Senate Passes Its Version of One Big Beautiful Bill Act – Biggest Impacts

On July 1, the Senate approved its rendition of the multi-trillion dollar reconciliation bill (“Senate bill”) known as the One Big Beautiful Bill Act (OBBBA). OBBBA is a reconciliation bill that includes budgetary provisions relating to the border, defense, energy policy, spending cuts, the debt ceiling, and taxes that were approved. The Senate bill passed by a vote of 51-50, with Vice President JD Vance breaking the tie, and extended or made permanent many of the provisions contained in the Tax Cuts and Jobs Act (TCJA), met many of the tax campaign promises made by President Trump, and added additional tax provisions, which is summarized more fully below.

Provisions Affecting Businesses

Research and Experimentation (R&E) Deductions: Immediate deductions for domestic R&E expenses, maintains 15-year amortization of foreign expenses starting in 2025, and the potential for two years of amended returns to claim refunds.

Bonus Depreciation: 100% bonus depreciation is available again for property placed in service after Jan. 19, 2025. Amounts incurred for the development of software are included in the definition of R&E expenses.

Qualified Production Properties: Manufacturers can claim 100% deduction for the cost of new “qualified production property,” including certain real property, defined as any property used in a “qualified production activity” (“the manufacturing, production, or refining of a qualified product” which “result[s] in a substantial transformation of the property comprising the product.”). A ‘qualified product’ means any tangible personal property if such property is not a food or beverage prepared in the same building as a retail establishment in which such property is sold.”

Business Interest Limitation: Increased by returning depreciation and amortization to the calculation (i.e., changing the base determinant from income before interest and taxes, to income before EBITDA).

Excess Business Losses (EBL) Limitation: In determining the amount of EBLs for tax years beginning after Dec. 31, 2024, prior year EBLs included in the net operating loss carryover are considered in determining the current year’s EBL, which could effectively create a permanent disallowance of business losses unless or until a taxpayer has other business income.

Limitation on Deducting Executive Compensation: $1 million deductible executive compensation limit now determined at the controlled group level.

Employee Retention Tax Credit: No credit allowed for claims filed after Jan. 31, 2024, which shortens the previous statute of limitations by approximately 14 ½ months. The IRS now has six years (increased from three) to examine and deny or claw back erroneous or excessive ERTC claims. Also, for employers who claimed ERTC in 2020 or 2021, but have not amended their tax returns for those years, the IRS has three more years to assess additional tax related to the wage deductions related to the ERTC claims.

Payments from Partnerships to Partners: Section 707(a)(2), which addresses payments from partnerships to partners acting other than in the capacity of a partner with respect to services or contributions (i.e., disguised sales), is self-enacting. Under prior law, this type of transaction requires IRS regulations to implement its provisions; however, although the provision is not retroactive, it is not intended to change the substance of the current law.

Clean Energy: The Senate bill makes major changes in clean energy credits. The Senate bill terminates the 45Y clean energy production tax credit and 48E clean energy manufacturing credit for wind and solar projects, but a last-minute amendment removed a new excise tax and eased some restrictions on placed-in-service requirements. The Senate bill also ends the 25E, 30D, and 45W electric vehicle credits after September and the 25D residential solar credit after 2025.

Qualified Opportunity Zones (OZ): New permanent rolling 10-year designation beginning Jan. 1, 2027. The bill maintains the current OZ designation process and provides strengthened eligibility requirements.

Provisions Affecting Individuals

Tax Rates: Makes TCJA rates made permanent with inflation indexing for lower brackets. Standard Deduction: Makes TCJA rates permanent, and starting in 2025, the standard deduction will increase to $15,750 for individual filers and $31,500 for joint filers, which will be adjusted for inflation. Personal Exemption: Permanently reduced to zero. Repeal of Certain Miscellaneous Itemized Deductions: Permanently suspends certain miscellaneous itemized deductions that were scheduled to expire under TCJA. These include unreimbursed employee expenses, investment advisory fees, tax preparation fees, certain legal fees, hobby expenses, and safe deposit box rentals. Limitation of Tax Benefit of Itemized Deductions: Permanently repeals the “Pease” limitation on itemized deductions and creates a new formula to apply to taxpayers only in the highest tax bracket, generally capping the rate of otherwise allowable itemized deductions at 35%. SALT Cap: Temporarily increases the cap to $40,000 with phase outs beginning at $500,000 of income. In 2026, the thresholds would increase by 1% or to $40,400 for households with income under $505,000. The thresholds would continue to increase by 1% each year through 2029, after which the SALT limit would be permanently reduced to $10,000. Pass-Through Entity Tax (PTET) Deduction: Unlike the House-passed version of H.R. 1, the Senate bill essentially maintains the status quo with respect to PTET deductions. The House version repealed the PTET deduction for specified service trades or businesses and placed restrictions which could limit the deduction by one-half or even more in certain circumstances. 1202 Small Business Stock: Provides tiered gain exclusion for qualified small business stock (QSBS).

• Held three years: 50% gain exclusion
• Held four years: 75% gain exclusion
• Held five years: 100% gain exclusion

The change only applies to stock originally issued after the date of enactment. The gain excluded under the three- and four-year rules would not be treated as a preference item for purposes of the AMT if the stock was to be acquired after Sept. 27, 2010.

• The per-issuer cumulative exclusion limitation increases from $10 million to $15 million, with an annual inflation adjustment increase.
• The “aggregate gross asset” calculation under IRC Section 1202(d) is increased to $75 million from $50 million, adjusted for inflation.

Section 199A Qualified Business Income (QBI) Deduction: Maintains 20% exclusion rate and made permanent. Tip Income: Allows an above-the-line deduction for tip income with phase-out amounts beginning at $150,000 ($300,000 married filing jointly) for tax years 2025 through 2028. This applies to both employees and independent contractors in industries that customarily receive this income. A list of eligible industries will be provided by the Treasury. Overtime Pay: For years 2025 through 2028, new deduction for qualified overtime pay (defined by reference to section 7 of the Fair Labor Standards Act) of $12,500 ($25,000 for married filing joint filers). The deduction phases out starting at AGI of $150,000 ($300,000 for married filing joint filers). AMT Exemption: Increased TCJA exemptions made permanent. Loan Limit on Interest Deduction on Principal Residence: Makes permanent the TCJA $750,000 ($375,000 married individual filing separately) limit on principal residence acquisition indebtedness under section 163(h), as well as the exclusion of interest on home equity indebtedness from the definition of qualified residence interest. Allows certain mortgage insurance premiums to qualify as deductible interest. Personal Casualty Losses: The temporary limitation on personal casualty losses in section 165(h)(5) under TCJA (an individual taxpayer can claim an itemized deduction for a personal casualty loss if the loss is attributable to a declared federal disaster area) is made permanent and includes state declared disasters. Moving Expenses: Permanently repeals the deduction for moving expenses under section 217(k), except in the case of a member of the Armed Forces (or their spouse or child). New Deduction for Seniors: New temporary deduction of $6,000 for individuals who have attained age 65 (and for each spouse meeting the applicable criteria in the case of a joint return). Interest on Domestic Auto Purchases: For taxable years 2025 through 2028, a new $10,000 maximum deduction for qualified passenger vehicle loan interest when purchasing an American-made car. Income phaseouts start at $100,000 (single filers) and $200,000 (for married filing joint filers).

Provisions Affecting Colleges and Universities

Excise Tax on Colleges and Universities: Increases TCJA excise tax on endowments. Certain colleges and universities with at least 500 students paying tuition and endowments exceeding $500,000 per student must now pay an excise tax on a tiered schedule of 1.4% to 8%:

• Student-Endowment Ratio of up to $500,000 – no excise tax applies
• Student-Endowment Ratio of $500,001 to $750,000 – 1.4%
• Student-Endowment Ratio of $750,001 to $2,000,000 – 4%
• Student-Endowment Ratio of over $2,000,000 – 8%

An applicable education institution must have at least 3,000 tuition-paying students in a prior year, have more that 50% tuition-paying students located in the U.S., not be a state college or university, not be a qualified religious institution, and the student-adjusted endowment is at least $500,000.

Provisions Affecting Trusts, Estates and Gifts

Tax Rates: Permanently extends TCJA income tax rates and brackets for estates and trusts.

Exemption: The unified estate and gift tax exemption is made permanent to an inflation-indexed $15 million per individual for taxable years beginning after Dec. 31, 2025. The generation-skipping transfer tax exemption is also permanently increased to an inflation-indexed $15 million.

Provisions Affecting Businesses with International Operations

Global Intangible Low-taxed Income (GILTI): New effective tax rate on GILTI of 14%.

Foreign-derived Intangible Income (FDII): Reduces to 33.34% the currently applicable 37.5% deduction for FDII, which was scheduled to decline to 21.875% after 2025. Therefore, the effective tax rate on FDII is slightly increased to 14%, consistent with GILTI.

Base Erosion and Anti-abuse Tax (BEAT): Increases the BEAT rate from 10% to 14%.

Controlled Foreign Corporation (CFC) Provisions: Several CFC provisions, including making the CFC look-through rule permanent, repealing the one-month deferral in section 898(c), reinstating section 958(b)(4) to prevent downward attribution, adding section 951B to cause certain foreign corporations to be treated as CFCs, and amending pro rata share rules under section 951A.

Conclusion

The Senate bill version of OBBBA makes extends or makes permanent many of the TCJA provisions, while adding many new provisions, as well. This is only a summary and is not intended to be a comprehensive discussion of all of the provisions. The House will now consider the Senate bill, and we expect a definitive resolution soon.

We will provide updates and commentary as soon as it becomes available. For a more comprehensive explanation of OBBBA, please refer to our detailed analysis.

Join us for an in-depth discussion on the key OBBBA provisions on July 8, 2025, 1:00-2:00 PM EDT. Register for “Breaking Down the One Big Beautiful Bill Act: Insights & Implications”.

As always, your CBIZ tax professionals are available to explain how these changes will affect you and your business.