Tax Law Changes in the One, Big, Beautiful Bill Act: Key Takeaways

The One, Big, Beautiful Bill Act, passed on July 4, 2025, introduces many significant changes to U.S. tax law, affecting individual, estate and gift, business, and international tax provisions. For some of these changes, it is not readily apparent the need or cause, therefore, many of these may provide planning opportunities as they play out with real world scenarios. Here’s a quick overview of the most notable updates:

Individual Tax Provisions:

1. Individual Tax Rates: The Act maintains the current lower tax rates established by the Tax Cuts and Jobs Act (TCJA), meaning that individuals will continue to benefit from the lower income tax rates that have been in effect since 2018. The Act also preserved the higher standard deduction and child tax credit and created a new deduction for seniors.
2. Qualified Small Business Stock (QSBS): The Act provided several provisions to increase and expand the QSBS exemption.
   • Increased exemption amount from $10M to $15M or 10x basis.
   • Phase in of benefits after the third year of holding
   • Gross Asset Limit increases from $50M to $75M.
3. Tips and Overtime: The Act temporarily makes certain tip income and overtime income exempt from taxation.
4. State and Local Tax Deduction (SALT): The Act temporarily increases the cap on the itemized deduction for SALT to $40,000 for 2025 and increases the cap by 1% through 2029.

Estate and Gift Tax Provisions:

1. Lifetime Exemption Estate and Gift Tax: The lifetime exemption for estate and gift taxes has been increased to $15 million beginning in tax year 2026. The amount will continue to be adjusted for inflation each year.

Business Tax Provisions:

1. Research and Development: Permanently restores immediate expensing for certain domestic research and development (R&D) expenses.
2. Bonus Depreciation: Permanently restores 100% bonus depreciation for certain investments.
3. Qualified Business Income Deduction: Makes the Section 199A pass-through deduction permanent.

International Tax Provisions:

1. Changes to FDII and GILTI: There are key changes to Foreign-Derived Intangible Income (FDII) and Global Intangible Low Taxed Income (GILTI).

• FDII is renamed to Foreign-Derived Deduction Eligible Income (FDDEI)
• GILTI is renamed Net CFC Tested Income (NCTI).
• The deduction for qualified business asset investments (QBAI) was eliminated from the FDDEI and NCTI calculations. This ends the incentive to invest in tangible assets abroad to reduce NCTI exposure.
• The Section 250 deduction rates are permanently reduced to 33.34% for FDDEI and 40% for NCTI. The foreign tax credit allowance provisions for NCTI are increased from 80% to 90%. This equalizes the effective tax rate for FDDEI and NCTI to 14%. Taxpayers will want to reassess tax optimization strategies that relied on lower FDII or GILTI rates.
• Disallows 10% of foreign taxes associated with previously taxed net tested CFC income, meaning only 90% of such taxes would be creditable when previously taxed income is distributed.

1. Permanent Extension of 954(c)(6) Look-Through Rule: This provision was designed to reduce subpart F inclusions by allowing certain passive income received by one CFC from a related CFC to be excluded from foreign personal holding company income. It has been extended multiple times over the years. The Act makes it permanent, removing the uncertainty for multinational corporations.
2. Downward Attribution Changes: Congress previously repealed section 958(b)(4), which prevented the downward attribution rules from applying to stock owned by non-U.S. persons when determining U.S. ownership. This meant that some foreign subsidiaries that were not otherwise classified as CFCs may be treated as CFCs. The Act restores section 958(b)(4). Now these foreign subsidiaries may no longer be CFCs, which would reduce their U.S. compliance burden. However, there still may be downward attribution under new rules of 951B, but with greater limitations on when it applies.
3. Changes to Subpart F Inclusions: Under current law, a U.S. shareholder of a CFC includes their share of Subpart F and Section 956 income if they hold stock on the last day the entity is a CFC, and the entity was a CFC at any time during the year. The Act expands this rule, requiring U.S. shareholders to include Subpart F and NCTI if they held stock at any time during the year, not just at year-end. This change makes year-round tracking of CFC status and ownership essential.
4. Base Erosion Tax Changes: The Base Erosion and Anti-Abuse Tax (BEAT) rate has been set to 10.5% permanently, providing some relief for large multinational corporations.
5. Remittance Tax: A 1% excise tax is imposed on certain international transfers, effective for funds sent outside the U.S. beginning on January 1, 2026. However, the final version is significantly more limited in scope than the originally proposed law. The rate was reduced from 5% to 1%. Additionally, the tax is limited to remittances using cash or cash equivalents such as money orders or cashier’s checks. Remittances using an account held by a financial institution or funded with a U.S. issued debit or credit card are exempt.

The One Big Beautiful Bill Act locks in many of the taxpayer friendly individual and business provisions from the TCJA, such as the lower income tax rates, expanded deductions, and increased estate and gift exemptions.

However, the changes to international tax rules, particularly the elimination of QBAI, renaming of GILTI and FDII, adjusted deduction rates, and stricter inclusion rules signal a tightening of cross-border planning opportunities. Taxpayers with international operations should reassess their structures in light of these updates, especially where timing, ownership, and income recognition rules are affected. Multinational businesses and investors should consult with advisors to navigate these updates and ensure continued tax efficiency and compliance.

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