Business Tax Provisions: Federal Tax Law Updates

Article

Explore OBBBA’s business tax changes, including bonus depreciation, R&D expensing, QBI updates and international tax provisions.

10 minute read

November 11, 2025

Robert Henry

Partner-in-Charge, Tax Provisions

Vince Houk

Partner-in-Charge, International Tax

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The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, contains sweeping reforms that affect businesses across industries. While much attention has gone to the bill’s individual tax relief, several of its business tax provisions are equally transformative. The permanent extension of 100% bonus depreciation, restoration of domestic R&D expensing and adjustments to interest deduction and qualified business income (QBI) rules will all affect 2025 year-end planning.

Bonus Depreciation

Under the Tax Cuts and Jobs Act (TCJA), bonus depreciation was phasing down and scheduled to disappear in 2027. OBBBA reverses course and permanently reinstates 100% bonus depreciation for assets acquired and placed in service after January 19, 2025. The new bonus depreciation rules do not apply to assets used predominantly outside the United States.

This change allows companies to immediately expense capital investments in machinery, equipment and certain building improvements. Immediate expensing can create a substantial cash flow advantage, particularly for businesses with significant capital projects planned.

Example: A manufacturing company purchasing $5 million worth of new equipment in February 2025 can deduct the full cost that year instead of spreading the deduction over the assets’ useful lives. That deduction could offset taxable income and free up cash for reinvestment.

Planning point: Be careful with acquisition timing. Property acquired before January 20, 2025, even if placed in service afterward, may be limited to the old phase-down schedule.

Qualified Production Property

A new concept, qualified production property (QPP), expands bonus depreciation into certain real property — something rarely seen before. QPP includes nonresidential real property that is integral to domestic production or manufacturing.

Key features:

Construction must begin between January 19, 2025, and January 1, 2029.
Property must be placed in service by January 1, 2031.
Only property used in activities involving “substantial transformation” qualifies.

This is a major incentive for companies investing in new production facilities. However, determining which parts of a facility qualify is complex. Office space or research labs may not qualify, while HVAC, plumbing or electrical systems that support manufacturing could.

Planning Point: A cost segregation study may be necessary to separate eligible components from ineligible ones.

R&D Expensing

TCJA required businesses to capitalize and amortize domestic research and development (R&D) expenses over five years (and foreign R&D over 15 years), creating unexpected tax liabilities for companies with little or no revenue.

OBBBA permanently restores the ability to expense domestic R&D costs immediately. Businesses may also deduct previously capitalized R&D costs in 2025 or spread them across 2025 and 2026.

Foreign R&D remains subject to 15-year amortization.
Smaller companies ($31 million of gross receipts or less) may retroactively amend 2022-2024 returns to deduct capitalized domestic R&D, providing potential refunds.

Example: A software start-up that capitalized millions of dollars in coding and development costs in 2022-2024 can now amend those returns to expense the costs, potentially creating refunds and freeing up cash.

Business Interest Deduction

The TJCA introduced Internal Revenue Code Section 163(j), which limits business interest deductions to 30% of adjusted taxable income (ATI). Under those rules, ATI was based on EBIT (earnings before interest and taxes), which reduced the deductible amount.

OBBBA changes ATI to EBITDA (earnings before interest, taxes, depreciation and amortization) for tax years beginning after 2024. By adding back depreciation and amortization, businesses can deduct more interest.

Planning point: Ordering rules now require applying Section 163(j) before electing to capitalize interest under Section 266, which may affect modeling for highly leveraged companies.

Qualified Business Income Deduction

The 20% qualified business income (QBI) deduction for pass-through owners, which was set to expire after 2025, is now permanent. OBBBA also slows the phase-out of the deduction for specified service trades and businesses (SSTBs), allowing more professional services firms (such as law, accounting and consulting) to realize QBI benefit.

Example: Owners of an architectural firm structured as an S corporation can continue taking the EBITDA-based QBI deduction indefinitely, reducing their effective tax rates.

International Tax

OBBBA also makes several updates to the international tax rules, many of which apply to taxable years beginning in 2026. Key highlights include:

Export Incentives for C Corporations (Section 250)

The OBBBA made changes to the Section 250 export incentive available to C corporations, which for many companies may result in significant permanent tax savings.

Key highlights include increasing the post-2025 deduction rate from 21.875% to 37.5%, removing the 10% fixed asset hurdle and eliminating required apportionment of interest and R&E against qualifying income. This is effective for tax years beginning after December 31, 2025.

The removal of the 10% fixed asset hurdle alone may provide a significant benefit for fixed asset intensive businesses and may be further enhanced with tax planning.

Planning point: The potential enhanced benefits should be a consideration for multinational companies when evaluating where to invest in additional production capacity and IP ownership.

Deemed Dividend Regime for Controlled Foreign Corporations (Section 951A)

The OBBBA modified the deemed dividend regime under Section 951A. Whether it will have a tax cost to taxpayers will in part depend on whether any increased inclusion amount can be eliminated through the high tax exception or managed through the utilization of foreign tax credits. Key unfavorable changes include removing the fixed asset hurdle, potentially increasing deemed dividends from controlled foreign corporations. Favorable changes include increasing the post-2025 deduction rate from 37.5% to 40% as well as changes to the foreign tax credit apportionment rules eliminating interest expense and R&E apportionment against 951A income. This is effective for tax years beginning after December 31, 2025.

Planning point: Companies will need to evaluate whether these changes will impact their tax liability. There are certain fact patterns where these rules can potentially create permanent tax leakage which may be mitigated through proper planning.

Other International Provisions

Changes to foreign tax credit limitation rules including no more interest or R&E expense allocation against Section 951A income, 50% foreign source treatment for certain U.S. produced inventory sold abroad through foreign branches and changes sourcing from foreign branch to general for certain basis differences
Changes to deemed paid credit rules including increasing tested income deemed paid credits from 80% to 90% and disallowance of 10% of foreign taxes related to distributions of previously taxed income derived from Section 951A amounts
Restoration of prohibition of downward attribution rules for purposes of determining U.S. shareholder and CFC status; instead of downward attribution, added new Section 951B which provides for “foreign controlled U.S. shareholders” to be taxed on Subpart F and Net CFC Tested Income from a CFC based on downward attribution from a common parent; this new section only impacts certain structures
The Base Erosion Minimum Tax (BEAT) post-2025 rate drops from 12.5% to 10.5%, with favorable treatment for certain credits preserved
Permanent extension of Subpart F look-thru rule
Modification of Subpart F pro rata rules allocated based on actual stock ownership during the controlled foreign corporation’s income generating period (not just end of year ownership)
Repeal of one-month deferral year-end election for controlled foreign corporations
Introduction of a new 1% excise tax on certain cross-border transfers of money starting in 2026

Key Takeaways

100% bonus depreciation is now permanent, but acquisition date rules matter.
QPP introduces bonus depreciation for production-related real property.
Domestic R&D costs are fully deductible again, with retroactive relief available.
Interest expense deductions expand under EBITDA rules.
QBI deduction is permanent, with more favorable SSTB treatment.
Enhanced export incentive for C corporations should be a consideration when evaluating IP ownership and where to invest in additional production capacity.
There is a need to evaluate whether changes to Section 951A relating to CFCs will have an impact. Planning may be required for certain fact patterns.

Weaver can help businesses model these provisions in real time, evaluating the timing of acquisitions, R&D expenditures and financing decisions to maximize deductions and strengthen cash flow. Contact us for more information.

Federal Tax Law Updates Series

Weaver’s Federal Tax Law Updates series explores key provisions of recent federal tax legislation and the implications for businesses and individuals. From depreciation and R&D expensing to energy incentives and state conformity, the series highlights what taxpayers should know to plan effectively in the evolving tax landscape.

Additional Resources

The Tax Navigator is a comprehensive insight hub for updates on tax policy, planning and legislation. The following videos hosted by Sean Muller, Weaver’s partner-in-charge, specialty tax services, feature updates related to the federal tax legislation and trending topics mentioned in this blog.