The One Big Beautiful Bill Act (OBBBA) is big news for closely held businesses. Signed into law on July 4, 2025, by President Trump, the massive spending and tax package made many provisions from the 2017 Tax Cuts and Jobs Act permanent, in some cases with certain adjustments. OBBBA also includes new tax incentives for businesses.
The bottom line is this: the law locks in and expands several tax breaks that had been set to expire while also creating new opportunities for deductions and credits. This means business owners will find additional flexibility to lower taxable income, accelerate deductions and plan strategically for growth or sale. Still, the law is complex, and some provisions require careful timing and consideration to understand the impact on individual taxpayers.
Below we highlight several key provisions in OBBBA of particular importance to closely held businesses and their owners.
Bonus Depreciation Fully Restored
In a win for owners who intend to make significant equipment purchases or interior upgrades to commercial buildings, businesses can once again fully deduct the cost of certain qualified property under section 168(k) of the tax code—and they can write it off now, instead of depreciating it over years. That means faster tax savings and more cash to reinvest in your business.
OBBBA permanently restores the 100% bonus depreciation for section 168(k) property acquired and placed in service after January 19, 2025. The reinstated provision applies to most tangible property with a recovery period of 20 years or less, including used property, as long as it meets the acquisition and use requirements. Importantly, the OBBBA does not impose new limitations on the types of property eligible for bonus depreciation, preserving the broad scope of the Tax Cuts & Jobs Act-era rules.
For purposes of claiming bonus depreciation, the property may not be treated as acquired after the date a binding written contract is entered into to purchase such property. For example, if a contract to purchase otherwise eligible property was entered into prior to January 20, 2025, the property will likely be ineligible for 100% bonus depreciation.
OBBBA added some flexibility in utilizing bonus depreciation, as taxpayers may elect to apply the pre-OBBBA phase-down rate of 40% for property acquired and placed in service after January 19, 2025, or elect out of bonus depreciation entirely. The election-out is made annually. Taxpayers should strategically utilize section 179 expensing (summarized below) and bonus depreciation to maximize deductions.
New Bonus Depreciation of Qualified Production Property
In a game-changer for business owners engaged in manufacturing or production activities, OBBBA also added a new category of qualified property eligible for the 100% bonus depreciation of interest to manufacturers: “qualified production property.” Previously, such property would have been depreciated over a period of 39 years and ineligible for bonus depreciation under section 168(k). The potential tax savings are significant, but it’s essential to understand IRS guidance to make sure you qualify.
Qualified production property is defined under section 168(n) as any “portion of nonresidential real property” located in the U.S. which a taxpayer uses “as an integral part of a qualified production activity” and the original use of the property began with the taxpayer. Qualified production activities include manufacturing, agricultural or chemical production, and refining of a qualified product. Leased property is excluded from the definition of qualified production property. Buildings or portions of buildings used for office space, lodging, parking, sales, research, etc. are not considered qualified production property—taxpayers may want to conduct a cost segregation study to determine the portion of property eligible for this new depreciation deduction. The legislation requests guidance on what constitutes “substantial transformation,” so taxpayers will want to work closely with counsel to track IRS guidance on this definition.
The construction of the qualified production property must begin after January 19, 2025, and before January 1, 2029. The qualified production property must be placed in service before January 1, 2031. If taxpayers can align construction and placed-in-service dates, there can be meaningful cash- and tax-saving opportunities. Property acquired under a binding written contract is treated as acquired on the date the taxpayer enters into the contract. Taxpayers with self-constructed property will need to keep track of construction expenses and activities as the Treasury and the IRS have not yet issued guidance on how to determine when construction begins for purposes of section 168(n).
Increase in Section 179 Expensing
Small and mid-sized businesses have additional opportunities to immediately expense purchases of tangible assets like machinery and equipment with the expanded scope of the section 179 deduction cap.
OBBBA increased the annual expense limitation of section 179 from $1 million to $2.5 million to treat the cost of section 179 property as an expense not chargeable to capital account. The annual expense limitation is reduced by expenditures for section 179 property placed in service that exceed $4 million. This increase applies to section 179 property placed in service after December 31, 2024. While there is some overlap in property eligible for bonus depreciation and section 179 property, expensing under section 179 is particularly useful for certain improvements to real property that do not qualify for bonus depreciation or as qualified production property, e.g., external improvements to nonresidential buildings like a roof or an HVAC system on an office building.
Practically, a business owner can choose to use bonus depreciation and section 179 expensing together. Generally, a taxpayer will use section 179 expensing until meeting the threshold and then use bonus depreciation for any remaining assets. The OBBBA changes have created a lot more flexibility, and taxpayers should be strategic about timing of purchases.
Immediate Expensing of R&D Fully Restored
Businesses can once again expense domestic research and development (R&D) costs immediately. Businesses may be entitled to claim a refund for costs incurred in prior years.
OBBBA permanently restores the immediate expensing of domestic R&D expenditures for amounts paid or incurred beginning on January 1, 2025, with an election to amortize certain expenditures over a period of not less than 60 months. Certain small business taxpayers (generally with average annual gross receipts of $31 million or less over the past three taxable years ending prior to 2025) can retroactively apply the immediate expensing to the 2022 tax years and each subsequent tax year. Other taxpayers may accelerate the remaining deductions for expenditures incurred in the 2022 through 2024 tax years. Small businesses should consider amending prior year tax returns to take advantage of the retroactive election.
Qualified Business Income Deduction Permanently Extended
Owners of pass-through businesses benefit from this provision, which makes the popular qualified business income (QBI) deduction permanent.
The QBI deduction under section 199A available to owners of sole proprietorships, partnerships and S corporations and some trusts and estates is permanently extended. OBBBA adds an increased phase-in for income limits beginning in 2026, and a $400 (both adjusted for inflation) minimum deduction for those taxpayers with a minimum of $1,000 of qualifying income from certain trades or businesses, allowing more business owners to be eligible for the deduction.
The deduction limit phase-in range for specified service trades or businesses and other taxpayers subject to the wage and investment limitation is $150,000 for joint filers and $75,000 for single filers.
Increased Gain Exclusion for Small Business Stock
Owners of qualified small business stock (QSBS) receive a tax advantage on the sale of stock. The OBBBA expands the scope of section 1202, creating additional opportunities for tax savings and opportunities to raise capital with careful planning.
OBBBA revises the section 1202 small business stock exclusion to allow a partial exclusion of 50% of gain from the sale of QSBS issued after the date of enactment that is held for at least three years; 75% exclusion if held for at least four years; and 100% exclusion if held for at least five years. OBBBA also increased the gross asset limitation from $50 million to $75 million and the per-taxpayer gain exclusion cap from $10 million to $15 million (both adjusted for inflation). Owners of small business stock should note, however, that the enhanced section 1202 only applies to small business stock issued after July 4, 2025. Businesses should take the opportunity to engage in QSBS hygiene to confirm issuer status, asset levels and issuance dates by building tracking systems for the new 3/4/5-year tiers and higher gain caps.
Other Major Highlights Impacting Closely Held Businesses
- The Advanced Manufacturing Credit has increased from 25% to 35% for property placed in service after December 31, 2025, under section 48D.
- The OBBBA increases the SALT deduction cap temporarily from the current $10,000 to $40,000 for married joint filers ($20,000 for married taxpayers filing separately). This enhanced deduction is effective from 2025 through 2029, after which it reverts to the original $10,000 cap starting in 2030. Importantly, the OBBBA places no new restrictions on the widely used state pass-through entity tax (PTET) SALT cap workaround for business owners.
- A noncorporate taxpayer’s limitation on excess business losses is permanently extended, with the income threshold for determining an excess business loss now adjusted for inflation.
- The more favorable definition of “adjusted taxable income” under the section 163(j) business interest deduction limitation, which does not take into account a taxpayer’s deductions for depreciation, amortization or depletion, is now permanent. OBBBA also expands the definition of floor plan financing to include certain trailers and campers.
- To receive an employee retention credits refund, taxpayers must have claimed ERC for the third and fourth quarter of 2021 by January 31, 2024. OBBBA also extends the assessment period for the IRS to six years to challenge an ERC refund.
- International tax updates include changes to rules applicable to controlled foreign corporations, the foreign tax credit and the global intangible low-taxed income (GILTI) regime, and certain changes in rates and deduction percentages, beginning in 2026.