “OBBBA”). Broadly speaking, the OBBBA extends many expiring provisions of the 2017 Tax Cuts and Jobs Act (the “TCJA”) applicable to businesses and individuals and amends other provisions of the Internal Revenue Code. Below we provide an overview of some of the key tax measures enacted by the OBBBA. We stand ready to assist our clients with these or any other provisions of the new legislation.
Most of the business-related provisions in the OBBBA are permanent and do not expire, in order to enhance long-term business planning and investment. However, certain provisions are scheduled to expire, as noted below.
Bonus Depreciation: Full Expensing for Certain Business Property
The current bonus depreciation deduction under section 168(k) would have phased out for qualified property placed in service after the end of 2026 (or certain property with a longer recovery period placed in service after 2027). The OBBBA permanently restores the deduction to 100 percent for eligible property acquired after January 19, 2025.
Full Expensing for Qualified Production Property
The OBBBA responds to President Trump’s call for a 15 percent U.S. tax rate on manufacturing income not by providing a rate cut, but instead by allowing full expensing equal to 100 percent of the adjusted basis of qualified production property under new section 168(n). Under that provision, qualified production property generally means nonresidential real property used as an integral part of a domestic qualified production activity. A qualified production activity includes the manufacturing, production, or refining of a qualified product that results in a substantial transformation of the property comprising the product. Qualified production property does not include the portion of any nonresidential real property used for offices, administrative services, lodging, parking, sales activities, software development or engineering activities, or other functions unrelated to the manufacturing, production or refining of tangible personal property.
Unlike other business-related provisions in the OBBBA, this provision is temporary. It applies to qualified production property placed in service in the U.S. or its possessions before January 1, 2031, the construction of which begins after January 19, 2025, and before January 1, 2029.
Full Expensing of Domestic Research and Experimentation (“R&E”) Expenditures
The OBBBA permanently repeals mandatory amortization of domestic R&E expenditures for taxable years beginning after December 31, 2024. It restores full expensing by adding new section 174A and provides an election to amortize domestic R&E costs that are otherwise chargeable to capital account (other than to depreciable property or property subject to depletion allowance) over 5 years.
The legislation also adds a new election for certain businesses to deduct unamortized R&E in the first taxable year beginning after 2024 or ratably over a two-year period. In addition, for small businesses with no more than $25 million in average annual gross receipts for the 3-year period preceding the first taxable year beginning after December 31, 2024, expensing of domestic R&E costs is permitted retroactively for tax years beginning after December 31, 2021.
The pre-OBBBA 15-year amortization for foreign R&E expenditures remains in place.
Limitation on Business Interest Deduction
Section 163(j) imposes a limit on deductions for business interest, based on the taxpayer’s adjusted taxable income. The OBBBA increases the limit on interest expense deductions by calculating adjusted taxable income without including deductions for depreciation, amortization, or depletion. Thus, the legislation permanently reinstates a higher section 163(j) limit, based on EBITDA rather than EBIT, effective for taxable years beginning after December 31, 2024. However, for taxable years beginning after 2025, the legislation excludes from adjusted taxable income inclusions of subpart F, net CFC tested income (the successor to GILTI, as discussed below), and certain related items.
In addition, the OBBBA provides new rules regarding the application of section 163(j) when interest expense might otherwise be capitalized. For taxable years beginning after 2025, the section 163(j) limitation on business interest is calculated before the application of any interest capitalization provisions. Any business interest that is not subject to the limitation under section 163(j) is then first applied to capitalizable interest; only the remainder (if any) is deductible. Business interest carryforwards are exempt from capitalization. However, interest capitalized under sections 263(g) (interest allocable to personal property that is part of a straddle) or 263A(f) (interest incurred during the production period of property produced by the taxpayer and allocable to property with a long useful life or production period) will be capitalized in full. Such interest is now excluded from the definition of “business interest” and therefore not subject to section 163(j).
Expansion of Disallowed Deductions for Excessive Employee Remuneration
The OBBBA adds an entity aggregation rule for purposes of the disallowance of deductions under section 162(m). If any member of a controlled group under section 414 provides remuneration to a specified covered employee, and the total amount of covered remuneration provided by all group members to such employee exceeds $1,000,000, then the deduction allowed to such members is limited to $1,000,000. This aggregation rule applies to a broader group of entities than the aggregation rule in the existing Treasury Regulations, which applies to affiliated groups of corporations under section 1504. The legislation also provides an allocation rule, which is similar to the rule in the existing regulations. The measure will be effective beginning January 1, 2026.
Relief from Section 274(o) Deduction Disallowance for Employee Meal Expenses
Effective January 1, 2026, section 274(o) will disallow 100 percent of employer expenses for providing meals for the convenience of the employer or subsidized meals in company cafeterias. This provision was originally adopted as part of the TCJA, but the effective date was delayed until 2o26. As a result, if an employer operates a subsidized company cafeteria (i.e., one that does not charge employees at fair market value for the meals it serves), no deduction will be allowed for the entire expense associated with that cafeteria, whether operated directly by the employer or by a third-party. Similarly, if employers provide meals to employees because they are unable to obtain a meal during a reasonable meal period and the value of those meals are excluded from the employee’s income under section 119, no deduction will be allowed for the expenses associated with those meals. Examples include doctors and nurses who are on-shift, employees working on remote campuses or at remote work sites, or employees for whom security procedures make leaving the employer’s facility to obtain lunch during a meal period difficult.
The OBBBA provides relief from this deduction disallowance to some employers. Restaurant and catering employees have traditionally been able to obtain an “on-shift meal” during each meal period they worked tax-free under section 119. The deduction for those meals was arguably at risk starting next year. However, the OBBBA includes language amending section 274(o) to allow a full deduction for expenses described in section 274(e)(8), which, in the past, Treasury has acknowledged excepted these meals from a 50 percent deduction disallowance under section 274(n). The OBBBA also includes exceptions for offshore oil rig and gas platform workers, as well as maritime crew required to be provided meals under federal law, and certain fishing industry workers in Alaska.
Excess Business Losses
The OBBBA makes the section 461(l) limitation on excess business losses for noncorporate taxpayers permanent. The provision was originally scheduled to sunset in 2028.
Disguised Sale Rules
Under section 707(a)(2), when one partner makes a contribution to a partnership and another partner receives a related distribution, the transactions may sometimes be treated as a taxable sale of partnership interest. There has been some uncertainty in whether this rule applies in the absence of regulations. The OBBBA provides that this rule applies regardless of whether any regulations are issued.
Changes to Rules for Foreign Derived Intangible Income (FDII)
The OBBBA provides for a smaller increase in the rates of tax on FDII than the increase that was scheduled to occur in 2026 under prior law. The OBBBA sets the rate of deduction under section 250(a) to produce an effective rate of 14 percent on FDII, starting in 2026. This rate is permanent.
The OBBBA also makes a number of changes to the FDII regime. The legislation modifies the calculation of FDII by eliminating the carveout for deemed tangible income return (“DTIR”) on qualified business asset investment (“QBAI”). The OBBBA accordingly renames FDII “foreign-derived deduction eligible income” (“FDDEI”). These measures would take effect in 2026.Below we use the new acronym for FDII: “FDDEI.”
The OBBBA denies FDDEI benefits to income or gain from the sale or other disposition (including the deemed sale or other deemed disposition under section 367(d)) of intangible property as defined in section 367(d)(4) and property that is depreciable or amortizable. This provision is effective for sales or dispositions (actual or deemed) after June 16, 2025.
The OBBBA also changes the allocation of expenses to FDDEI. Expenses, in addition to deductions, would be allocated to deduction eligible income or DEI (which is the starting point to compute FDDEI). In addition, interest expense and R&E expenditures would no longer be allocable to DEI. The changes would take effect starting in 2026.
Changes to Rules for Global Intangible Low-Taxed Income (GILTI)
The OBBBA sets the rate of deduction under section 250(a) to produce an effective rate of U.S. tax on GILTI of 12.6 percent, starting in 2026. The rate would be permanent. Combined with the reduction of the haircut on the GILTI deemed paid credit to 90 percent and the relevant expense allocation changes discussed below, residual U.S. tax on GILTI is generally not expected to arise if the foreign tax rate is 14 percent or above. The legislation also modifies the calculation of GILTI by eliminating the carveout for the net deemed tangible income return (“NDTIR”) on QBAI. The OBBBA accordingly renames GILTI “net CFC tested income” (“NCTI”). These measures would take effect in 2026. Below, we use the new acronym for GILTI: “NCTI.”
Under the OBBBA, for purposes of the foreign tax credit limitation, only the NCTI deduction, associated foreign income taxes, and other directly allocable expenses will be allocated and apportioned to foreign source section 951A category income, and no amount of interest expense or R&E expenditures will be allocated to foreign source income. Interest, R&E expenditures, and other non-directly allocable deductions will instead be allocated to U.S.-source income if they would have been allocated to foreign source section 951A category income but for the OBBBA. This rule is broader than FDII/DITR and includes all non-directly allocated expenses.
The OBBBA also reduces the prior-law GILTI “haircut” for deemed paid foreign taxes imposed on NCTI from 20 percent to 10 percent, such that 90 percent instead of 80 percent of such foreign taxes are potentially eligible for the foreign tax credit. The above changes generally apply starting in 2026. At the same time, the legislation applies a 10-percent haircut to foreign taxes imposed on distributions of section 951A category PTEP, applicable to taxes on PTEP from GILTI inclusions after June 28, 2025.
Partial Reinstatement of the Sales Source Rule for U.S. Manufactured Inventory
The OBBBA changes the sourcing rules for inventory produced in the U.S. for purposes of the foreign tax credit limitation. If a U.S. company maintains an office or fixed place of business in a foreign country, the portion of income from the foreign sale of inventory produced in the U.S. is treated as foreign-source income to the extent the income is attributable to the foreign office or place of business and the property is sold for use outside the United States. The amount of foreign-source income is capped at 50 percent of the total income from the sale of the U.S. inventory. The new rules are effective starting January 1, 2026.
Look-Through Rule for Payments Between Related Controlled Foreign Corporations
The “CFC look-through rule” in section 954(c)(6) would be made permanent, instead of expiring in 2026.In general terms, the look-through rule exempts from the subpart F anti-deferral regime certain payments between controlled foreign corporations that are related to each other.
Changes to the Base Erosion Anti-Abuse Tax
The OBBBA permanently increases the rate of BEAT from 10 percent to 10.5 percent. The more significant changes to BEAT included in the Senate version of the bill were not enacted.
Downward Attribution
The OBBBA restores the limitation on downward attribution of stock ownership in applying the constructive stock ownership rules (section 958(b)(4)), which was repealed in 2017. To address more narrowly the tax benefits that were the target of the repeal of section 958(b)(4) in 2017, the OBBBA also creates a new downward attribution rule (section 951B) for inclusions under subpart F and NCTI (the new and modified GILTI rules) with respect to a “foreign controlled U.S. shareholder” of a “foreign controlled foreign corporation.” The rule is effective for taxable years of foreign corporations beginning after 2025.
End of the One-Month Deferral Election
The OBBBA repeals the election allowing a specified foreign corporation to adopt a taxable year beginning one month earlier than the majority U.S. shareholder year. Existing deferral elections would be terminated starting this year under transition rules that include regulatory authority for allocating foreign income taxes between the two short periods created by the change.
Subpart F Pro Rata Share Rules
The OBBBA revises the current pro rata shares rule under subpart F to address a gap in its operation in the case of mid-year transfers of CFC stock that arose when the TCJA enacted the section 245A dividends received deduction. Under the revised rule, a U.S. shareholder’s pro rata share of a CFC’s subpart F income is the portion of such income which is attributable to (1) the stock of the corporation owned by the shareholder; and (2) any period of the CFC year during which the shareholder owned the stock, the shareholder was a U.S. shareholder, and the corporation was a CFC. The reduction for dividends paid to other persons is repealed. Similar rules will apply for a U.S. shareholder’s NCTI inclusions.
Opportunity Zones
The OBBBA makes permanent the tax benefits for investments in opportunity zones, but with several changes. Most significantly, the program will operate in 10-year cycles, with census tracts undergoing a new designation process every cycle. Tracts contiguous with low-income communities will no longer be eligible to be designated. An investor may defer its previously recognized gain by up to 5 years from the date that the investor invested in the qualified opportunity fund, and when a 5-year holding period is satisfied, the gain that is recognized is subject to a 10 percent haircut. Additional benefits are available for those who invest in qualified rural opportunity funds. The OBBBA also imposes many new reporting requirements on qualified opportunity funds and qualified opportunity zone businesses.
Taxable REIT Subsidiaries
The OBBBA amends section 856 to increase the amount of securities issued by taxable REIT subsidiaries that a REIT may hold. Previously, no more than 20 percent of a REIT’s assets could consist of such securities. Now, for taxable years beginning after December 31, 2025, the limit is increased to 25 percent.
Limits on Corporate Charitable Contributions
The OBBBA restricts the deduction for charitable contributions by corporations. Under current law, corporations can deduct their charitable contributions, up to a maximum of 10 percent of their taxable income. Beginning in 2026, the deduction will be allowed only to the extent that the total contributions exceed 1 percent of taxable income and do not exceed 10 percent of taxable income, meaning that corporations would have to contribute at least 1 percent of their taxable income to charities in order for any contribution to qualify as a deductible charitable contribution. The OBBBA also allows such corporations to carry forward the tax benefit of these contributions, if the deductions are disallowed under this rule, for 5 years.
Excise Tax on Excess Compensation
Beginning in 2026, the group of individuals covered by the section 4960 excise tax on compensation above $1 million paid by certain tax-exempt organizations will expand to include all employees and former employees of the organization, and not just the top five most highly compensated employees of the organization in the current year and prior years.
Nonitemizer Charitable Contribution Deduction
The OBBBA creates a permanent charitable contribution deduction for nonitemizers, capped at $1,000 ($2,000 for joint filers), not including contributions to donor-advised funds.
Limitation on Deduction for Itemizers
The OBBBA creates a 0.5 percent floor on charitable contributions for itemizers, meaning that individuals who itemize would be entitled to claim a charitable contribution deduction only if they contribute in excess of 0.5 percent of their charitable contribution base (i.e., their AGI calculated without taking into account any charitable giving).
The OBBBA also makes permanent the TCJA’s increased contribution limit of 60 percent for cash gifts made to qualified charities for taxpayers who itemize, and it caps the tax benefit of all itemized deductions for taxpayers in the highest tax bracket at $0.35 per dollar, rather than the full $0.37 per dollar.
Excise Tax on Colleges and Universities
The OBBBA establishes a three-tiered rate structure for the excise tax imposed on an educational institution’s investment income, with the applicable rate based on a school’s “student adjusted endowment” (a new term that effectively equals the school’s investment assets per eligible student), with larger per-student endowments subject to a higher rate of tax. The highest applicable rate is 8 percent.
The OBBBA made many material changes to energy tax credits. Some of the most significant are discussed below.
Production and Investment Tax Credits
The OBBBA has accelerated the sunsetting provisions for the technology-neutral production tax credit (“PTC”) under section 45Y and the investment tax credit (“ITC”) under section 48E. Previously, the PTC and ITC were scheduled to start phasing out upon the later of 2034 or two years after the calendar year in which annual greenhouse gas emissions from the production of electricity are less than or equal to 25 percent of U.S. emissions in 2022. Now, under the OBBBA, for a solar or wind facility to be eligible for PTCs or ITCs, construction must begin before July 4, 2026, or the facility must be placed in service before January 1, 2028. For other types of facilities (including hydropower and nuclear), the PTC and ITC will phase out starting in 2034.
The OBBBA also increases the amount of domestic content required for the domestic content adder for the ITC. Previously, the “adjusted percentage” of domestic content that was required for the ITC domestic content adder was fixed at 40% (or 20% for offshore wind facilities), but the “adjusted percentage” for the PTC increased annually until it became 55% in 2027 (or in 2028 for offshore wind facilities). Under the OBBBA, the “adjusted percentage” required for the ITC is increased to generally conform to that required for the PTC. This change applies to facilities for which construction begins on or after June 16, 2025.
Prohibited Foreign Entities
The OBBBA imposes new limitations on several energy tax credits, including the ITC, the PTC, and the advanced manufacturing production credit under section 45X, when the taxpayer is or receives “material assistance” from a prohibited foreign entity (“PFE”). A PFE is defined as an entity that is either a specified foreign entity (“SFE”) or a foreign-influenced entity (“FIE”).
SFEs include companies enumerated on certain U.S. government lists specified in various statutes and “foreign-controlled entities,” which are generally defined as the governments of “covered nations” (North Korea, China, Russia, and Iran); entities organized under the laws of a covered nation; individuals who are citizens of a covered nation but not a citizen, national, or permanent resident of the United States; and entities deemed to be “controlled” by an aforementioned person. In the case of a corporation, “control” is defined as ownership of more than 50 percent of the stock in such corporation by vote or value, and ownership is determined by applying the upward attribution rule of section 318(a)(2).
FIEs are generally entities over which SFEs are deemed to have meaningful leverage. For instance, an entity for which a single SFE owns at least 25 percent (or multiple SFEs own at least 40 percent) is designated as an FIE. Similarly, an FIE includes an entity for which at least 15 percent of its debt was issued to one or more SFEs. In addition, among other examples, certain contracts that provide effective control to an SFE can also give rise to designation as an FIE. Provisions in standard license agreements may result in effective control under these rules.
Consumer Tax Credits
All tax credits for personal and commercial electric vehicles (“EVs”) are now set to expire at the end of September. However, the credit for EV charging ports, section 30C, will expire on July 1, 2026.
The OBBBA has also accelerated the expiration of tax credits for energy efficient home improvements. Now, the section 45L credit for developers of new energy efficient homes will expire on July 1, 2026, and January 1, 2026, is the new expiration date for the section 25D credit for residential installation of qualified clean energy technologies such as solar panels, and for the section 25C credit for homeowners installing energy efficient heat pumps, doors, windows, and other fixtures.
Modification of Exclusion from Gain of Qualified Small Business Stock
The OBBBA expands the exclusion from gross income of gain from the sale or exchange of qualified small business stock (“QSBS”) under section 1202(a), subject to the limitation under 1202(b). Under pre-OBBBA law, the exclusion applied to a percentage of such gain if the QSBS was held for more than 5 years. For QSBS acquired after September 27, 2010, the exclusion percentage is 100 percent. The OBBBA allows a more generous exclusion: for QSBS acquired after July 4, 2025, and held for at least 3 years, 50 percent of the gain is excluded if the QSBS has been held for 3 years, 75 percent if held for 4 years, and 100 percent if held for 5 years or more.
The OBBBA also increases the per-issuer limitation under current section 1202(b)(1) from $10 million to $15 million for QSBS acquired after July 4, 2025. For taxable years beginning after 2026, the $15 million limitation will be inflation adjusted (rounded to the nearest $10,000).
The OBBBA modifies the gross asset test for qualification of a domestic C corporation as a qualified small business (“QSB”).Specifically, under pre-OBBBA law, to qualify as a QSB, the aggregate gross assets (as defined in section 1202(d)(2)) of the corporation may not exceeded $50 million at any time on or after the date the original QSBS legislation was enacted in 1993 and immediately after the issuance of the relevant QSBS. This aggregate gross asset limit is increased by the OBBBA to $75 million, subject to inflation adjustment (rounded to the nearest $10,000). The modification applies only to stock issued after July 4, 2025.Stock issued and outstanding on or before July 4, 2025, remains subject to the pre-OBBBA $50-million ceiling.
Remittance Excise Tax
The OBBBA imposes an excise tax of 1 percent on certain “remittance transfers,” pursuant to new section 4475.The tax applies to remittances provided in the form of cash, a money order, a cashier’s check, or any similar physical instrument. In general, the tax excludes transfers from accounts at financial institutions subject to the Bank Secrecy Act. The tax is imposed on the sender, but if it is not collected and paid over by the sender then the remittance transfer provider is liable for it. Rules similar to the anti-conduit rules under section 7701(l) and (presumably) Treasury Regulations section 1.881-3 apply to determine liability for the tax in the case of multiple-party arrangements involving the sender. The tax applies starting January 1, 2026.
No Tax on Overtime Pay
The OBBBA creates new section 225, which would provide a deduction for qualified overtime compensation. The annual deduction is limited to $12,500 ($25,000 for joint filers), and phases out for taxpayers whose modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). Only the overtime premium required to be paid under Section 7 of the federal Fair Labor Standards Act constitutes qualified overtime compensation for purposes of the OBBBA deduction. Presumably, overtime paid under more generous state laws would not be eligible for the deduction. The OBBBA requires that employers report the amount of qualified overtime compensation on the 2025 Form W-2 and Form 1099-NEC (for individuals who are not treated as employees for tax purposes).
No Tax on Tips
The OBBBA provides a below-the-line deduction for both itemizers and non-itemizers for “cash tips” (which includes tips received from customers that paid in cash or charged and for employees’ tips received from other employees under tip-sharing arrangements) received by individuals in an occupation which customarily and regularly receives tips. To be deductible, the tips must be included on Forms W-2, 1099-K, 1099-NEC, or 4317, as applicable. The annual deduction is limited to $25,000, and phases out for taxpayers whose modified adjusted gross income exceeds $150,000 (or $300,000 for joint filers). Treasury is instructed to issue a list of occupations that customarily received tips within 90 days of enactment. In addition, employers will need to prepare to change their 2025 Form W-2 (and to the extent relevant, Forms 1099) reporting processes to report qualified tips and the occupation in which an individual received tips, pending guidance from the IRS. New withholding procedures to account for the deduction are expected for calendar year 2026.
Employee Retention Credit
The OBBBA disallows any claim or refund filed under section 3134 that has not been paid by the IRS as of the date of enactment of the OBBBA, unless the claim was filed before January 31, 2024. Therefore, only COVID employee retention credit claims filed for the third and fourth quarters of 2021 are affected by the provision. The bill also extends the statute of limitations for such employee retention credit claims. The extended statute of limitations would generally expire on April 15, 2028, or six years from the date on which the claim for credit or refunds was filed, if later. The OBBBA also includes a number of penalty provisions intended to target “COVID-ERTC Promoters” for what the IRS views as illegitimate claims.
Increased Information Reporting and Backup Withholding Thresholds
For payments made after December 31, 2025, the OBBBA increases the threshold at which payers are required to file Forms 1099-NEC and 1099-MISC. The current $600 threshold has been enshrined in law for more than 70 years. For payments made after 2025, information returns will only be required under sections 6041 and 6041A if payments reportable under those sections aggregated to $2,000 or more during the calendar year. A corresponding change was made to the backup withholding threshold. The OBBBA also indexes the reporting threshold for inflation for years after calendar year 2026. This change does not affect other provisions with lower reporting thresholds such as dividends and bank interest, which both are subject to reporting at a $10 threshold.
Section 6050W, which requires information returns (Forms 1099-K) with respect to payments made by third party settlement organizations and merchant acquiring entities, has been the subject of controversy in recent years. When originally enacted, the law included a $20,000 and 200 transaction reporting threshold for third party network transactions. In 2021, Congress eliminated the transaction threshold and lowered the dollar threshold to $600, but transition relief from the IRS kept the new thresholds from ever taking effect. The OBBBA retroactively reinstates the $20,000 and 200 transaction threshold for third-party settlement organization reporting, and for 2025 and later years aligns the backup withholding threshold for such returns with the reporting threshold.
Employer-Provided Child-Care Credit
The OBBBA permanently increases the credit for employer-provided child care under section 45F. Under prior law, section 45F provided businesses a nonrefundable tax credit of up to $150,000 per year on up to 25 percent of qualified child care expenditures and 10 percent of qualified child care resources and referral expenditures. The legislation increases the maximum credit from $150,000 to $500,000, which would be indexed for inflation, and the percentage of qualified child-care expenses covered from 25 to 40 percent.
Paid Family and Medical Leave Credit
The OBBBA makes permanent the paid family and medical leave tax credit under section 45S, originally created as part of the TCJA.
Employee Moving Expenses
Before the TCJA, employers could reimburse employees tax-free for certain moving expenses for a job-related move that required them to relocate to a new home. To qualify the new job had to be at least 50 miles further away from their residence than their prior job was located. If the employer did not reimburse the employee, the employee was entitled to an above-the-line deduction for such expenses. The TCJA suspended both the employee exclusion for employer reimbursements of, and the personal deduction for, job-related moving expenses. The suspension of the exclusion was temporary and was scheduled to sunset at the end of 2025. However, the OBBBA makes the elimination permanent.
SALT Deduction
The TCJA placed a $10,000 cap on the federal deduction for state and local taxes (“SALT”). The OBBBA temporarily increases the SALT cap to $40,000 and adjusts it for inflation. The cap will be $40,400 in 2026, and then will increase by 1 percent each year, through 2029. The amount of the SALT deduction available phases down for taxpayers with modified adjusted gross income over $500,000 in 2025. The phasedown will be adjusted for inflation through 2029 and will reduce the SALT deduction by 30 percent of the amount by which the taxpayer’s modified adjusted gross income exceeds the threshold.
The OBBBA does not prohibit the workarounds that states enacted for passthrough entities and that Treasury previously blessed in Notice 2023-75.
Changes to Section 199A
Under the TCJA, section 199A was scheduled to expire for tax years beginning after December 31, 2025. The OBBBA makes section 199A permanent. However, the 199A deduction is limited based on wages paid and the basis of property held with respect to the qualified trade or business. Former 199A(b)(3) turned off this limitation when income was below a specified amount. The new law increases this specified amount, expanding the taxpayers who are not subject to the wage and basis limitation.
New section 199A(i) provides for a $400 minimum deduction, so long as the taxpayer has at least $1,000 of QBI from activities in which the taxpayer materially participates.
Termination of Miscellaneous Itemized Deductions
The OBBBA amends section 67(g) such that miscellaneous itemized deductions will never be allowed. Under prior law, these deductions would have become available for tax years beginning after December 31, 2025.
If you have any questions concerning the material discussed in this client alert, please contact any of the members of our Tax practice.
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