Final Budget Reconciliation Bill’s Tax Amendments | HUB

The House passed the “One Big Beautiful Bill Act” (the Act), also known as H.R. 1, the budget reconciliation bill, on July 3, 2025. This legislation was signed into law by President Trump on July 4, 2025. The Act underwent several revisions in order to gain support, reflecting the shifting international tax policy environment. Notably, the Act is predicted to reduce federal revenues by US$4.4 trillion over the next decade due to the significant tax changes it introduces.

General Business Tax Provisions

The Act covers a wide range of business tax topics, including updates to the provisions established by the Tax Cuts and Jobs Act of 2017 (the TCJA). It addresses changes that were scheduled to take place and incorporates changes that have already been implemented.

Bonus Depreciation

The Act permanently extends 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. Furthermore, it allows an additional first-year depreciation deduction for certain manufacturing, production, and refining property acquired or constructed after this date and placed in service before January 1, 2030.

Research and Experimental Expenses

Due to the TCJA, domestic research and development expenditures for tax years beginning after December 31, 2022 were required to be capitalized and amortized over five years. The Act restores the deduction for research or experimental expenditures paid or incurred after December 31, 2024, but it only applies to domestic expenditures. Some small businesses are eligible to apply this change retroactively, and other taxpayers are generally permitted to elect to deduct previously capitalized expenses over a one- or two-year period.

Limitations on Business Interest Expense

The TCJA updated Section 163(j) of the Code to limit the business interest expense deduction to the sum of business interest income, 30% of adjusted taxable income (ATI) of the taxpayer for the taxable year, and the floor plan financing interest of the taxpayer for the taxable year. The initial calculation of ATI was broadly equivalent to EBITDA. However, as of tax years beginning after January 1, 2022, ATI was broadly equivalent to EBIT. The Act restores ATI to an EBITDA-equivalent calculation, thereby increasing the deductible portion of interest for many taxpayers.

Disguised Sales of Property or Services

The Code’s Section 707(a)(2) provides for the recharacterization of certain transactions between one or more partners and a partnership. The Act states that section 707(a)(2) is self-executing and applies even if the Department of the Treasury and the Internal Revenue Service (IRS) have not issued final regulations as contemplated by the Code.

Qualified Business Income Deduction

Section 199A of the Code allows a 20% deduction for qualified business income available to noncorporate taxpayers. The Act extends this deduction permanently.

Excess Business Loss Limitation

The Act permanently establishes the limitation on excess business losses of noncorporate taxpayers in Section 461(l) of the Code.

Qualified Small Business Stock

For “qualified small business stock” (QSBS) issued after July 4, 2025, the Act increases the gross asset value cap for QSBS issuers from US$50 million to US$75 million and amends the formula for the cap on the QSBS exclusion, increasing the limit on excluded gain from US$10 million to US$15 million. The Act also shortens the holding period to qualify for QSBS benefits.

Advanced Manufacturing Credit

The Act raises the Section 48D tax credit established by the CHIPS Act from 25% to 35% for property placed in service after December 31, 2025. The original termination date of the credit, December 31, 2026, remains unchanged.

International Tax Provisions

The Act updates the TCJA’s revised international tax framework. However, a proposal to impose a retaliatory tax on certain taxpayers associated with foreign countries that impose discriminatory taxes on US taxpayers was not included in the final legislation.

Controlled Foreign Corporation Provisions

The Act restores Section 958(b)(4) of the Code, preventing downward attribution of stock from a foreign person to a US person for purposes of determining “controlled foreign corporation” (CFC) status. It also introduces a new Section 951B, creating a “foreign controlled foreign corporation” concept where “foreign controlled United States shareholders” are subject to tax on foreign subsidiary earnings.

GILTI Income

Starting from tax years beginning after December 31, 2025, the Act renames Global Intangible Low-Taxed Income (GILTI) to “Net CFC Tested Income” and aims to target an effective 14% tax rate on Net CFC Tested Income.

FDII

Starting from tax years beginning after December 31, 2025, the Act renames Foreign-Derived Intangible Income to “Foreign-Derived Deduction Eligible Income” and aims for an effective 14% tax rate on all Foreign-Derived Deduction Eligible Income.

BEAT Rate Changes

As introduced by the TCJA, the rate of the Base Erosion and Anti-Abuse Tax (the BEAT) was 10% and was scheduled to increase to 12.5% in 2026. The Act permanently sets the BEAT rate at 10.5% for tax years beginning after December 31, 2025.

Energy Provisions

The Act curtails many clean energy incentives and credits, following extensive lobbying on both sides. A proposed excise tax on clean energy facilities was removed from the legislation after significant opposition from the clean energy community and several Republican senators.

Wind and Solar Energy

The Act stipulates that qualifying wind and solar projects that begin construction after the enactment of the Act must be in service by December 31, 2027, to qualify for investment or production tax credits. New eligibility requirements are introduced for these credits, which will apply to credits claimed for taxable years beginning after July 4, 2025.

Clean Fuels

The Act extends the production tax credit for clean fuels from December 31, 2027, to December 31, 2029. It also bans the use of negative emissions rates and eliminates special rates for sustainable aviation fuel for fuel produced and sold after 2025.

Fuel Cell Energy Credit

The Act introduces a new 30% investment tax credit for qualifying fuel cell projects that begin construction after December 31, 2025.

Hydrogen Production Credit

The Act brings forward the commencement of construction deadline for the 10-year clean hydrogen production credit enacted by the Inflation Reduction Act from January 1, 2033, to January 1, 2028.

Expansion of Permitted Publicly Traded Partnerships

For tax years beginning after December 31, 2025, the Act expands the qualifying income of a publicly traded partnership to include income derived from specific sources such as hydrogen storage and transportation, electricity production from qualifying nuclear, hydropower, and geothermal facilities, and carbon capture facilities.

Real Estate

Real Estate Investment Trust Asset Test

For taxable years beginning after December 31, 2025, the percentage of assets that real estate investment trusts can hold through “taxable REIT subsidiaries” increases from 20% to 25%.

Opportunity Zones

The Act permanently implements the Opportunity Zone program from the TCJA for investments made after December 31, 2026, with rolling 10-year designations of qualifying census tracts. It also introduces new reporting requirements and related penalties for Opportunity Zone investments.

Other Provisions

Estate and Gift Tax Exclusion

For estates of decedents dying and gifts made after December 31, 2025, the Act permanently raises the estate and gift tax exclusion to US$15 million, adjusted for inflation.

New Floor for Deductions of Charitable Contribution

The Act establishes a new floor for deducting charitable contributions—one percent for corporate taxpayers and 0.5% for individuals who itemize deductions.

New Excise Tax on Remittance Transfers

The Act introduces a new Section 4475 of the Code, imposing a one percent excise tax on certain remittances of money from the United States to a foreign recipient not funded from an account at certain financial institutions or funded by a debit or credit card issued in the United States.

Employee Retention Tax Credits

The Act expands the 20% erroneous refund penalty to apply to employee retention tax credit claims for Q3 and Q4 2021 and requires compliance with eligibility diligence requirements for credit promoters.

State and Local Tax Deduction

The Act elevates the TCJA cap on the state and local tax deductions to US$40,000 for taxable years 2025 through 2029, but the cap reverts to US$10,000 in 2030.

Endowment Tax

For taxable years beginning after December 31, 2025, the Act adds two new graduated rates to the TCJA’s 1.4% university endowment excise tax, based on the size of the endowment measured on a per-student basis.

Temporary Benefits for Individuals

The Act includes several temporary benefits for individuals, including an exemption from income of up to US$25,000 on tip and overtime income, an enhanced deduction for seniors in the amount of US$6,000, and deductibility of car loan interest up to US$10,000 per year for vehicles manufactured in the United States. These benefits are subject to income limitations and are available in tax years 2025 through 2028.

Next Steps

The Act entails many substantive changes to the Code. Regulatory and subregulatory guidance from the Department of the Treasury is expected to interpret the legislation. Contact any of the authors for assistance to understand how these changes may affect your business and to provide input to the Department of the Treasury and the IRS as new or revised regulations and other guidance are developed.