On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA) which is the most significant piece of tax legislation since the Tax Cuts and Jobs Act of 2017 (TCJA). Upfront, we must note that OBBBA preserves the most significant provision of the 2017 TCJA Trump tax cuts. That is, the reduction of the corporate tax rate to 21 percent from 35 percent.
Business Interest Expense Deduction (Domestic)
The deduction for business interest expense is limited to 30 percent of a taxpayers’ “adjusted taxable income.” Currently, for Sec.163(J), earnings for adjusted taxable income could be determined without regard to deductions for interest and taxes (i.e., “EBIT”). For taxable years beginning after December 31, 2024, OBBBA now makes the calculation more generous, by also allowing depreciation, amortization and depletion deductions to be disregarded in determining earnings (i.e., “EBITDA”).
Bonus Depreciation (Domestic)
OBBBA permanently extends the Sec. 168 first year bonus depreciation under the 2017 TCJA. The allowance will now allow 100 percent expensing for qualifying property placed in service on or after January 19, 2025, and before 2030. Qualifying property is generally tangible personal property like machinery, equipment, computers, software, vehicles and furniture used by a business or in an income-producing activity. Taxpayers, who may not need the full write-off immediately, can also elect a transition bonus rate for the first taxable year ending after January 19, 2025.
Research and Development Expenses (Domestic)
OBBBA allows taxpayers to immediately deduct all domestic research or experimental expenditures paid or incurred in tax years after December 31, 2024. However, expenditures attributable to research that is conducted outside the United States will continue to be capitalized and amortized over 15 years under Sec. 174. Furthermore, certain small business taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, will be permitted to elect to accelerate deductions for those expenditures over a one- or two-year period.
Depreciation of Qualified Production Property (Domestic)
In new Sec. 168(n), OBBBA offers a full depreciation deduction for “qualified production property” which is generally defined as non-residential real property used in manufacturing, producing or refining tangible personal property in the United States or a U.S. possession (which includes Puerto Rico). The property must be constructed after January 19, 2025.
International Taxation in the OBBBA
The OBBBA substantially changes the United States international tax structure by modifying certain deductions and rules that affect: foreign tax credits, global intangible low-tax income (GILTI), foreign derived intangible income (FDII), base erosion and anti-abuse tax (BEAT) (as noted in the subsequent paragraph) and the sub-part F look-through rule. Remedies against unfair foreign taxes were proposed under Sec. 899 but never made it into the final Act due to pressure from several European international forums. These retaliatory tax provisions may reappear in the future.
Base Erosion and Anti-Abuse Tax (BEAT) – International
BEAT is a minimum tax that prevents domestic and foreign corporations operating in the United States from avoiding domestic tax liability by shifting profits out of the United States. Multinational corporations attempt to reduce tax liability by making deductible payments for items such as interest, royalties, and service fees to related foreign entities in no or low-tax jurisdictions. The OBBBA increases the BEAT tax rate from 10 percent to 10.5 percent. The legislation also affects the calculation of the tax.
If you have any further questions regarding these new provisions on depreciation and deductions, please contact Alvan Bobrow.
Alvan L. Bobrow