One Big Beautiful Bill Highlights

One Big Beautiful Bill was signed into law on July 4th.

Businesses and individuals should consult with their advisors to assess how these changes will affect cash flow and future planning, including structural and estate planning considerations.  Many businesses will be positively impacted (tax-wise) with the newly enacted law.

Key Business Provisions:

• Pass-through Businesses: Makes section 199A (20% Qualified business income deduction) now permanent.
• Business Interest: Makes permanent the TCJA’s original interest expense limitation calculation (EBITDA-type calculation vs. EBIT) beginning in 2025.
• Capital Expenditures and Investments: Reinstates permanent 100% (bonus) depreciation expensing of qualified assets in the year they were put into service for property acquired beginning Jan. 20, 2025. Expands 100% expensing to certain manufacturing real property. Increases dollar limitations and related phaseouts for IRC 179 (expensing of certain depreciable assets).
• Research and Development: Enables immediate expensing of domestic research costs incurred after 12/31/24, ‘catch-up’ expenses for prior capitalized costs (in 2025 and/or 2026), and allows small businesses to amend and claim prior year deductions instead of amortization.
• Qualified Small Business Stock (QSBS)/IRC 1202:
  • Provides a “vesting” exclusion for QSBS:
    • 50% gain exclusion for (qualifying) shares held more than three years,
    • 75% gain exclusion for shares held more than four years, and
    • 100% gain exclusion for shares held more than five years.
  • Increases the gain exclusion to $15 million (indexed to inflation beginning in 2027).
  • Increases the corporate “valuation” ceiling to $75 million. (i.e. businesses with assets worth less than $75,000,000 may now qualify to issue 1202 stock).

Individual and Estate Tax Provisions:

• Personal Income Tax/Standard Deductions: Effectively makes permanent the tax rates and standard deductions (slightly enhanced) enacted by the 2017 Tax Cuts and Jobs Act (“TCJA).
• Estate and Generation Skipping Tax (GST) Exemptions: Increases exemption amounts to $15 million, adjusted for inflation, and makes them permanent.
• Individual State and Local Tax Deduction Limitation (SALT cap): The SALT limitation is increased to $40,000 ($20,000 for married separate filers) through 2029, subject to taxable income limits (phased down after $500,000 of modified adjusted gross income – “MAGI”)). For tax years after 2029, the limitation returns to $10,000.
  • Pass-through entity tax (PTET) elections: No new limitations. All pass-through businesses that pay tax at the entity level should not be subject to limitation at the business level.
• Excess Business Losses Under IRC 461(l): Makes 461(l) permanent relating to dollar limitations on excess business losses and updates for inflation.
• Senior Deduction: Temporary $6,000 senior deduction for taxpayers over the age of 65 (Subject to income thresholds/phaseouts)
• Child Tax Credit: Increases the child tax credit to $2,200 effective in tax year 2026, a portion of which is refundable.
• No Tax on Tips/Overtime: Deductions for tax years 2025 through 2028, up to certain dollar amounts, for tips ($25,000 per individual) and overtime compensation ($12,500 per individual), phased out at certain MAGI income levels. Certain limitations and reporting requirements apply.
• No Tax on Auto Loans: Deduction allowed for interest expense related to certain qualified passenger vehicle purchases (subject to income phaseouts).
• “Trump” Accounts: Introduces an ‘IRA for children’ allowing tax-deferred growth for investments in US index funds, capped at a $5,000 annual contribution. A pilot program will provide a one-time $1,000 government-funded deposit for qualifying children born after December 31, 2024, and before January 1, 2029.
• Tax Deferral for Sale of Farms: Tax related to the gain from the sale of qualified farmland property to qualified farmers can be deferred/spread over 4 years.

International Provisions

• Foreign Tax Credits (FTCs): The deemed paid credit under §960 is bumped from 80% to 90%, which helps with foreign tax credit utilization, especially for GILTI.
• Global Intangible Low-tax Income (GILTI): The §250 deduction for GILTI is now permanently set at 40% – effectively raising the U.S. tax on this income.
• Foreign Derived Intangible Income (FDII): The §250 deduction for FDII is reduced to 33.34%, meaning the incentive for foreign-derived income is less generous going forward.
• Base Erosion and Anti-Abuse Tax (BEAT): The BEAT rate is now a flat 10.5%, which simplifies things but may increase liability depending on your exposure.
• Look-through Rule: The §954(c)(6) look-through rule for related-party payments is made permanent – good news for group structuring.
• Specified Foreign Corporations (SFCs): The one-month deferral election under §898(c)(2) is gone – everyone has to align their tax years, with transition rules provided.
• Downward Attribution: §958(b)(4) is reinstated, eliminating downward attribution from foreign persons for CFC/US shareholder determinations – this undoes a key TCJA expansion.
• New §951B Rule: A new rule taxes “foreign controlled U.S. shareholders” (i.e., those with >50% indirect ownership) on Subpart F and GILTI via downward attribution from a foreign parent – broadens reach to certain previously excluded structures.
• Pro Rata Rules: Subpart F and GILTI must now be allocated based on actual ownership during the income-earning period, not just at year-end – better aligns inclusion timing with economic reality.

Other Highlights:

• Opportunity Zones (OZ):  The bill creates continuous, 10-year OZ designations beginning 1/1/2027, establishing a permanent OZ “policy”.
• Disaster Relief and Casualty Losses: Makes permanent the TCJA rules related to casualty loss. Casualty losses from state-declared disasters will now qualify for personal property casualty loss deduction.
• Employee Retention Tax Credits (ERTC): Expands penalty regime for erroneous claims and extends the statute of limitations to six years from the date of the claim.
• Collected Excise Tax on Remittance Transfers: Provides for a 1% federal excise tax on certain electronic transfers of money sent abroad.
• Endowment Excise Tax: Endowment excise tax increased up to 8% based on endowment size and number of students.
• Inflation Reduction Act Reversals
  • Phaseout of Certain Credits: Accelerates the phaseout for clean energy tax incentives created or modified by the Inflation Reduction Act (IRA) –
  • Wind and Solar Investment and Production Credits: Ends wind and solar investment and production tax credits for facilities placed in service after Dec. 31, 2027 (with certain exceptions).
  • Section 179D Ending: Ends the section 179D deduction for energy-efficient commercial buildings for properties where construction begins after 6/30/2026.
  • Individual IRA Provisions Terminated: The following IRA Credits will end:
    • Residential clean energy property placed in service after Dec. 31, 2025
    • Electric vehicles acquired after Sept. 30, 2025 (new and used)
    • EV charging equipment placed in service after June 30, 2026

(Note: Transferability of clean energy credits under IRC 6418 still allowed for eligible IRA credits)

Contact your M&J advisor to learn more about these provisions and how they may impact your taxes.