On May 22, 2025, the House Budget Committee approved the President Trump-supported tax legislation called the One Big Beautiful Bill Act (the “OBBBA”). As the OBBBA works its way through Congress with the Senate targeting a self-imposed July 4th deadline, the House-approved version contains certain provisions that are expected to have a significant impact on mergers and acquisitions (“M&A”) activity and ongoing business operations in the U.S. energy sector.
This article discusses the OBBBA’s impact on current and future M&A deals as well as the ongoing business operations of domestic energy companies and their owners, outlining key tax implications for the industry.
A cornerstone of OBBBA is the restoration of 100% first-year bonus depreciation for assets placed in service after January 19, 2025, reversing the phase-down scheduled under the Tax Cuts and Jobs Act (the “TCJA”). Additionally, it doubles the Section 179 expensing cap (from $1.25 million to $2.5 million) with phase-outs starting at $4.0 million.
Why it matters for M&A: Buyers of asset-heavy targets (e.g., manufacturers or energy infrastructure firms) could accelerate depreciation deductions post-acquisition, enhancing near-term cash flow and deal returns. However, this creates additional complexities on the purchase price allocation due to conflicting tax objectives: the buyer typically favors a higher allocation to maximize depreciation deductions while the seller prefers a lower allocation to minimize the depreciation recapture exposure.
Why it matters for businesses: Business owners would be able to deduct 100% of the cost of the new asset in the first year it is placed in service instead of depreciating the assets over many years. This represents immediate tax savings resulting in improved cash flow that encourages additional investment in equipment, technology, and property. For capital intensive industries such as the energy sector, it can significantly improve a transaction’s economics as it has a direct impact on federal income tax liability.
The OBBBA empowers leveraged acquisition structures by restoring earnings before interest, taxes, depreciation, and amortization (“EBITDA”) as the basis for determining interest deductibility under Section 163(j). Prior limits set under the TCJA capped interest deductibility for high-debt-financed deals and hindered leveraged buyout feasibility.
Why it matters for M&A: Deal activity and volume are often driven by private equity or similarly structured investors who look to buy and sell target companies or assets more frequently to increase their returns. For private equity and other debt-heavy deals, the prospect of less restrictive debt treatment could revitalize transaction volumes and financing flexibility.
Why it matters for businesses: Switching back to the EBITDA from EBIT to determine interest expense deductibility is a big win for existing leveraged businesses with large depreciation and amortization deductions, such as the energy industry. The use of EBIT enhances after-tax cash flow, reduces the effective cost of borrowing and improves financial flexibility which will encourage investment, growth, and job creation.
The draft of the OBBBA released by the Senate Finance Committee on June 16th includes a significant expansion to the gain exclusion rules for qualified small business stock (“QSBS”) under Section 1202. The current rules for QSBS allow noncorporate business founders and investors to exclude 100% of the capital gains tax when selling their stock in the business so long as they have owned the stock for more than five years and the gross assets of the business from formation to issuance of the stock do not exceed $50 million. The maximum excludible gain is currently $10 million per taxpayer.
The Senate Finance Committee’s version phases in the excludible gain, increases the overall cap on the gain, and increases the aggregate gross assets test to qualify for the exclusion. Under the revised rules, QSBS held for at least three years and four years would be eligible for 50% and 75% of gain exclusion, respectively. Additionally, the current threshold of $10 million would be increased to $15 million. Furthermore, the aggregate gross assets test which currently requires the business’ assets from the date of inception to the issuance of the QSBS to not exceed $50M would be increased to $75 million.
Why it matters for M&A: The QSBS is a large gain exclusion for sellers who started the target business from its inception. Although difficult to qualify for, if the requirements are met, the gain exclusion offers instant cash tax savings to the seller.
Why it matters for businesses: Extending the QSBS and phasing in the excludible gain allows owners of startups and growing businesses to attract equity financing and supports entrepreneurship by minimizing the tax implications of a sale to the seller.
The House-approved version of the OBBBA increased the state and local tax (“SALT”) deduction for individuals from $10,000 to $40,000. This significant increase was heavily lobbied for by House members representing states with high property taxes and high incomes. However, it would only apply to non-high-income earners. This increase would be effective starting in tax year 2025. The Senate, however, has proposed keeping the cap at $10,000 although negotiations are still ongoing.
Why it matters for M&A: Buyers and sellers may factor state tax burdens into valuation. If the SALT deduction is limited, sellers may require higher gross proceeds to achieve the same after-tax result, potentially impacting pricing dynamics.
Why it matters for businesses: In response to the SALT cap, many states have enacted Pass-Through Entity tax regimes, allowing pass-through businesses to elect to pay state income tax at the entity level. This effectively restores the full deductibility of state taxes but burdens the entities’ cash flow, rather than the individuals. A higher SALT cap may mean less entities making the election and passing through the burden to its owners, resulting in higher cash flows and reduced tax liabilities at the entity level.
The qualified business income (“QBI”) deduction under Section 199A was established by the Tax Cuts and Jobs Act for tax years beginning in 2018. Under current law, eligible pass-through business owners (sole proprietors, partnerships, S corporations, etc.) are able to deduct up to 20% of their QBI. This deduction is scheduled to sunset at the end of tax year 2025. The OBBBA would make this deduction permanent as well as increase the maximum available deduction from 20% to 23%.
Why it matters for M&A: For sellers, maintaining pass-through status may maximize after tax-proceeds if the business qualifies for the deduction. For buyers, acquiring or maintaining a pass-through structure may enhance future cash flows by preserving Section 199A benefits.
Why it matters for businesses: This deduction helps level the playing field between pass-through businesses and C corporations, especially after the corporate tax rate was lowered under TCJA. Not extending this provision may force businesses to reconsider their taxable entity choice and business structure.
The bill reinstates immediate expensing of domestic R&D through 2029, reversing the capitalized amortization requirement imposed by the TCJA.
Why it matters for M&A: Industries and businesses that generate substantial R&D costs are expected to see improved after-tax valuations and earnings forecasts. This may drive increased deal activity and more aggressive bidding in those spaces.
Why it matters for businesses: Allowing businesses to deduct R&D expenses immediately reduces taxable income and improves cash flow. Accelerating tax benefits supports ongoing innovation and enhances financial flexibility to invest in growth opportunities.
As the OBBBA is finalized, ambiguity over final rules has prompted M&A advisors and counsel to adjust deal strategies. Certain negotiation tactics or considerations (e.g., earn-outs, balance-sheet adjustments, and indemnities) may be explored to hedge against potential changes in the tax code.
This uncertainty could delay deal closings or fuel contingency-based terms, pending clarity on future revisions to the OBBBA.
The OBBBA is expected to have a major impact on the domestic M&A and business operations on multiple fronts. Corporate acquirers and ongoing business operations are expected to benefit from depreciation and interest deductibility, which are expected to increase deal appetite. An increased QBI deduction would benefit business owners and their operations as they seek to deploy capital in future years and an increased SALT deduction may benefit individual owners of pass-through entities. Additionally, the Senate seeks to increase the gain exclusion for QSBS to further incentivize start-up companies and foster domestic innovation. On the other hand, deal structuring and valuation may be more complex in the near term as firms adjust tax projections to guard against unpredictable changes to the bill.
The final contours of OBBBA will determine whether the U.S. can maintain a balance of pro-growth tax policy without risking its energy objectives or destabilizing long-term deals across industries.
Note: The topics discussed within this article may change significantly as the bill progresses through the legislative process and is ultimately to President Trump.
