The One Big Beautiful Bill (OBBB) introduces major tax code changes that will affect how business owners approach planning, investment, and deductions. Many provisions take effect in 2025, with lasting implications for both short-term decisions and long-term strategy.
For small and midsize businesses, understanding these updates is essential. Below, we outline the most relevant changes and what they could mean for your business moving forward.
1. 100% Bonus Depreciation Made Permanent
The bill permanently extends the additional first-year “bonus depreciation” under Section 168. Businesses can now claim a 100% first-year deduction for qualified property acquired and placed in service on or after January 19, 2025. This also applies to specified plants that are planted or grafted on or after that date.
This allows businesses to immediately deduct the full cost of eligible capital investments, improving cash flow in the year of purchase.
2. R&D Costs Now Fully Deductible
Beginning in tax years starting after December 31, 2024, businesses can immediately deduct domestic research or experimental expenditures. However, expenses related to research conducted outside the United States must still be capitalized and amortized over 15 years under Sec. 174.
The bill also includes a retroactive benefit for small businesses. Taxpayers with average annual gross receipts of $31 million or less can generally apply the new rule to tax years beginning after December 31, 2021. All taxpayers with qualifying domestic R&D expenditures from 2022 to 2024 can elect to accelerate the remaining deductions over one or two years.
3. Opportunity Zones Program Extended
The bill extends the Qualified Opportunity Zones program by seven years. Investors can now defer capital gains by reinvesting in Qualified Opportunity Funds (QOFs) through December 31, 2033. Gains invested on or after January 1, 2034 will be eligible for deferral until December 31, 2043.
This extension provides continued support for long-term investment in designated low-income areas. For business owners and investors already involved in QOFs—or considering new participation—it offers an extended window to benefit from favorable tax treatment on eligible gains.
4. Business Interest Deduction Rule Reinstated
The bill reinstates the EBITDA-based limitation under Sec. 163(j) for tax years beginning after December 31, 2024. This means adjusted taxable income will once again be calculated by adding back depreciation, amortization, and depletion, resulting in a higher base for the interest deduction cap.
This change may increase the amount of deductible interest available to highly leveraged businesses, particularly those in capital-intensive industries or using aggressive financing strategies.
5. New Incentives for U.S. Manufacturing Investments
The OBBB includes two major tax updates that benefit manufacturers investing in facilities and equipment. First, businesses can now claim a 100% first-year depreciation deduction for qualified production property, which includes nonresidential real estate used in manufacturing operations. This applies to property placed in service after the bill’s enactment.
Second, the advanced manufacturing investment credit increases from 25% to 35% for eligible property placed in service after December 31, 2025. This expanded credit creates a stronger incentive for domestic production and equipment upgrades.
Together, these changes support capital investment and expansion in the manufacturing sector.
6. Qualified Small Business Stock Exclusion Expanded
The bill increases the Sec. 1202 exclusion for gain on qualified small business stock acquired after enactment. If the stock is held for at least four years, 75% of the gain may be excluded from gross income. If held for five years or more, the exclusion increases to 100%.
This creates stronger incentives for long-term investment in early-stage companies and supports broader access to tax-efficient exits for founders and investors.
7. Excess Business Loss Limitation Made Permanent
The Sec. 461(l) limitation on excess business losses for noncorporate taxpayers is now permanent and no longer set to expire after 2028. The final bill does not include the Senate’s earlier proposal to treat carried-over losses as subject to the same limitation.
This means excess business losses that are carried forward will continue to be treated as net operating losses (NOLs), which are not subject to the Sec. 461(l) cap. The change affects individuals with significant business losses, particularly those operating pass-through entities.
8. Clean Energy Incentives Phased Out
The bill terminates or limits a wide range of clean energy tax credits, including those for electric vehicles, charging infrastructure, residential upgrades, commercial property improvements, and fuel production. Termination dates vary by provision, with most ending between late 2025 and mid-2026. Some credits (like the Sec. 45Z clean fuel production credit) are extended but include new restrictions, especially for entities using foreign feedstocks or controlled by foreign interests.
Companies that have relied on these incentives to offset investment costs will need to revisit their timelines and strategies.
What You Should Do Now
The changes outlined here represent only a portion of what’s included in the OBBB. The bill includes additional provisions that may impact your business depending on your industry, structure, and growth plans. Some changes are straightforward, while others may introduce new complexity or eliminate credits you’ve relied on in the past.
To make informed decisions, it’s essential to revisit your tax strategy with a qualified CPA. From evaluating upcoming purchases to reviewing how your financing or operations may be impacted, now is the time to understand where you stand. The Hechtman Group can help you interpret the new rules and make informed decisions to move forward.