OBBBA Changes to Current Tax Law

President Trump signed legislation commonly referred to as the One Big Beautiful Bill Act (the OBBBA) into law on July 4, 2025. Here we highlight several changes to current tax law made by the OBBBA that are likely to impact companies and investors with whom Oak Ridge Tax Law frequently works.

• Qualified Small Business Stock (QSBS). The sale of QSBS can result in significant tax benefits, but historically only for stock held for more than five years. For stock issued after July 4, 2025, the OBBBA (1) extends partial benefits to QSBS held for at least three years but five or fewer years, (2) increases the dollar-exclusion limit from $10M to $15M, with inflation-based adjustments in future years (the law doesn’t change the 10x exclusion amount), and (3) increases the asset definition for determining if a business is small through the date of issuance from $50M to $75M, which new amount is also indexed for inflation in future years. For more discussion, see our prior blog post here.

  
  

• Deducting R&D Expenses. Beginning in 2022, companies could generally not deduct R&D expenses in the year incurred, but instead were required to capitalize and then deduct U.S-based expenses over a five-year period. The OBBBA effectively restores the benefits of prior law as to U.S.-based expenses, allowing for full deduction of those expenses in the year incurred. Additionally, it permits companies to recover certain previously capitalized expenses by deducting them now or over two years and, for small businesses, to file amended returns to retroactively deduct such expenses.

  
  

• Bonus Depreciation. Prior law permitted accelerated depreciation for certain assets, with a 100% deduction for a time. The 100% benefit began to decrease by 20% per year beginning in 2023, with a 40% percentage applying this year. The OBBBA increases the applicable percentage to 100% effective for this year and makes the change permanent.

  
  

• Choice of Entity – Tax Rates. The OBBBA did not change the 21% C corporation tax rate. The OBBBA also made permanent a tax rate benefit under Section 199A applicable to sole proprietorships, S corporations, and entities taxed as partnerships. Section 199A can result in a reduction in tax rate by 20%. A taxpayer subject to the highest individual rate of 37% could in certain cases reduce that rate to 29.6%. This benefit was set to expire at the end of this year.

  
  

• State and Local Tax Deduction. Since 2018, a maximum of $10,000 in state and local taxes paid directly by an individual taxpayer could be used as a deduction against federal income. This has been a contentious provision. The OBBBA increases the limitation from $10,000 to $40,000 for certain taxpayers, with a 1% increase each year through the end of 2029. However, the increased benefit begins to phase out for taxpayers with modified adjusted gross income in excess of $500,000, or $250,000 for married filing separately, in 2025 (with the floor increasing by 1% per year in future years through 2029), such that a taxpayer who has a married filing jointly status in 2025 with more than $600,000 in adjusted gross income would only get the $10,000 benefit. Subject to further changes in law, the $10,000 will again be the limit beginning in 2030.

  
  

• Pass-Through Entity Tax Election. A workaround to the state and local tax deduction for individuals owning passthrough entities (S corporations and entities taxed as partnerships, such as an LLC) is have the entities elect to pay state income tax on behalf of the individuals (a “Pass-Through Entity Tax Election”). This results in a business expense, reducing income allocable to individual owners, who then effectively get the full benefit of the paid taxes when reporting the reduced income on their federal income tax returns. States have passed legislation expressly providing Pass-Through Entity Tax Elections. Prior versions of the OBBBA would have put limitations on this strategy, but the enacted version does not contain these limitations. As a result, the pass-through business tax election continues to be available as it has in the past.

We will be providing additional detail on relevant topics. We will put out a tip jar, but unfortunately for us there is no tax benefit for business that weren’t customarily and regularly receiving tips in the past.

Questions about how these changes might impact your business or investment? Contact Oak Ridge Tax Law Partners Chase Manderino and Martin de Jong to discuss.