The “One Big Beautiful Bill Act” (the “BBB”) was signed into law by President Trump on July 4, 2025. The BBB generally extends certain tax provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”) that would have otherwise expired at the end of 2025 and implements other priorities of President Trump and the Republican-controlled Congress.
Below is a discussion of key provisions of the BBB, with a focus on provisions with significant economic impact on individuals, funds, and U.S. businesses, including firms with cross-border operations and activities. A summary of key provisions relevant to tax-exempt organizations can be found here.
Key Provisions for Individuals:
- Extension of Individual Tax Rates and Certain Modifications to Deductions.
- Extension of Income Tax Rate Schedules. The BBB generally makes permanent the income tax rate schedules for individuals, trusts and estates enacted by the TCJA (which had been set to revert to pre-TCJA levels for taxable years beginning after December 31, 2025). The maximum income tax rate will remain at 37% under the BBB, rather than reverting to the 39.6% pre-TCJA rate. Such extension was scored at ~$2.19 trillion by the Joint Committee on Taxation relative to present law, making it the most expensive tax provision in the BBB.
- Limits on Itemized Deductions. The BBB makes permanent the disallowance of miscellaneous itemized deductions, which include investment fees and expenses, legal fees, and tax preparation fees. The BBB permanently repeals the “Pease” overall limitation on the itemized deductions, though imposes a 35% rate cap on itemized deductions.
Ropes & Gray Observation: Deductions for management fees paid to managers of private investment funds will continue to be disallowed (assuming they do not qualify as trade or business expenses). The rules introduced in the TCJA disallowing miscellaneous itemized deductions had been set to sunset at the end of 2025.
- New Floor on Charitable Contributions. The BBB significantly limits the deductibility of charitable contributions for individuals who itemize deductions, by permitting such deductions only to the extent they exceed 0.5% of the individual’s adjusted gross income for the year. These provisions apply beginning after December 31, 2025.
Ropes & Gray Observation: The new floor on charitable deductions for individuals who itemize deductions could incentivize the acceleration of planned future charitable contributions to 2025, the bunching of contributions in specific years thereafter (potentially through increased utilization of donor-advised funds), and the shifting of contributions to years where adjusted gross income is lower.
- Changes to Cap on SALT Deductions. The TCJA had established a $10,000 cap on individual state and local tax (“SALT”) deductions which was set to expire in 2026. The BBB retained a cap but increased it to $40,000 for tax years 2025 and through 2029. In the case of a taxpayer with modified adjusted gross income (“MAGI”) over $500,000, the cap phases down by 30% of the excess of MAGI over the threshold, with such cap not to be reduced below $10,000. There is a 1% increase to the maximum cap amount and the MAGI threshold amount for tax years 2026 through 2029. The BBB permanently caps such SALT deductions at $10,000 for taxable years beginning after 2029.
Ropes & Gray Observation: The increase to the cap on SALT deductions may be of limited benefit to certain taxpayers due to the phaseout and the expiration after 2029. However, in contrast to earlier proposals, the final version of the BBB did not include any limits on the SALT “workarounds” by pass-through entities. In particular, Notice 2020-75 had provided authority for certain pass-through entities to deduct and include in non-separately stated income or loss certain state and local income taxes paid by the pass-through entities with respect to their owners (and many states had enacted corresponding “PTET regimes” permitting such pass-through entities to pay such taxes on behalf of owners), effectively eliminating the cap for such owners with respect to income from such pass-through entities. We expect many taxpayers will continue to benefit from these PTET regimes.
- Extension and Modification of 199A “Qualified Business Income” Deduction. The TCJA generally permitted certain individuals, trusts and estates a deduction of 20% of their “qualified business income,” which generally includes income from trades or businesses (but subject to limitation in the case of certain “specified” services businesses such as those in the fields of law, accounting, consulting, financial services) as well as certain REIT dividends and qualified publicly traded partnership income. The BBB makes this 20% deduction for qualified business income permanent. The BBB increases the range above the threshold amount over which the limitations based on W-2 wages and “specified” service trade or businesses phase in from $50,000 ($100,000 for joint returns) to $75,000 ($150,000 for joint returns). The BBB also includes a new, inflation-adjusted, minimum deduction of $400 for taxpayers who have at least $1,000 QBI from one or more active trades or businesses in which the taxpayer materially participates.
- Expansion of Qualified Small Business Stock Gain Exclusion. The BBB expanded the capital gains exemption available for ownership of “qualified small business stock” acquired after September 27, 2010 (“QSBS”). The BBB broadens a 100% capital gains exclusion for qualifying shares held for more than five years, subject to a per taxpayer per issuer cap, with a phase-in approach. QSBS acquired after the date of enactment that is held for (i) at least three years is eligible for 50% gain exclusion, (ii) at least four years is eligible for 75% gain exclusion, and (iii) at least five years will continue to be eligible for 100% gain exclusion. A taxpayer holding QSBS-eligible stock in a company is permitted to exclude gain that is the greater of (i) $15 million (increased from $10 million under pre-BBB law) or (ii) ten times the aggregate adjusted bases of QSBS disposed of by the holder. Stock only qualifies as QSBS if, among other requirements, the issuing corporation has less than $75 million (indexed for inflation and increased from $50 million under pre-BBB law) of aggregate gross assets at all times prior to the issuance of stock and less than $75 million of aggregate gross assets immediately after the issuance of stock. The gain exclusion phase-in and increase in per-issuer dollar cap apply to taxable years beginning after the date of enactment and the increase to the corporate-level aggregate asset ceiling applies to stock issued after the date of enactment.
Ropes & Gray Observation: The relaxation of the holding period requirements, the increased per-issuer cap, and the increased issuer asset ceiling expand investments eligible for the QSBS exclusion or a partial exemption. The phase-in will better align founders and investors regarding the timing and approach to investment exits. We expect early-stage private investment funds, including in the life sciences space, to consider availability of such exclusion in making and structuring investments.
- Extension of Limitation on Excess Business Losses. The BBB makes permanent the TCJA’s disallowance of deductions for “excess business losses” by noncorporate taxpayers. “Excess business losses” are generally losses attributable to a trade or business over the aggregate gross income attributable to such trade or business plus a threshold amount of $250,000 (or $500,000 for a joint return), as adjusted for inflation for tax years after December 31, 2025.
- No Changes to Taxation of Carried Interest. The BBB did not include any changes to the tax treatment of “carried interest.”
- Estate and Gift Tax Changes. The BBB permanently increases the estate and gift tax exclusion to $15 million for estates of decedents dying and gifts made after December 31, 2025, and indexes this exclusion for inflation.
Key Domestic Provisions for Businesses:
- Increased Deduction for Business Interest. Under Section 163(j) of the Code, the deduction for business interest expense is generally limited to 30% of “adjusted taxable income” (“ATI”), which for tax years beginning on or after January 1, 2022, has been based on “EBIT,” instead of “EBITDA.” The BBB permanently reinstates the EBITDA-based limitation that had been in effect for tax years before January 1, 2022, which will result in a higher ATI and therefore an increased deduction for business interest.
The BBB included other more technical amendments to Section 163(j), including by providing that (i) the Section 163(j) limitation is calculated prior to the application of any interest capitalization provision (with exceptions for interest capitalized under Sections 263A(f) and 263(g)) and (ii) subpart F and GILTI inclusions (including the associated Section 78 gross-up amounts and deductions allowed under Section 245A and 250 by reason of such inclusions) are not taken into account in determining ATI.
- Adjustments to Expensing, Depreciation and Amortization Provisions.
- Return of Immediate Expensing of Domestic Research and Experimental Expenditures. The BBB provides that effective for amounts paid or incurred in taxable years beginning after December 31, 2024, an immediate deduction will be permitted for certain domestic research or experimental expenditures. This immediate deduction had been permitted for tax years prior to 2022, but beginning in 2022, the TCJA required that taxpayers capitalize such expenditures and amortize them over five years.
Ropes & Gray Observation: While the return to immediate expensing for domestic research or experimental expenditures is favorable to taxpayers, the provision does not restore immediate expensing for foreign research or experimental expenditures available under the pre-TCJA historic approach (and such foreign expenditures must continue to be capitalized and amortized over 15 years). The same approach applies both to domestic corporations and controlled foreign corporations. Note that taxpayers who utilize third parties to conduct research and development activities may face challenges identifying domestic as opposed to foreign expenditures.
The BBB permits taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, to elect to accelerate the remaining deductions for such expenditures over a one-year period or a two-year period. The BBB also adds that small business taxpayers (that meet the gross receipts test in Section 448 permitting the cash method of accounting) will generally be permitted to apply this change retroactively to taxable years beginning after December 31, 2021.
Ropes & Gray Observation: Parties negotiating an agreement to dispose of or acquire a business may wish to consider the tax assets that may be generated as a result of any such election and whether it would be desirable to include specific provisions regarding (1) whether either such election will be made on a taxpayer’s tax return, (2) the rights to control post-closing elections, and (3) the rights to any tax refund or tax savings generated as a result of an election to apply the change retroactively or to accelerate deductions post-closing.
- Other Expanded Deductions. The BBB includes several other taxpayer-favorable provisions permitting expanded deductions, including (i) a 100% deduction for the cost of qualified property acquired and placed in service in the United States on or after January 19, 2025, and makes such expensing permanent; (ii) a 100% deduction for the cost of “qualified production property” (generally, property used as an integral part of manufacturing, production, or refining tangible personal property) placed in service before January 1, 2031; and (iii) increasing the maximum allowed deduction for the cost of “section 179 property” (generally, tangible property that would otherwise be subject to depreciation under Section 168 of the Code) from $1,000,000 to $2,500,000 (subject to further limitation for costs above a certain threshold amount).
Key International Tax Provisions:
- Withdrawal of Proposed Section 899 Retaliatory Tax. The BBB did not include proposed Section 899. Removal of Section 899 from the BBB was announced by President Trump after the Treasury Department and the other G7 countries reached an agreement not to apply Pillar II’s undertaxed profits rule and income inclusion rule to U.S.-parented corporate groups.
- Global Intangible Low-Taxed Income (GILTI).
- Modification to Deduction for GILTI. The BBB permanently reduces the Section 250 deduction for GILTI from 50% to 40% for taxable years beginning after December 31, 2025 (but it was otherwise set to decrease to 37.5% for such taxable years under the TCJA). The reduced deduction will result in an effective tax rate on GILTI of 12.6% (or 14% taking into account a 90% deduction for foreign taxes discussed below).
- Modifications to Determination of Deemed Paid Credit for Taxes Properly Attributable to Tested Income. Under pre-BBB law, U.S. corporations are generally permitted to offset 80% of foreign taxes paid or accrued that are properly attributable to CFC tested income for purposes of calculating its GILTI inclusion (the “FTC limitation”). The BBB increases this FTC limitation percentage to 90%.
- Rules for Allocation of Certain Deductions to Foreign Source Net CFC Tested Income for purposes of FTC limitation. To determine its FTC limitation, a taxpayer must first determine its taxable foreign source income by allocating and apportioning deductions between U.S.-source gross income and foreign-source gross income in each limitation category. The BBB provides that the deductions allocable to income in the GILTI category for foreign tax credit (“FTC”) purposes only include: (1) the Section 250 deduction relating to GILTI allowed under Section 250(a)(1)(B) (and any deduction allowed under Section 164(a)(3) for taxes imposed on such amounts), and (2) other deductions directly allocable to such income, except that no amount of interest expense or research and experimental expenditures may be allocated to such income. Any other deduction, including interest expense and research and experimental expenditures, will be allocated or apportioned to U.S.-source income.
Ropes & Gray Observation: The allocation of interest and research and development expenses incurred by a U.S. group to its controlled foreign corporation under pre-BBB law has significantly limited U.S. taxpayers’ ability to utilize FTCs, and for many taxpayers has very significantly increased the effective tax rate on GILTI inclusions. By no longer allocating such deductions in calculating the availability of foreign tax credits and by increasing the FTC limitation to 90%, the BBB will permit taxpayers to use additional foreign tax credits, lowering their effective tax rate on foreign earnings.
- Rules Related to Deemed Intangible Income. The BBB eliminates the net deemed tangible income return for qualified business asset investment (i.e., tax basis on foreign tangible assets) (“QBAI”) for GILTI provisions. As a result, the current GILTI is reclassified as “net CFC tested income.”
Ropes & Gray Observation: Eliminating QBAI takes a step away from the territorial-based tax features of the GILTI system, by no longer exempting a normal return on foreign tangible property investments. The change eliminates what was perceived as preferential treatment for foreign investment, particularly in respect of foreign manufacturing capacity.
- These provisions apply to taxable years beginning after December 31, 2025.
- Foreign-Derived Intangible Income (FDII).
- Modification to Deduction for FDII. The BBB permanently reduces the Section 250 deduction for FDII from 37.5% to 33.34% for taxable years beginning after December 31, 2025 (but it was otherwise set to decrease to 21.875% for such taxable years under the TCJA). The reduced deduction will result in an effective tax rate on FDII of 14%.
- Determination of Deduction Eligible Income (“DEI”). The BBB modifies the definition of DEI for purposes of determining FDII in two ways:
- Except as otherwise provided by the Treasury Secretary, DEI does not include any income from the sale or other disposition (including pursuant to a deemed sale or other deemed disposition or a transaction subject to Section 367(d)) of intangible property (as defined in Section 367(d)(4)) or property that is subject to depreciation, amortization or depletion. This provision applies to sales or other dispositions occurring after June 16, 2025.
- DEI will no longer be reduced by interest expense and research and experimental expenditures properly allocable to gross income. This limits reductions to DEI to other expenses (including taxes) that are directly allocable to such DEI. These changes apply to taxable years beginning after December 31, 2025.
- Rules Related to Deemed Intangible Income. The BBB eliminates the net deemed tangible income return for QBAI for FDII provisions. As a result, the current FDII is reclassified as “foreign-derived deduction-eligible income.” As noted above, the elimination of QBAI applies to taxable years beginning after December 31, 2025.
Ropes & Gray Observation: The BBB favorably changes the FDII deduction (referred to as FDDEI post-BBB) by permanently extending the 33.34% deduction which results in a 14% effective tax rate and by increasing the amount of income eligible for the FDDEI rate by eliminating reductions to DEI for interest expense and R&E expenditures and by eliminating the QBAI provisions. However, post-BBB, eligibility for FDDEI will be curtailed for any outbound transfer of all substantial rights in intangible property that is treated as a sale of the intellectual property (i.e., whether structured as an actual sale, a synthetic sale in the form of a perpetual exclusive license, or in situations where the outbound transfer of the intellectual property in a tax free qualified reorganization or exchange is deemed to produce a deemed super-royalty under section 367(d)). By contrast, the BBB still permits FDDEI benefits for certain transfers of non-U.S. intellectual property respected as a license for U.S. tax purposes. Whereas taxpayers previously could have received FDII treatment from non-U.S. intellectual property transfers treated as either a sale or a license, the revised FDDEI rules require careful structuring and strong documentation to substantiate the intended treatment of the transfer.
- Modification of Base Erosion Minimum Tax Amount. Under the TCJA, the base erosion minimum tax amount under Section 59A applicable to certain corporations with payments to foreign-related parties generally equals the excess of 10% of the taxpayer’s modified taxable income over the taxpayer’s regular tax liability (with certain adjustments). The percentage would have increased to 12.5% for taxable years after 2025, but the BBB permanently changes the percentage to 10.5%, effective for taxable years beginning after December 31, 2025.
- Restoration of Limitation on Downward Attribution of Stock Ownership in Applying Constructive Ownership Rules. Under pre-BBB law, due to the repeal of Section 958(b)(4) under the TCJA, downward attribution of certain stock of a foreign corporation owned by a foreign person to a related U.S. person is required for purposes of determining whether the U.S. person is a U.S. shareholder of the foreign corporation and, therefore, whether the foreign corporation is a CFC. The BBB restores Section 958(b)(4) (i.e., restores the limitation on the downward attribution of stock ownership). It also creates a new Section 951B to allow for downward attribution from a foreign person in certain cases involving related parties to eliminate the benefits from transactions undertaken to “de-CFC” foreign subsidiaries. This change applies to taxable years beginning after December 31, 2025.
Ropes & Gray Observation: The change will significantly reduce the number of entities that can be treated as controlled foreign corporations, including for private investment funds organized in non-U.S. jurisdictions. In addition to reducing the instances where a taxpayer is treated as 10 percent U.S. shareholder of a CFC (and therefore required to include subpart F income and GILTI (under former law)/net CFC tested income (post-BBB)), the change in law will significantly reduce the circumstances that require filing a Form 5471 and the corresponding administrative burden.
