The One Big Beautiful Bill (OBBB) extends many of the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and makes several impactful changes that will benefit many businesses (corporations and partnerships). This update provides an overview of those changes as part of Parsons Behle & Latimer’s (Parsons) weekly updates to address the major tax changes from the OBBB. All changes are effective Jan. 1, 2026, unless noted otherwise.
I. Qualified Small Business Stock
The OBBB revamps the future for qualified small business stock (QSBS), which allows owners of C corporation stock in certain qualifying business to exclude capital gain. For QSBS that is issued after July 4, 2025, there will be a tiered holding period requirement and corresponding percentage for exclusion of gain (noted below). QSBS issued prior to July 5, 2025, will still be subject to the flat five-year holding period and 50% exclusion of gain. Additionally, the $10 million gain limitation is increased to $15 million (and adjusted for inflation) for QSBS issued after July 4, 2025. Lastly, the gross asset test to determine a “qualified small business” is increased to $75 million (adjusted for inflation) from $50 million. No other changes were made to the mechanics of QSBS stock.
Years stock held: Applicable percentage:
3 years ....................................................................... 50%
4 years ....................................................................... 75%
5 years or more ........................................................ 100%
II. Qualified Business Income Deduction
Under the TCJA, the 20% deduction for qualified business income (QBI) under Section 199A was set to sunset at the end of 2025, but the OBBB makes it permanent with moderate inflation-based changes. Beginning in tax year 2026, the taxable income phase-in limit will be increased to $75,000 for single filers and $150,000 for joint returns (compared to $50,000 and $100,000, respectively, under the TCJA).
The OBBB creates a minimum deduction amount of $400 for taxpayers whose aggregate QBI with respect to all active qualified trades or businesses of the taxpayer for the taxable year is at least $1,000. The $400 and $1,000 amounts will be adjusted for inflation beginning in tax year 2027. Most taxpayers will see little material impact from these changes, and the OBBB will simply continue the prior QBI tax regime.
III. Passthrough Business Losses
The OBBB makes permanent the limitation on excess business losses of noncorporate taxpayers. An “excess business loss” is the amount by which the deductions (excluding net operating losses and qualified business income deductions) attributable to trades or businesses of the taxpayer exceed the gross income from such trades or businesses plus $250,000 ($500,000 in the case of a joint return). The $250,000 amount is adjusted for inflation based on a new inflation basis starting in 2026.
IV. Other Expenses and Deductions: The OBBB revamped certain expenses and deductions previously allowed under the early TCJA years in two key areas (1) increased ability to immediately expense property, and (2) targeted credits and deductions for certain manufacturing and production. Here is a survey of those changes:
- Full Expensing of Business Property: The OBBB makes permanent the 100% bonus depreciation rules for qualified property (depreciable property with a recovery period of 20 years or less) which were set to phase out under the TCJA. Taxpayers may elect a reduced deduction if they place qualified property in service during the 2026 tax year. These changes apply to property acquired after Jan. 19, 2025.
- Bonus Depreciation: Business taxpayers can elect to expense the cost of “179 property” in the year in which it is placed in service. The OBBB increases the aggregate cost which may be taken into account in a given tax year to $2,500,000 and increases the phase out limit to $4,000,000. “179 property” includes tangible property such as machinery and equipment purchased for use in a trade or business. These amendments apply to property placed in service after Dec. 31, 2024.
- Full Expensing of Domestic Research and Experimental Expenditures (R&D): The OBBB reverted the domestic research and experimental (R&D) expenditures back to pre-TCJA framework. Under the TCJA, R&D expenditures were required to be amortized and capitalized over a 5–15-year period. The OBBB permanently reinstates the immediate expensing of domestic R&D expenditures. However, companies may still make an election to capitalize and amortize these expenditures. Importantly, the full expensing of domestic R&D is applicable to tax years beginning after Dec. 31, 2024, with retroactive implications. “Small businesses” who have gross receipts of less than $31 million for 2025 can amend their 2022-2024 tax returns to expense their domestic R&D expenditures. Businesses that do not qualify as a “small business,” can elect to deduct previous unamortized amounts in 2025 or ratably over 2025 and 2026.
- Qualified Production Property: Under the OBBB, taxpayers can elect to expense the cost of qualified production property in the year in which such property is placed in service. “Qualified production property” means nonresidential real property that is used by the taxpayer as an integral part of a qualified production activity, e.g., manufacturing, production or refining of tangible personal property (other than food made in a retail establishment) that is placed in service in the U.S. after July 4, 2025, and before Jan. 1, 2029; and the construction of which begins after Jan. 19, 2025, and before Jan. 1, 2029. However, “qualified production property” does not include any portion of nonresidential real property that is used for offices, administrative services, lodging, parking, sales activities or other functions unrelated to the manufacturing, production or refining of tangible personal property. These changes apply to property placed in service after July 4, 2025.
- Qualified Sound Recording Production: Under the OBBB, a taxpayer may now elect to expense the cost of a qualified sound recording production up to $150,000. A “qualified sound recording production” is a sound production produced and recorded in the U.S. This is a completely new deduction.
- Advanced Manufacturing Investment Credit: The OBBB increases the advanced manufacturing investment credit to 35% from 25% of the qualified investment for the taxable year with respect to any advanced manufacturing facility of an eligible taxpayer. “Advanced manufacturing facility” means a facility whose primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment. This change applies to property placed in service after Dec. 31, 2025.
The OBBB also makes some industry specific changes that should be closely watched by impacted taxpayers:
- Charitable Deductions: The OBBB creates a 1% floor for corporate, charitable deductions. Except for qualified conservation contributions by corporate farmers and ranchers and by certain Native corporations, corporations must ensure their aggregate charitable contributions are greater than 1% of their taxable income.
- Business Meal Exception: The OBBB creates an exception for meals provided on certain fishing vessels and at certain commercial fish processing facilities from the 50% business meal deduction limitation.
- Accounting for Residential Construction Contracts: The OBBB revised the exemption for home and residential construction contracts from the percentage of completion method of accounting. The exemption test for residential construction contracts now applies a three-year estimated completion time for residential construction contracts and a two-year estimated completion time for home construction contracts. Note: Generally, home construction contracts are for buildings with less than five dwelling units. These changes are effective for tax years beginning after July 4, 2025.
Parsons’ upcoming seminar on the morning of Aug. 21, 2025, will offer a deeper dive into these developments and their practical implications. Look for an invitation coming soon. In the meantime, we encourage individuals and businesses to monitor our regular updates and engage with our team to navigate this new era of tax law effectively. Next week, our update will focus on developments impacting taxpayers involved in rural and agricultural businesses.
