President Trump signed the One Big Beautiful Bill (OBBB) into law on July 4. It has several key tax provisions that we are highlighting in this alert.
State & Local Tax Deduction: $40,000
Under the 2017 Tax Cuts and Jobs Act (TCJA), taxpayers could only deduct up to $10,000 of state and local taxes. The OBBB increases the cap to $40,000 through 2029. The $40,000 cap begins to phase down for incomes above $500,000.
In 2030, the cap reverts to $10,000. While a previous version of the bill would have limited the benefit of Pass-Through Entity Tax (PTET) regimes, those limits were removed from the final bill.
Cost Recovery Changes
The 100% bonus depreciation under Section 168(k) has been restored and made permanent. This benefit was previously available from 2017 through 2022 but had been reduced to a 40% deduction for property placed in service in 2025.
In a related cost recovery change, the maximum amount a taxpayer could expense under Section 179 was increased from $1 million to $2.5 million.
The OBBB also allows a full and immediate deduction of the cost of “qualified production property.” The property must be involved in the manufacturing, production or refining of tangible personal property.
The TCJA rule that required amortization of domestic research and development activities was also changed to allow for immediate expensing of such costs.
Qualified Small Business Stock
Under prior Section 1202, up to 100% of the gain from qualified small business stock could be excluded from income if the stock was held for more than five years. Unless the taxpayer could complete a rollover under Section 1045, there was no benefit under Section 1202 for stock held for less than five years.
The OBBB introduces graduated benefits under Section 1202:
- Stock held for at least three years qualifies for a 50% gain exclusion.
- Stock held for four years qualifies for a 75% gain exclusion.
- Stock held for at least five years remains eligible for a 100% exclusion.
Green Tax Credits: Targeted
A subchapter of the OBBB titled “Termination of Green New Deal Subsidies” terminates, or significantly limits, many clean energy related tax credits. The tax credits targeted include: electric vehicle tax credits (for new and used cars), the alternative fuel vehicle refueling property credit, the energy efficient home improvement credit, the clean hydrogen production credit and the clean electricity production credit. Taxpayers who planned to utilize any energy-related tax credits should assess the impact of the OBBB on their plans.
Permanence for Opportunity Zones
The Opportunity Zone program, which already had some of its benefits phased out and was set to be closed to new investments after 2026, is now a permanent program. New opportunity zones will be designated every 10 years, and gain invested into a qualified opportunity fund may be deferred for five years. If the investment is held for five years, the taxpayer may qualify for a 10 or 30 percent discount on the deferred gain.
Qualified Business Income Deduction
The TCJA introduced Section 199A, which generally provided a 20% deduction for certain income flowing through a pass-through entity (qualified business income). The deduction was set to expire at the end of 2025 but was made permanent by the OBBB.
Had the OBBB not become law, higher marginal tax rates would have also returned for 2026. When combined with the loss of the QBI deduction, this would have significantly increased the effective tax rate on income from pass-through entities.
International Tax: No Retaliation
The most significant international tax development is that the tool proposed in the House version of the bill — allowing the U.S. to impose retaliatory taxes on countries imposing an “unfair foreign tax” — did not make it into law. The Senate completely removed the proposed new Section 899.
Compared to the TCJA, the OBBB makes relatively minor changes to current international tax rules. Notably, the controlled foreign corporation (“CFC”) “look-thru” rule under Section 954(c)(6) was finally made permanent after being extended numerous times. In addition, Section 958(b)(4) (which limits downward ownership attribution from foreign to U.S. persons) was reinstated.
