
Three OBBBA Provisions You Should Know for 2025
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Matthew L. Roberts
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The One Big Beautiful Bill Act (OB3) became law on July 4, 2025. Many of the tax provisions in the new legislation are effective for the 2025 tax year. Summaries of three of the more notable OB3 provisions applicable to businesses are discussed below.
Reinstatement of Bonus Depreciation
Taxpayers who acquire assets during the course of their trade or business often want to accelerate their deductions related to the acquisition. Generally, federal income tax laws require taxpayers to capitalize acquisition costs and depreciate the cost over time. The characterization of the asset for federal income tax purposes determines the depreciation period.
After passage of the Tax Cuts and Jobs Act of 2017 (TCJA), taxpayers were temporarily permitted to claim “bonus depreciation” for “qualified property,” which was defined generally as specified property with a recovery period of 20 years of less. If the qualified property was acquired and placed in service after September 27, 2017, but before January 1, 2023, taxpayers could claim 100% depreciation. However, the TCJA mandated that this 100% depreciation rate would be reduced to 80% for the 2023 tax year with subsequent reductions in later tax years with no bonus depreciation permitted for the 2026 tax year.
OB3 permanently reinstates the 100% bonus depreciation rules effective for qualified property that was acquired after January 19, 2025. Taxpayers who do not want to use bonus depreciation may elect out of the bonus depreciation provisions (and may do so with respect to any class of qualified property). A good example of a scenario in which taxpayers may want to elect out of bonus depreciation would be where the taxpayer has net operating losses that may otherwise expire.
New Qualified Small Business Stock Rules
Prior to OB3, taxpayers could exclude capital gain on the sale or exchange of qualified small business stock (QSBS). If the stock was acquired after September 27, 2010, and held for more than five years, the capital gain exclusion could be as high as 100%. To qualify as QSBS, the stock must originate from a domestic C corporation that conducts specified trades or businesses. Pre-OB3, the corporation could not have aggregate gross assets exceeding $50 million before and after the stock issuance.
OB3 made significant revisions to the QSBS rules, which likely will make more taxpayers eligible for the beneficial capital gain exclusion. To qualify, the taxpayer must acquire the QSBS after July 4, 2025. If this requirement is met, the corporation’s stock may qualify as QSBS if the corporation has aggregate gross assets that do not exceed $75 million before and after the stock issuance. In addition, taxpayers can qualify under OB3 for partial capital gain exclusion even if they do not hold the QSBS for 5 years (as was required pre-OB3). Specifically, OB3 permits capital gain exclusions of 50% (if the stock is held for at least 3 years), 75% (if the stock is held for at least 4 years), and 100% (if the stock is held for at least 5 years).
There are other limitations that may reduce the amount of the capital gain exclusion and therefore taxpayers interested in the QSBS capital gain exclusion should consult with their tax professional to determine eligibility.
Research and Development Expenditures
The federal income tax consequences associated with research and development (R&D) expenditures have changed over time. Prior to the 2022 tax year, taxpayers could immediately deduct these expenses. However, the TCJA modified these rules and required taxpayers—for their 2022 and later tax years—to capitalize them and amortize them over 5 years (unless the expenditures were performed outside the U.S. which required a longer 15-year amortization period).
OB3 modifies these rules by permitting immediate expensing again. Under OB3, taxpayers may immediately deduct their R&D expenditures if the expenditures derive from U.S. activities (R&D expenditures from outside the U.S. remain subject to the capitalization and 15-year amortization rules). Significantly, taxpayers may claim immediate expensing effective for R&D expenditures paid or incurred in tax years after December 31, 2024.
OB3 also provides transitional rules. If the taxpayer is an “eligible small business,” it may retroactively expense its domestic R&D expenditures from its 2022 and subsequent years by making an election within one year of July 4, 2025. To qualify as an eligible small business, the taxpayer must have average annual gross receipts that do not exceed $31 million for its three prior years. Regardless of whether the business is an eligible small business, any business may elect to claim any remaining unamortized R&D expenditures from prior tax years as immediate deductions either all at once in 2025 or over the 2025 and 2026 tax years.
The IRS recently issued a Revenue Procedure (Rev. Proc. 2025-28) that provides procedures for making many of these elections.
Conclusion
OB3 brings some significant tax changes to the 2025 tax year, particularly for taxpayers with trades or businesses. Given the tax revisions applicable to the 2025 tax year, taxpayers should give considerable thought to visiting with their tax professionals prior to the close of the 2025 tax year. Under OB3, taxpayers may be able to significantly reduce their tax burdens with proper tax planning.
For questions concerning this blog post or any other legal or tax related matter, please feel free to contact me at mroberts@meadowscollier.com.