On July 4, 2025, the federal government enacted H.R. 1, “An Act to provide for reconciliation” which is popularly known as the One Big Beautiful Bill Act (“OBBBA”). OBBBA’s 870 pages included significant tax changes, making some provisions of the Tax Cuts and Jobs Act of 2017 (“TCJA”) permanent and adding new tax provisions. Some key domestic tax provisions relating to Businesses, Individuals, and Tax-Exempt Organizations are summarized below.
Note that these summaries may be further elaborated or altered as Treasury Regulations and other guidance are issued. We will update this page when such guidance is available.
Businesses
Qualified Small Business Stock (“QSBS”) Benefits Enhanced: OBBBA made several changes to the QSBS rules for stock issued after July 4, 2025: (i) the issuing company can have gross assets worth up to $75,000,000 before and immediately after the issuance (up from $50,000,000); (ii) stockholders can exclude up to $15,000,000 of gain from the sale of QSBS (up from $10,000,000); and (iii) in addition to excluding 100% of the gain after holding QSBS for 5 years before disposal, stockholders can exclude 50% of the gain after holding QSBS for 3 years or 75% after holding it for 4 years (previously stockholders had to hold QSBS for 5 years to receive any gain exclusion). The $75,000,000 and $15,000,000 thresholds will be adjusted annually for inflation for tax years beginning after 2026.
Domestic Research & Development (“R&D”) Expenses Fully Deductible Again: Beginning with a business’s first tax year beginning after December 31, 2024 (“First Domestic R&D Year”), the business can deduct 100% of its domestic R&D expenditures or elect to amortize them over a period not less than 60 months, effectively returning to pre-TCJA rules. Small businesses (i.e., less than $31,000,000 in average annual gross receipts for the 3 taxable years before the First Domestic R&D Year) can claim the 100% deduction for domestic R&D expenditures for all tax years beginning after December 31, 2021, by filing amended tax returns. All businesses can deduct unamortized amounts of domestic R&D expenditures incurred during tax years beginning after December 31, 2021, and before January 1, 2025, in either the First Domestic R&D Year or ratably over two years beginning with the First Domestic R&D Year.
Percentage of Completion Exemption Expanded: The exemption from the percentage-of-completion accounting method is expanded from “home construction contracts” (limited to buildings with four or fewer dwelling units) expected to be completed within 2 years to “residential construction contracts” (adding larger multi-family developments) expected to be completed within 3 years. This change applies to contracts entered into in taxable years beginning after July 4, 2025.
Employee Retention Tax Credit (“ERTC”) Fraud Crackdown: The IRS is not allowed to issue refunds for ERTC claims filed after January 31, 2024, and the IRS now has 6 years from the date of filing ERTC claims to review and challenge them. Also, ERTC promoters face penalties of $1,000 per violation if they fail to comply with due diligence requirements for advice provided after July 4, 2025.
Bonus Depreciation Extended at 100% Indefinitely: The bonus depreciation provided by TCJA will no longer expire in 2026 and will allow 100% depreciation for qualified property acquired after January 19, 2025 (as opposed to the phaseout under TCJA which only allowed 40% bonus depreciation in 2025). Property will be treated as acquired no later than the date on which a written binding contract is entered into to acquire the property.
New Bonus Depreciation for Qualified Production Property: Businesses can now elect to depreciate 100% of certain nonresidential real property located in the U.S. or a U.S. possession which is (i) used as an integral part of the manufacturing, agricultural or chemical production, or refining of certain tangible personal property, (ii) constructed beginning on a date after January 19, 2025, but before January 1, 2029, (iii) placed into service after July 4, 2025, but before January 1, 2031, and (iv) whose original use begins with the taxpayer. If the property ceases to be used for activities described in clause (i) above within 10 years of being placed into service, the taxpayer must include in its income for the year of cessation the entire amount originally expensed under this rule.
Depreciable Property Expensing Amounts Increased: For depreciable property that (i) qualifies under Section 179[i] and (ii) is placed in service in tax years beginning after December 31, 2024, a business can expense up to $2,500,000 of its cost, although that limit is reduced by the excess of its cost over $4,000,000, and both values will be adjusted annually for inflation beginning in 2026 (2025 values had been approximately $1,250,000 and $3,130,000 after being adjusted for inflation).
Opportunity Zone Program Extended Indefinitely: OBBBA creates a new permanent framework for qualified opportunity zones (“QOZs”), along with tightening the standards for QOZs and adding reporting requirements. The boundaries of opportunity zones will be defined for 10-year periods beginning July 1, 2026, and every 10 years after that. Deferred gain will be recognized on the earlier of the disposition of interests in a Qualified Opportunity Fund or 5 years from the date of the investment in the Qualified Opportunity Fund. If the recognition date is 5 years after the investment, the taxpayer’s gain will be decreased by 10% of the deferred gain (30% for rural QOZs). As was the case before OBBBA, if the taxpayer holds the QOZ investment for at least 10 years, the taxpayer will not recognize gain on the appreciation of the QOZ investment (if it holds the investment more than 30 years, this exclusion only takes into account the appreciation during the first 30 years).
Qualified Business Income Deduction Extended Indefinitely: The Section 199A 20% Qualified Business Income deduction provided by TCJA will no longer expire in 2026. In 2026, its benefits will be increased as income thresholds for phase-ins rise to $75,000 ($150,000 for joint filers) from $50,000 ($100,000 for joint filers) and a new minimum $400 deduction will be given to taxpayers who have at least $1,000 Qualified Business Income from active businesses in which they participate regularly, continuously, and substantially. The $400 deduction and the $1,000 threshold will be adjusted annually for inflation beginning in 2027.
Business Interest Limitation Eased: For the 30% limitation on deductions of business interest expenses, Adjusted Taxable Income will be calculated without deducting depreciation, amortization, or depletion expenses for tax years beginning after December 31, 2024, which should increase the amount of interest that can be deducted from taxable income.
Excess Business Loss Limitation Extended Indefinitely: The limitation on deductibility of excess business losses of noncorporate taxpayers will no longer expire in 2028.
Individuals
Lower Tax Rates Extended Indefinitely: The TCJA individual tax rates will no longer expire in 2026 (which would have resulted in higher tax rates for most individuals, with the highest marginal tax rate going up to 39.6% from 37%) and will continue indefinitely with annual inflation adjustments to the income thresholds for each tax rate.
Higher Standard Deduction Extended Indefinitely: The higher standard deduction provided by TCJA will no longer expire in 2026. For 2025, the standard deduction is bumped up to $15,750 for single filers, $31,500 for married-filing-jointly, and $23,635 for heads of household, with annual inflation adjustments to the standard deductions beginning in 2026.
Personal Exemptions Eliminated Indefinitely Except for New Senior Citizen Deduction: TCJA’s general elimination of deductions for personal exemptions will no longer expire in 2026. However, a temporary annual deduction of $6,000 is available from 2025 to 2028 for individuals who (i) are 65 or older at the end of the year and (ii) have a social security number. For a married couple, each spouse can claim the full amount, whether filing jointly or separately. The $6,000 deduction is reduced, but not below zero, by 6% of the taxpayer’s Modified Adjusted Gross Income that exceeds $75,000 ($150,000 for married-filing-jointly).
Estate and Gift Tax Exemption Raised: The basic exclusion amount for estate taxes will be raised to $15,000,000 per individual (totalling $30,000,000 for couples filing jointly) for gifts made after December 31, 2025, and for the estates of people who die after December 31, 2025, with annual inflation adjustments beginning in 2027.
State and Local Taxes (“SALT”) Cap Temporarily Raised: OBBBA raises the SALT cap to $40,000 for 2025 and reverts it back down to $10,000 in 2030 and future years. The SALT cap is phased out for taxpayers with Modified Adjusted Gross Income over $500,000, but never below $10,000. The $40,000 limitation and the $500,000 phase-out threshold increase by 1% a year from 2026 through 2029. There is no change in the federal treatment of state pass-through entity tax regimes that mitigate the impact of the SALT cap.
New Limitation on Itemized Deductions: Beginning in 2026, a taxpayer’s total itemized deductions will be reduced by 2/37 of the lesser of (i) total itemized deductions or (ii) the excess of the taxpayer’s taxable income (adding back in total itemized deductions) over the amount at which the 37% individual tax rate bracket begins with respect to the taxpayer (e.g., in 2025, $626,350 for a single filer and $751,600 for married filing jointly).
Some Tip Income Temporarily Offset by New Deduction: From 2025 through 2028, OBBBA grants a deduction for qualified tips up to $25,000 paid in cash or charged and received in an occupation that traditionally received tips before 2025. Treasury Regulations will be issued by October 2, 2025, to specify those occupations. Qualified tips must be determined and paid voluntarily by the customer. The $25,000 limitation is phased out for taxpayers with Modified Adjusted Gross Income over $150,000 ($300,000 married-filing-jointly). This deduction is available to taxpayers that do not itemize deductions.
Some Overtime Income Temporarily Offset by New Deduction: From 2025 through 2028, OBBBA grants a deduction for qualified overtime compensation up to $12,500 ($25,000 married-filing-jointly). Qualified overtime compensation only includes compensation for overtime worked that exceeds the employee’s regular hourly rate and cannot include qualified tips described above. The $12,500/$25,000 limitation is phased out for taxpayers with Modified Adjusted Gross Income over $150,000 ($300,000 married-filing-jointly). This deduction is available to taxpayers that do not itemize deductions.
Tax-Exempt Organizations
Executive Compensation Excise Tax Expanded: For tax years beginning after December 31, 2025, the 21% executive compensation excise tax on tax-exempt organizations will apply to every employee’s compensation exceeding $1,000,000, not just the organization’s 5 highest-compensated employees.
Excise Tax on Private Universities Increased: For tax years beginning after December 31, 2025, the tax on the net investment income of a tax-exempt private college or university with at least 3,000 tuition-paying students and an endowment per student (“EPS”) of at least $500,000 will range from 1.4% to 8% based on its EPS (previously it was a flat 1.4% and extended to schools with as few as 500 tuition-paying students). OBBBA also adds reporting requirements and adjusts the calculation of net investment income.
The OBBBA is very complex, and even the issues summarized above often have additional requirements. We would be happy to consult with you on the potential tax ramifications of OBBBA for you and your business.
This summary does not include or address every provision of OBBBA. Any information contained in this communication is not intended as a thorough, in-depth analysis of specific issues. It is also not sufficient to avoid tax-related penalties. This has been prepared for informational purposes and general guidance only and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific legal advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and Hinckley Allen, its members, employees, and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
[i] Unless specifically stated otherwise, all Section references refer to the Internal Revenue Code of 1986, as amended.
