On July 4, 2025, President Trump signed P.L. 119-21, often referred to as the “One Big Beautiful Bill Act” (the Act) into law. This sweeping domestic policy legislation reflected key elements of President Trump’s agenda, including the extension of existing and creation of new tax relief measures.
The tax priorities in the bill include the extension of many expiring provisions from the 2017 Tax Cuts and Jobs Act (TCJA), as well as new taxpayer-favorable provisions, limitations on individual and business deductions, changes to certain international tax provisions and the elimination of certain Inflation Reduction Act (IRA) incentives. Provisions have varying effective and expiration dates, with some, but not all, enacted on a permanent basis. Many of these provisions are likely to be relevant to small businesses and are the focus of this article.
Key Takeaways
- Permanent 100% Bonus Depreciation: Qualified property placed in service after January 19, 2025, is eligible for 100% bonus depreciation permanently. Taxpayers may elect 40% instead for 2025 with remaining cost depreciated normally.
- New Qualified Production Property (QPP) Deduction: 100% bonus depreciation for Qualified Production Property used in manufacturing and production activities. This applies to property placed in service before January 1, 2031, with construction starting between January 19, 2025, and January 1, 2029.
- Expanded Section 179 Expensing: Deduction limit raised to $2.5 million with a $4 million phaseout threshold for property placed in service after December 31, 2024 (amounts indexed for inflation after 2025).
- Immediate Deduction for Domestic Research & Expenditures (R&E): Domestic research expenditures from 2024 onward are fully deductible. Foreign R&E remains amortized over 15 years. Transition rules allow retroactive adjustments for 2022 – 2024.
- Business Interest Limitation Relief: Adjusted taxable income (ATI) calculation reverts to earnings before interest, taxes, depreciation and amortization (EBITDA) starting in 2025, easing restrictions compared to earnings before interest and taxes (EBIT). New ordering rule applies to interest deductions.
- Permanent Qualified Business Income (QBI) Deduction: 20% deduction for qualified business income made permanent — phaseout ranges expanded, thresholds indexed for inflation and a $400 minimum deduction introduced.
- Permanent Excess Business Loss Limitation: Deduction limits for excess business losses ($313,000 single and $626,000 joint in 2025) remain in place permanently, converting excess to net operating loss (NOL) carryforward.
Small Business Tax Bill Impacts
Find out how 2025 tax changes could impact your small business:
1. Bonus Depreciation for Qualified Property
The TCJA had provided taxpayers with 100% first-year depreciation (bonus depreciation) deductions for qualified property through 2022, after which the benefit began to phase out by 20% each year between 2023 and 2026, and to be reduced to 0% thereafter.
Under the Act, qualifying property placed in service after January 19, 2025, is eligible for 100% bonus depreciation deductions. Furthermore, this deduction has been made permanent and does not expire under the new law. Under the Act, taxpayers also have the option to elect to use the TCJA’s 40% bonus depreciation deduction rather than 100% in 2025, and to depreciate the remaining 60% of the cost over the normal depreciation provisions.
2. Bonus Depreciation for Qualified Production Property (QPP)
The Act provides taxpayers with a new elective 100% bonus depreciation deduction for QPP, defined as the portion of any nonresidential real property that is used by a taxpayer as an integral part of a qualified production activity (QPA). The property must be placed in service in the U.S. (or any possession thereof) as original use property by such taxpayer before January 1, 2031. Construction of such property must have begun after January 19, 2025, and before January 1, 2029.
A special rule allows taxpayers to purchase property that can qualify as QPP if the property was not previously used in a QPA from January 1, 2021, through May 12, 2025, or used by the purchaser at any time prior to the acquisition. Related party rules also apply.
Requirements
A QPA is the manufacturing, production or refining of a qualified product; such activities must result in a substantial transformation of the property comprising the product. The term ‘production’ does not include activities other than agricultural production or chemical production. The term ‘qualified product’ means any tangible personal property if such property is not food or beverage prepared in the same building as a retail establishment in which such property is sold.
QPP does not include any portion of nonresidential real property that is used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other functions unrelated to the manufacturing, production or refining of tangible personal property. Also, if the taxpayer who constructed such property and placed it in service is a lessor, for use by a lessee, such property will not be considered to be used by the lessor taxpayer as part of a qualified production activity.
3. Section 179 Expensing of Certain Depreciable Assets
The Act expands Section 179 expensing to a maximum of $2.5 million for property placed in service in taxable years beginning after December 31, 2024. There is a phaseout in which the deduction is reduced to the extent that the cost of such property placed in service exceeds a $4 million phaseout threshold; this threshold was $3.1 million in 2024. Furthermore, under the Act, these amounts will be adjusted for inflation in future years after 2025.
4. Domestic Research & Experimental (R&E) Expenditures
The Act provides that domestic R&E expenditures paid or accrued in 2024 or thereafter are immediately deductible. Under prior law, such expenditures were required to be capitalized and amortized over five years; this capitalization requirement began in 2022 and continued through 2024. Foreign R&E costs must continue to be capitalized and amortized over 15 years as provided for by the TCJA.
Transition Rules
The Act also provided some transition rules which allow taxpayers who previously capitalized domestic R&E expenditures and began amortizing them between 2022 and 2024. Generally, all such taxpayers have the option of expensing their remaining unamortized domestic R&E costs over a one- or two-year period beginning in 2025. Alternatively, they can continue amortizing the costs over their current schedule.
Furthermore, small business taxpayers (those with average annual gross receipts of $31 million or less who are not tax shelters) have the option to electively apply the law change retroactively beginning in 2022. Such taxpayers are required by statute to amend their 2022 through 2024 returns (if they are eligible to do so) to deduct their respective domestic R&E expenditures for each of those years. However, partnerships subject to the Centralized Partnership Audit Regime are not eligible to amend prior year returns (absent further guidance from the IRS) and must file Administrative Adjustment Requests (AARs) to retroactively apply these changes with respect to 2022 through 2024 domestic R&E.
It is questionable whether the partners of such partnerships would fully benefit from such additional deductions in such scenarios; further guidance from the IRS will be necessary to assist with making such determinations.
Download our R&D Amortization Services brochure or contact us to get started.
5. Business Interest Expense Limitations
Under the TCJA, business taxpayers were subject to a limitation on the deductibility of business interest expense. To the extent such interest expense exceeded 30% of a taxpayer’s adjusted taxable income (ATI), the excess was disallowed as a deduction and required to be carried forward to future years. From 2018 through 2021, ATI was generally based on taxable earnings before interest, taxes, depreciation and amortization (EBITDA). Beginning in 2022, ATI was generally based on taxable earnings before interest and taxes (EBIT), which was far more restrictive for many business taxpayers.
The Act provides that beginning in 2025, businesses will once again calculate their ATI based on EBITDA rather than the more restrictive EBIT. A new ordering rule has been imposed which requires ATI to be calculated without regard to certain specific provisions in which interest is either required to be capitalized or may electively be capitalized, and provides that any amount allowable as a deduction (to the extent of the 30% of ATI limit) must be applied first to the amount of interest that would otherwise be capitalized, and the remaining limit (if any) will be applied to the amount of interest that would otherwise be deductible. This ordering rule was put in place to eliminate some planning opportunities that Congress did not intend to allow for in the TCJA.
6. Deduction for Qualified Business Income (QBI)
The TCJA introduced Section 199A, which allowed individual taxpayers to deduct 20% of QBI from qualified trades and businesses, subject to certain limitations and phaseouts. The QBI deduction was temporary and set to expire at the end of 2025. The Act has made the deduction for QBI permanent.
Generally, specified service trade or businesses (SSTBs) are excluded from the definition of qualified trades or businesses, unless the taxpayer’s taxable income (before the QBI deduction) was less than the sum of a threshold amount plus $50,000 ($100,000 in the case of a married filing joint return). However, only the applicable percentage of QBI was considered in computing QBI from such SSTBs.
Thesholds
In 2025, the threshold amount was $197,300 ($394,600 for joint filers). To the extent that taxable income was less than the threshold amount, the QBI from SSTBs was eligible for the 20% deduction and not limited. To the extent that taxable income exceeded the threshold amount, but not by more than $50,000 ($100,000 in the case of a joint return), the amount eligible for the 20% deduction was phased out. To the extent that taxable income exceeded $247,300 ($494,600 in the case of joint filers), the income from SSTBs did not qualify for the 20% deduction.
Phaseout Ranges
The Act increased the amounts for the phaseout ranges. In 2026, the threshold amounts will again be indexed for inflation, but the phaseout ranges have been increased from $50,000 to $75,000 for non-joint filers, and from $100,000 to $150,000 for joint filers. This means that larger amounts of QBI from SSTBs may be eligible for the 20% QBI deduction for some individual taxpayers.
Minimum Deduction
The Act also introduced a $400 minimum deduction for individuals who have aggregate QBI with respect to all active qualified trades or businesses (in which the taxpayer materially participates in) of at least $1,000 for such taxable year.
7. Limitation on Deductions of Excess Business Losses (EBL)
Under the TCJA, the amount of net business losses of individual taxpayers in excess of $250,000 ($500,000 in the case of joint filers) was disallowed and required to be carried over as a net operating loss to the next tax year. These thresholds were indexed for inflation each year, and in 2025, the threshold was $313,000 ($626,000 in the case of joint filers). The EBL deduction limitation was temporary and set to expire at the end of 2028. The Act has made the limitation on the deduction of EBLs permanent.
How Can Cherry Bekaert Help
To understand how the final reconciliation bill may affect your business or personal tax situation, connect with a knowledgeable Cherry Bekaert tax advisor. Our team is here to help small businesses navigate these changes with clarity and confidence.
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