The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, represents the most significant tax reform since the Tax Cuts and Jobs Act of 2017, delivering substantial benefits for privately held businesses through permanent tax provisions and enhanced depreciation allowances.
Pass-Through Business Tax Benefits
The Act permanently extends and enhances the Section 199A qualified business income deduction for pass-through entities, including partnerships, S corporations, and sole proprietorships. The legislation maintains the 20% deduction rate while expanding the phase-in range for the limitation from $50,000 for single filers ($100,000 for married filing jointly) to $75,000 for single filers ($150,000 for married filing jointly). The Act also introduces an inflation-adjusted minimum deduction of $400 for taxpayers who have at least $1,000 of qualified business income from active trades or businesses in which they materially participate.
Enhanced Capital Investment Incentives
The OBBBA permanently reinstates 100% bonus depreciation for eligible business property acquired after January 19, 2025, reversing the phase-down that began in 2023. This full expensing provision allows businesses to immediately deduct the entire cost of qualifying equipment, machinery, and other assets in the year of purchase.
The Act increases the Section 179 expensing cap from $1 million to $2.5 million, with the phase-out threshold rising to $4 million. This enhancement enables smaller businesses to immediately expense larger equipment purchases, providing significant cash flow benefits.
Additionally, the Act introduces a new 100% depreciation allowance for qualified production property (QPP) placed in service through 2030, covering newly constructed non-residential real estate used for manufacturing, production, or refining.
Research and Development Provisions
The legislation allows taxpayers to immediately deduct domestic research and experimental expenditures for costs incurred after December 31, 2024. Small business taxpayers with average annual gross receipts of $31 million or less may apply this change retroactively to tax years beginning after December 31, 2021.
Business Interest Deduction Restoration
The Act reinstates the more favorable EBITDA-type calculation for the business interest deduction limitation, allowing businesses to deduct interest expenses up to 30% of adjusted taxable income computed without regard to depreciation, amortization, or depletion.
Qualified Small Business Stock Enhancements
The Act expands Section 1202 benefits by increasing the gross asset value cap from $50 million to $75 million and raising the per-issuer dollar cap from $10 million to $15 million. It also introduces tiered gain exclusions: 50% for stock held three years, 75% for four years, and 100% for five years or more.
State and Local Tax Considerations
The Act eliminates the pass-through entity tax (PTET) workaround for businesses that are ineligible for the Section 199A deduction, particularly those in the professional services sector. However, it raises the state and local tax deduction cap from $10,000 to $40,000 for taxable years 2025 through 2029.
Opportunity Zone Program Renewal
The Act permanently renews the Qualified Opportunity Zone program with rolling ten-year designations, providing enhanced tax benefits for investments in distressed communities.
These provisions collectively create a more favorable tax environment for privately held businesses, emphasizing capital investment, research and development, and benefits for pass-through entities, while maintaining competitiveness in the global marketplace.
Gray, Gray & Gray will be covering these and other features of the OBBBA for both businesses and individuals during our “One Big Beautiful Webinar” on July 30, 2025. Click here to register.