Introduction
On May 22, 2025, the U.S. House of Representatives approved H.R. 1, also known as the “One Big Beautiful Bill Act” (the House Bill).[1] The House Bill will next be considered by the U.S. Senate, and the administration has set a goal for President Trump to sign the bill into law on July 4, 2025.
The House Bill includes a number of provisions of interest to companies. First, as highly anticipated by the tech and life sciences sector, the House Bill temporarily repeals R&D expense capitalization for domestic R&D expenses. In addition, the House Bill permanently extends many of the tax provisions initially introduced by P.L. 115-97, more commonly known as the “Tax Cuts and Jobs Act” (TCJA) and introduces other significant income tax changes relevant to domestic and multinational businesses.
The House Bill also significantly impacts the energy and climate solutions sector. For more coverage, please see this Wilson Sonsini alert.
General Business Provisions
- Temporary Suspension of Requirement to Capitalize Domestic R&D Expenses Between 2025 and 2029
The TCJA modified Section 174[2] required taxpayers to capitalize certain R&D expenses for amounts paid or incurred in tax years beginning on or after January 1, 2022, rather than deduct them on a current basis. Domestic expenses must be amortized over five years, and foreign expenses must be amortized over 15 years. Biotech and other research-intensive companies were hit particularly hard by this provision, as many companies operating at a significant loss for book and operational purposes found themselves in an income tax position unexpectedly.
The House Bill temporarily suspends the amortization requirement for domestic R&D expenses, allowing taxpayers to immediately deduct any R&D expenses paid or incurred in tax years beginning on or after January 1, 2025, and before January 1, 2030. Taxpayers would also have the option to elect to amortize such expenses over a five-year period (as under current law). While domestic R&D expenses are afforded relief, foreign R&D costs must still be amortized over a 15-year period.
- Increased Tax Deductions for Owners of Certain Pass-Through Entities
Section 199A was introduced by the TCJA and allows owners of certain pass-through businesses to deduct domestic qualified business income (QBI), which deduction was set to expire on December 31, 2025. The House Bill permanently extends the QBI deduction and increases the deduction-eligible portion of QBI from 20 percent to 23 percent. For a taxpayer in the highest tax bracket of 37 percent, this change reduces the effective tax rate on QBI to 28.49 percent (versus 29.5 percent under current law).
Under current law, the QBI deduction is phased out for taxpayers over a certain income threshold to a percentage of W-2 wages paid as part of the business and eliminated entirely for professionals in specified service trades or businesses (SSTBs) (generally, trades or businesses in connection with the performance of services). Under the House Bill, the QBI deduction is limited for taxpayers over the income threshold to the greater of i) a percentage of W-2 wages paid or ii) the QDI deduction reduced by 75 percent of the excess of taxable income over the threshold amount, a taxpayer-favorable change that increases the number of taxpayers eligible for some QBI deduction.
Finally, under the House Bill, dividends from qualified “business development companies” (i.e., companies that have elected to be treated as a “regulated investment company”) are eligible for the QBI deduction.
- Extending and Expanding Bonus Depreciation
The House Bill reinstates “bonus depreciation” under Section 168(k) for qualified property placed in service on or after January 20, 2025, and before January 1, 2030 (with certain exceptions). Bonus depreciation allows taxpayers to immediately deduct 100 percent of the cost of qualified property for the taxable year it is placed into service. Under current law, bonus depreciation is being phased out—taxpayers may deduct 40 percent and 20 percent of the cost of qualified property placed in service in 2025 and 2026, respectively, with no bonus depreciation thereafter (except for certain specified property).
Further, the House Bill allows taxpayers to elect to immediately expense up to $2.5 million of the cost of qualifying property (subject to reduction to the extent the cost of such qualifying property exceeds $4 million) under Section 179. The current thresholds are $1.25 million and $3.13 million in 2025, respectively.
The House Bill also introduces 100 percent bonus depreciation of the full cost of “qualified production property” that is newly acquired or the construction of which begins on or after January 1, 2025, and before January 1, 2029, and that is placed into service before January 1, 2033. The property must be used in connection with the manufacturing, agriculture and chemical production, or refining of tangible personal property, and must result in “a substantial transformation of the property comprising the product.” Any portion of the property used for office space, sales or research activities, software engineering, or any other function unrelated to a specified qualified production activity must be deducted over a 39-year period.
- Increased Limitation on Business Interest Deductions
Under current law, Section 163(j) provides that the deduction for net business interest expense is disallowed to the extent it exceeds the sum of a taxpayer’s business interest income plus 30 percent of such taxpayer’s earnings before income taxes (EBIT). The House Bill increases the cap on business interest for taxable years beginning on or after January 1, 2025, and before January 1, 2030, by replacing EBIT with earnings before income taxes, depreciation and amortization (EBITDA), as was the case prior to January 1, 2022.
- Increased Thresholds for Income Reporting on IRS Forms 1099
Under current law, anyone engaged in a trade or business and making payment of rent, salaries, wages, and other FDAP of $600 or more in a taxable year to a person is required to report such payments on IRS Forms 1099-MISC or 1099-NEC (miscellaneous income and nonemployee compensation, respectively). The House Bill increases this threshold to $2,000 and indexes this amount to inflation.
In addition, third-party settlement organizations are only required to report payments on IRS Form 1099-K (payment card and third-party transactions) if the payments to any one person exceed $20,000 and 200 transactions in one taxable year, an increased reporting threshold from payments of $2,500 or more (for 2025) and $600 or more (beginning in 2026) in a taxable year under current law. In addition, backup withholding only applies to amounts in excess of the reporting threshold.
- Increased SALT Deduction Cap and Limitations on Pass-Through Entity Tax Workaround
While the House Bill increases the cap on deductions for state and local taxes (SALT) to $40,000 from $10,000 (or $20,000 for a married taxpayer filing a separate return), the benefit of this increase is phased out for taxpayers with a modified gross income over $500,000 (or $250,000 for a married taxpayer filing a separate return). In addition, the House Bill permanently extends the SALT cap, which was previously set to expire on December 31, 2025.
In addition, many states had permitted owners in pass-through entities such as partnerships and S-corporations to bypass the SALT cap through the pass-through entity tax (PTET) workaround, thereby allowing these owners to claim a deduction for SALT in excess of the $10,000 cap. The House Bill eliminates the PTET workaround for businesses engaged in SSTBs, although the workaround is still available for businesses eligible for a QBI deduction.
- Other General Tax Provisions
Section 707(a)(2) provides that certain transactions between a partnership and a partner should be treated as occurring between a partnership and someone other than a partner (e.g., guaranteed payments) under applicable Treasury Regulations. However, because there are currently no finalized Treasury Regulations in effect, it has not been clear whether the IRS has the authority to enforce Section 707(a)(2).[3] The House Bill provides that Section 707(a)(2) is self-executing and does not require additional guidance from the U.S. Department of the Treasury to be effective. While this change is arguably not taxpayer favorable, because many practitioners have treated Section 707(a)(2) as operative, this change is unlikely to have material effect.
The House Bill permanently extends a TCJA restriction on the ability of noncorporate taxpayers to deduct excess business losses (generally, losses attributable to a trade or business of the taxpayer that exceed certain income thresholds) but allows such excess business losses to be carried forward.
Provisions Impacting Multinationals
The TCJA introduced deductions for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI). The current rates are 37.5 percent and 50 percent, respectively, but were scheduled to be decreased to 21.875 percent and 37.5 percent for tax years beginning on or after January 1, 2026. The House Bill reduces the current rates to 36.5 percent and 49.2 percent, respectively, but makes these rates permanent. The House Bill also exempts qualified U.S. Virgin Islands services income for purposes of calculating the GILTI inclusion amount for certain shareholders.
Under current law, the base erosion anti-abuse tax (BEAT) applies to U.S. corporations with annual gross receipts exceeding $500 million and who have made certain “base erosion payments” (i.e., deductible payments to related parties that exceed three percent of all deductible payments). The portion of a taxpayer’s modified taxable income that is potentially subject to BEAT is currently 10 percent but is scheduled to be increased to 12.5 percent for taxable years beginning after January 1, 2026. Similar to the FDII and GILTI provisions, the House Bill permanently sets that rate to 10.1 percent. In addition, the House Bill permanently extends a taxpayer’s ability to offset BEAT by the R&D credit available under Section 41(a) and up to 80 percent of other Section 38 credits (including the ITC, PTC, and low-income housing credits).
- Unfair Foreign Tax Practices
The House Bill introduces a new income tax regime that targets certain taxpayers associated with a “discriminatory foreign country” that imposes an “unfair foreign tax.” This is widely perceived to be a response to the Organisation of Economic Co-operation and Development’s Pillar Two initiative.
Unfair foreign taxes include, among others, taxes imposed under an undertaxed profits rule, digital services taxes, and diverted profits taxes. Any country with such a tax is considered a discriminatory foreign country. Governments and other tax residents of the discriminatory foreign country, and entities owned or controlled by such persons (“Applicable Persons”), are subject to increased U.S. federal tax rates on certain income, including certain FDAP and other U.S. source-income, ECI on the disposition of United States real property interests and branch profits. Certain non-publicly traded domestic corporations controlled by persons associated with a discriminatory foreign country could also see their BEAT rate increase under certain circumstances.
The “applicable date” for designation as a “discriminatory foreign country” is the first day of the calendar year beginning on or after the latest of i) 90 days after enactment of the House Bill into law, ii) 180 days after enactment of the unfair foreign tax, or iii) the first date such unfair tax begins to apply. The House Bill also increases withholding tax rates applicable to certain payments made to Applicable Persons.
[1] Text - H.R.1 - 119th Congress (2025-2026): One Big Beautiful Bill Act, H.R.1, 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/house-bill/1/text, as amended by the Amendment to Rules Committee Print 119-3.
[2] All Section references are to the Internal Revenue Code of 1986, as amended.
[3] In 2015, the Treasury Department issued proposed Treasury Regulations under Section 707(a)(2), which have yet to be finalized.
