What Trump’s One Big Beautiful Bill Act Means for Middle-Market M&A Structuring, Valuation and Tax Strategy

President Trump’s newly signed One Big Beautiful Bill Act (OBBBA) delivers a net win for middle-market M&A, preserving or expanding key tax provisions that keep buyers and sellers aligned.

From bonus depreciation and interest deductibility, fueling leveraged buyouts and asset deals, to enhanced qualified small business stock (QSBS) and the permanence of the qualified business income (QBI) deductions that lighten the tax load on sellers, the bill incentivizes transactions on both sides. Sellers, especially those in high-tax states, and C Corporation startups may see the biggest gains, but overall deal momentum stands to benefit the market across the board.

Deals in asset-heavy industries like manufacturing should benefit from the bonus depreciation provisions, including the new deduction for qualified production property. Changes to again allow current deductions for research and experimentation (R&E) expenses should provide cash-flow and tax liability relief to technology, life sciences, architecture and engineering companies, potentially making them more attractive M&A targets. On the sell side, professional services businesses in high-tax states could see gains from preservation of the current state of play for pass-through entity tax (PTET) deductions and a temporary increase in the cap on state, local and foreign income, property, or sales and use taxes (SALT).

In what follows, we’ll break down the OBBBA’s ramifications for buyers and sellers when it comes to structuring and valuing M&A transactions in 2025 and beyond.

SALT Cap/PTET Deductions: Extends buyer-seller alignment on deal structures

What’s in the bill

• SALT cap. Temporarily increases the SALT cap for individuals who itemize deductions to $40,000 from the $10,000 cap in place under the Tax Cuts and Jobs Act (TCJA) of 2017. Limited to five years, the OBBBA’s SALT cap increase includes phase-outs beginning at $500,000 of adjusted gross income (AGI). By $600,000 of AGI, the cap is returned to $10,000, which may limit its attractiveness to sellers, particularly in the year of sale. Thresholds increase by 1% each year through 2029, after which the SALT limit reverts to $10,000.
• PTET deductions. The final legislation effectively preserves existing rules around state pass-through entity tax (PTET) regimes, which can bridge the gap between sellers and buyers on deal structures by maximizing tax benefits for both. By contrast, previous versions of the bill that did not survive and were not included in the final legislation contained provisions to limit state and local workarounds that were disadvantageous to sellers.

M&A Impact

PTET elections have made owners of pass-through entities in some high-tax states more willing to structure deals as asset sales, because they can deduct state and local income taxes that flow through from the entity level. This effectively bypasses the SALT cap for individuals and potentially achieves higher after-tax proceeds compared to what sellers would receive in a stock or equity sale.

That existing state of play has increased buyer-seller harmony, aligning sellers’ interests with buyers’ preferences. Buyers generally prefer asset sales because the tax basis of the acquired assets is the allocated cost. Such deals deliver better tax breaks for buyers because they can write off more of the purchase price against their taxes, and this benefit is only increased by the return to 100% bonus depreciation.  

Reducing PTET benefits, as initially proposed in the House version of the bill, could have eroded that harmony by shifting sellers back toward preferring stock sales to avoid ordinary income and minimize their tax exposure, which historically has meant the parties had to negotiate purchase price based on after-tax considerations.

However, because the final bill essentially maintains the status quo on PTET deductions, we expect few changes in M&A deal-making for pass-through entities in high-tax states like California, New York and New Jersey, where PTET elections have provided meaningful federal tax relief and helped lubricate seller-side negotiations.

QBI Deduction: May lessen the tax burden on sellers

What’s in the bill

QBI. The OBBBA makes the 20% QBI deduction for noncorporate taxpayers, which was enacted as part of the TCJA, permanent. This move provides more long-term certainty to owners of eligible pass-through businesses, such as partnerships, S Corporations, and LLCs. Also known as the 199A deduction, the QBI deduction was designed to offer tax relief to business owners who could not benefit from the corporate tax rate reduction enacted by the TCJA. The QBI deduction was scheduled to sunset after 2025, which would have led to a significant tax increase for owners of many pass-through entities.

M&A Impact

Enshrining the QBI permanently in the tax code could make asset sales more attractive to both sides of the deal. For sellers, it could help reduce the overall tax burden on business owners in asset sales. That can be particularly valuable in equipment-heavy industries like manufacturing, where depreciation recapture can create significant tax liabilities. On the buy side, negotiations may be smoother if the seller’s tax burden is lighter.

In addition, the permanency allows for greater certainty in exit strategy planning for sellers.

Bonus Depreciation: A boon for buyers of fixed asset-heavy businesses

What’s in the bill

• Bonus depreciation. The bill continues favorable expense deduction timing for vehicles, furniture, heavy equipment and other qualifying property types. Reversing the phase-down scheduled in the TCJA, the OBBBA restores and makes permanent the 100% bonus depreciation for qualifying property acquired and placed in service after Jan. 19, 2025.
• “Qualified Production Property” Deduction.  The final bill also introduces a new 100% depreciation for manufacturers. Favorable expensing is now permitted for the costs of “qualified production property,” including costs related to the acquisition of nonresidential real property used for the manufacturing, production, or refining of qualified products.  Construction must begin after Jan. 19, 2025, and before Jan. 1, 2029, and the property must be placed in service before Jan. 1, 2031. Certain uses are excluded, including offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other functions unrelated to the manufacturing, production, or refining of tangible personal property.

M&A Impact

The bonus depreciation changes are a boon for buyers of businesses who depend heavily on fixed assets and for manufacturing plants. We expect these changes to encourage asset deals, increase post-deal cash flow, and reduce up-front tax liability. Essentially, buyers can take a full write-off, and that benefit potentially accrues to the new buyer every time the business changes hands. Strategic buyers may benefit more than PE firms from these provisions, depending on the anticipated holding period.

For sellers, this could make businesses with qualified assets more attractive to buyers and potentially increase the sales price. However, gains from the sale of a depreciated asset are typically recaptured as ordinary income, which creates a higher rate for the seller than long-term capital gains that apply to equity sales. This increases the seller’s tax liability, which is always a negotiation point when structuring M&A deals.

Business Interest Deductibility: Could fuel dealmaking, especially among PE buyers

What’s in the bill

Business interest limitation. The bill restores the section 163(j) deduction limit to its initial form under the TCJA, using a calculation of modified AGI that excludes the deduction for depreciation, amortization or depletion, essentially an EBIDTA-based limit. The increase in the income limit means the 30% deduction limit is also increased. That calculation, which increases leverage capacity, was phased out to a more restrictive EBIT-based limit starting in 2022.

M&A Impact

Reinstating the EBITDA-based limit under TCJA makes more interest deductible, particularly for capital-intensive industries like manufacturing that rely on debt financing and related interest expense deductions. But when it comes to deal-making, this provision is especially salient for private equity acquirers. Shifting the calculation back to EBITDA allows potential buyers to engage in higher leverage, and when coupled with 100% bonus depreciation, potentially increases profitability and makes leveraged buyouts more attractive.

R&E Expensing: Reduces drag on valuation for sellers

What’s in the bill

R&E deductions. Taxpayers can again immediately deduct domestic research and experimentation (R&E) expenses, in contrast to the TCJA, which since 2022 has required those expenses to be capitalized and amortized over five years. The OBBBA permanently allows taxpayers to either deduct domestic R&E expenditures or elect to capitalize and recover domestic R&E expenditures ratably over at least 60 months, beginning with the month in which the taxpayer first realizes benefits from those expenditures. However, foreign R&E policy remains the same as under TCJA, with those expenses subject to 15-year amortization. Additionally, small taxpayers (with gross income of $31 million or less) can choose to amend returns (or administrative adjustment requests) going back to 2022 and take deductions for the expenses incurred in those years, which would likely result in refunds.

M&A Impact

The change will likely boost cash flow for businesses with ongoing product development expenses. From a dealmaking perspective, that could increase the attractiveness of M&A targets that were hampered by the treatment of R&E expenses since 2022 (because they could no longer fully deduct those expenses in the year in which they were paid or incurred).

For example, an architecture firms’ development or acquisition of computer-assisted design software is likely considered R&E. That’s helpful if the firm receives current tax deductions for those expenses, but it can be a serious drag on cash flow if they have to add back the expense for tax purposes, especially in low-margin businesses where salaries account for a high percentage of expenses. Buyers that may have been sitting on the fence waiting to see how an R&E-heavy target’s tax burden played out now have more certainty, and as a result, may be inclined to move more quickly to close deals.

QSBS: Expansions could help sellers

What’s in the bill

Qualified Small Business Stock (QSBS). Prior to the new law, gains from the sale of QSBS were tax-free if a number of criteria were met, including a five-year holding period. The OBBBA phases in the availability of the exclusion for holding periods of three years (50%), four years (75%) and five years (100%). It also expands the per shareholder limitation to $15 million from $10 million, with an annual inflation adjustment increase, and increases the asset limitation to $75 million from $50 million. The new rules apply only to stock issued after July 4, 2025, so existing shareholders remain subject to the old rules.

M&A Impact

The changes make equity sales of eligible C Corporation stock more tax-efficient, which is especially appealing for startup founders and long-term shareholders looking for exits. The higher cap means more gain can be excluded, and the tiered gain exclusion enables partial benefits for founders opting for earlier liquidity. The new rules will figure prominently into choice of entity decisions, and they will tilt the scales away from asset sales, which would not qualify sellers for the exclusion. Meanwhile, the asset test increase allows larger C Corporation stock to qualify as QSBS (e.g., startups approaching $75 million in assets).

Charitable Contribution Deduction: Could limit sellers’ ability to avoid capital gains tax

What’s in the bill

Charitable contribution deduction. The bill imposes a new 1% floor for corporate donors (i.e., deductions only allowed to the extent they exceed 1% of taxable income) and a 0.5% floor on individual itemized charitable deductions, meaning there is no tax benefit until contributions exceed 0.5% of adjusted gross income. New carryover rules apply to unused donation amounts.

M&A Impact

The change could limit sellers’ ability to avoid capital gains tax via pre-sale donations to donor-advised funds or private foundations, and the income limitations can dramatically change deductible amounts in the year of sale. Business owners considering a sale should consult with tax advisors and estate planners early. Many strategic options vanish after the deal closes, so planning with regard to donation thresholds and caps must happen before a transaction closes.

Looking Ahead

With tax certainty restored in key areas and several pro-business provisions now law, the second half of 2025 is poised for a resurgence in middle-market M&A activity. Buyers, especially those eyeing asset-heavy targets or employing leverage, will find renewed advantages. Sellers stand to benefit from enhanced QSBS exclusions and opportunities, the permanence of the QBI deduction, and the preservation of PTET flexibility.

Smart tax structuring will be more important than ever, especially as charitable deduction limits and depreciation recapture could blunt the net take-home in some deals. For dealmakers on both sides, the message is clear: the window is open, but smart planning is critical.

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