President Trump signed the One Big Beautiful Bill Act (OBBB Act) into law on Friday July 4, 2025. Among other changes to existing federal tax laws (many of which are discussed by other alerts from this firm), the OBBB Act extends, modifies, and makes permanent many provisions of the tax legislation passed during President Trump’s first term popularly known as the 2017 Tax Cuts and Jobs Act (TCJA). The OBBB Act will have significant implications to tax deductions and tax computations for business taxpayers in a number of respects. Specifically, the OBBB Act contains many extensions and modifications to deductions for expenditures that under previous law taxpayers were required to capitalize and recover through depreciation or amortization. The most significant of these changes are discussed below.
100% Bonus Depreciation For Most Tangible Personal Property
The OBBB Act restores the generous 100% deduction for certain newly placed in service tangible personal property that was introduced by the TCJA that had begun to phase-out.
Section 168(k) of the Internal Revenue Code of 1986, as amended (Code), permits taxpayers to deduct “bonus” depreciation for certain “qualified property” in the taxable year that the property placed in service. For purposes of Code section 168(k), “qualified property” includes nearly all tangible personal property with a normal depreciable period of less than 20 years, certain computer software, and certain film, television, and live theatrical productions, provided that the taxpayer is the first person to place the property in service. Under Code section 168(k), taxpayers can deduct bonus depreciation equal to the “applicable percentage” of the tax basis of newly acquired property in the year placed in service. Under the TCJA, the “applicable percentage” for most qualified property was 100% for property placed in service during 2018 through 2022, 80% for property placed in service during 2023, 60% for property placed in service during 2024, 40% for property placed in service during 2025, and 20% for property placed in service during 2026.
The OBBB Act restores 100% bonus depreciation for qualified property placed in service after January 19, 2025, and makes the restoration permanent without any scheduled future reductions. Consequently, taxpayers can now deduct 100% of the cost of acquiring or producing most qualified property in the year the property is placed in service in lieu of depreciating the property.
Increased Code Section 179 Expensing
The OBBB Act increases the ability of taxpayers to deduct 100% of the cost of certain tangible personal property acquired by purchase.
Code section 179 permits taxpayers to elect to deduct, in lieu of depreciating, 100% of the cost of acquiring “section 179 property” in the year the property is placed in service. Under the TCJA, a taxpayer cannot elect to deduct more than $1.25 million of section 179 property in the aggregate during 2025. If a taxpayer places more than $3.13 million of section 179 property in service in 2025, the $1.25 million limitation is reduced dollar-for-dollar by the amount by which the section 179 property the taxpayer places in service during 2025 exceeds $3.13 million. The $1.25 million limitation and $3.13 million phaseout are adjusted annually for inflation. With certain exceptions, the definition of “section 179 property” largely overlaps with the definition of “qualified property” under Code section 168(k), except that section 179 property is defined to mean property acquired by purchase whose original use does not need to originate with the taxpayer.
The OBBB Act increases the statutory limit for elective expensing under Code section 179 from $1.25 million in 2025 to $2.5 million and the phaseout amount from $3.13 million in 2025 to $4 million. The $2.5 million limitation and $3.13 million phaseout amounts continue to be adjusted annually for inflation.
New 100% Deduction for Qualified Production Property
The OBBB Act adds new Code section 168(n), which allows taxpayers to elect to deduct 100% of the cost of “qualified production property” (QPP) in the year the taxpayer places the QPP in service. QPP means nonresidential real property (1) that the taxpayer uses as an integral part of producing a “qualified product,” (2) that is placed in service in the United States or a territory or possession of the United States, (3) whose original use commences with the taxpayer, (4) for which construction begins after January 19, 2025, and is completed before 2030, and (5) that the taxpayer places in service before 2031. “Qualified products” include any tangible personal property other than food or beverages prepared in the same building as a retail establishment in which such products are sold, tax-exempt use property, tax-exempt bond financed property, certain imported property, and real property held by electing real property trades and businesses. If a taxpayer ceases to use the QPP to produce qualified products within ten years after placing the QPP in service, the taxpayer will be treated as having sold the QPP for its original cost basis with all the gain treated as recapture income under Code section 1245. For non-corporate taxpayers, the Code section 168(n) deduction is not an alternative minimum tax (AMT) preference item.
Full Expensing of Domestic Research and Experimental Expenditures
The OBBB Act includes generous provisions permitting taxpayers to deduct currently most non-depreciable costs associated with research and experimental activities conducted in the United States.
The OBBB Act adds new Code section 174A, under which taxpayers can elect to deduct, in lieu of capitalizing, any domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024. Alternatively, a taxpayer can elect to capitalize domestic research and experimental expenditures and amortize them over a period of not less than 60 months (five years). Domestic research and experimental expenditures include the costs of software development but do not include the cost of land, depreciable property acquired in connection with research and development, mineral exploration expenses, and research or experimental activities that take place outside the United States. As under current law, the amount of the deduction available under Code section 174A is reduced by the amount claimed as a credit under Code section 41.
In addition to the 100% expensing of research and experimental expenditures incurred after 2024, “eligible taxpayers” can elect to apply Code section 174A retroactively to years 2022 through 2024 and deduct all research and experimental expenditures incurred in those years. An “eligible taxpayer” is a taxpayer with average annual gross receipts of $30 million or less for the three previous taxable years. Additionally, any taxpayer can elect to deduct any unamortized research and experimental expenditures that the taxpayer incurred from 2022 through 2024 and previously capitalized. The taxpayer can deduct the unamortized expenses either entirely in 2025 or ratably over 2025 and 2026. A taxpayer’s election to apply Code section 174A retroactively or to deduct unamortized research and experimental expenditures is treated as a change in accounting method under Code section 481.
Deduction for Qualified Business Income
The TCJA added Code section 199A, under which certain non-corporate taxpayers could deduct 20% of their qualified business income (QBI) from a partnership, S corporation, or sole proprietorship. The section had been set to expire at the end of this year. The OBBB Act makes the QBI deduction permanent with certain enhancements.
Under existing law, the QBI deduction for taxpayers whose taxable incomes exceed threshold amounts $197,300 for single filers or $394,600 for joint returns is limited to the greater of (1) 50% of the W-2 wages from the partnership, S corporation, or sole proprietorship, or (2) the sum of 25% of the W-2 wages and 2.5% of the unadjusted cost basis of qualified property of the partnership, S corporation, or sole proprietorship. Additionally, these taxpayers cannot deduct any business income from specified service trades and businesses, which are those trades or businesses whose principal asset is the reputation or skill of its employees. Specified service trades and businesses specifically include health, law, investing and investment management, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage services. The limitation on the QBI deduction begins to phase in for taxpayers whose taxable incomes exceed the threshold amounts until taxable income is equal to $50,000 greater than the threshold amount for single filers ($247,300 in 2025) or $100,000 greater than the threshold amount for joint returns ($494,600 in 2025). The threshold amounts are adjusted annually for inflation.
The OBBB Act increases the upper limit of the phaseout to $75,000 in excess of the threshold amount for single filers and to $150,000 in excess of the threshold amount for joint returns. Additionally, the OBBB Act adds a minimum $400 QBI deduction for “applicable taxpayers.” An “applicable taxpayer” is any taxpayer with at least $1,000 of QBI from active qualified trades or business. Both the $400 and $1,000 amounts are adjusted annually for inflation.
Unlike many other changes to the Code made by the OBBB Act, the modifications to Code section 199A generally take effect only for taxable years beginning after December 31, 2025 (taxable years that start in 2026 or later).
