July 8, 2025

Big Beautiful Bill remains beautiful for businesses

Kristen Martin, Ellen McElroy, Brighid O'Donoghue, Michael Resnick

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Eversheds Sutherland (US) LLP

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law (the new law). The new law includes permanent extensions of three key business-favorable tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA), which are substantially similar to the provisions in the proposed Senate Finance text that was released on June 16, 2025. We have released prior alerts addressing the House version of the bill and the Senate Finance Committee version of the bill.

Bonus Depreciation

The new law allows an immediate 100% depreciation deduction for qualified property acquired, planted, or grafted, as applicable, after January 19, 2025. The new law also retains the transitional election from the Senate Finance Committee proposal, such that taxpayers may elect to apply a reduced depreciation deduction of 40% (or 60% in the case of property with a longer production period and certain aircraft) with respect to certain qualified property placed in service during the first tax year ending after January 19, 2025. The new law further clarifies that property is treated as acquired no later than the date on which a written binding contract is entered into with respect to the acquisition.

Proposed New Section 168(n)

The House bill originally introduced new Section 168(n), which provides an election whereby taxpayers may deduct 100% of the adjusted basis of qualified production property in the year such property is placed in service. The new law makes no changes to the version proposed by the Senate Finance Committee.

Generally, if a taxpayer makes an election, the depreciation deduction would include an allowance of 100% of the adjusted basis of the qualified production property in the year such property is placed in service. Qualified production property is generally nonresidential real property, such as factories. In order to be eligible for the election, the property must begin construction after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031. The new law informs taxpayers on how to make the election, which is generally irrevocable except in “extraordinary circumstances” with the Treasury Secretary’s consent. Section 1245 depreciation recapture applies if the property ceases to be used as qualified property within ten years of its placed-in-service date. Section 168(n) is effective with respect to property placed in service after July 4, 2025.

Eversheds Sutherland Observation: It is encouraging that the new law expands bonus depreciation for businesses. The permanency that has been enacted is a welcome improvement to the initial House bill, as it provides greater stability and certainty for companies, which will allow them to plan not only for the short-term, but also for long-term future investment. The transitional election for bonus depreciation allowing taxpayers to elect to apply reduced depreciation deductions for certain qualified property placed in service during the first tax year ending after January 19, 2025, offers additional flexibility for companies seeking to claim bonus depreciation.

The new election to immediately expense qualified production property under Section 168(n) has received much attention and interest from businesses. Unfortunately, however, the new law leaves certain critical terms impacting the scope and application of the election uncertain. The Section 168(n) provision grants a very limited timeframe during which companies must begin and complete construction of major projects requiring significant investment, and for this reason, companies must carefully consider the requirements that may be gleaned from the statute, as enacted, to determine whether to make investments relying on the new provision. Questions remain regarding what constitutes an integral part of a production activity and when construction “begins.” Further, the statute fails to clarify the difference between “manufacturing” and “production.” Consequently, to claim the favorable tax benefit, it will be important for taxpayers to confirm whether specific construction projects are eligible for accelerated recovery under the election.

Adjustments to Section 163(j)

The new law permanently reinstates the addback for depreciation, amortization, and depletion deductions for purposes of determining adjusted taxable income (ATI) for tax years beginning after December 31, 2024. The new law also retains the provision from the Senate Finance Committee proposal that permanently excludes subpart F and GILTI inclusions, along with the associated Section 78 gross-up amounts, from the calculation of a taxpayer’s ATI for purposes of the Section 163(j) limitation. This exclusion is effective for tax years beginning after December 31, 2025.

The new law also retains the Senate Finance Committee’s new ordering rule that applies the Section 163(j) limitation on business interest expense prior to any elective capitalization. Accordingly, under the new law, Section 163(j) will apply to business interest regardless of whether the taxpayer would otherwise deduct or capitalize the interest expense. All capitalized interest, other than interest required to be capitalized under Section 263(g) or Section 263A(f), would be business interest subject to the limitation. This provision is effective for tax years beginning after December 31, 2025.

Eversheds Sutherland Observation: The new law provides incentives for domestic investment by businesses, particularly in light of the compounded benefit of immediate expensing for qualified property coupled with the depreciation addback for determining ATI under Section 163(j). The provisions taken together could allow for a 30% increase in the benefit that would be available under Section 168(k) alone. In other words, for companies that take advantage of bonus depreciation, every ten dollars of investment in qualified property during a given tax year could allow for an extra three dollars of business interest expense to be recovered that year. Companies should consider how capital investment may impact their Section 163(j) postures. We expect these statutory changes will be appreciated by businesses in highly leveraged industries.

While the new law retains the new ordering rule for elective capitalized interest under Section 163(j), it did not include the proposal to treat elective capitalized interest as a base erosion payment under Section 59A.

For highly leveraged companies, as a result of the effective date provisions for Section 163(j), it will be important to consider how interest limitations may be addressed in the 2024 and 2025 tax years, and whether different strategies may need to be considered in 2026 and later tax years.

R&E Expensing

The new law permanently allows a current deduction with respect to domestic research or experimental (R&E) expenditures paid or incurred in tax years beginning after December 31, 2024. To effect this change to Section 174 as modified by the TCJA, the new law introduces new Section 174A, which would allow taxpayers to deduct domestic R&E expenditures or make an election to capitalize and amortize such expenditures ratably over sixty months. Foreign R&E expenses are still required to be capitalized and amortized over 15 years pursuant to Section 174. The new law retains the small business taxpayer election permitting certain taxpayers to retroactively deduct domestic R&E expenditures paid or incurred after December 31, 2021. The new law also retains the election to deduct unamortized domestic R&E in the first tax year beginning after December 31, 2024, or ratably over the two-tax-year period beginning with the first tax year beginning after December 31, 2024.

Eversheds Sutherland Observation: Companies are likely to appreciate that the new law provides transitional and procedural guidance for complying with the amended treatment of domestic R&E. This will help to avoid certain administrative hurdles experienced by taxpayers following the expiration of immediate expensing for R&E in 2022.

The permanency granted under the new law with respect to the treatment of research costs will also provide greater stability and certainty for companies enabling businesses to plan not only for the short-term, but also for long-term future investment. As a result of the legislative change, it will be important for companies to consider whether and when accounting method changes may be made to take into account the statutory revisions under Section 174. In addition, now that the statute has been modified, it is hoped that final regulations will be issued clarifying outstanding issues arising under Section 174 so that taxpayers may properly address the treatment of research activities undertaken in the United States.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.