The One Big Beautiful Bill: Highlights for Businesses and Tax-Exempt Organizations

What changes in the One Big Beautiful Bill (OBBB) could impact businesses and tax-exempt organizations?

H.R. 1, formally titled “An Act to provide for reconciliation pursuant to Title II of H. Con. Res. 14” and commonly referred to as the One Big Beautiful Bill, spans more than 1,100 pages and introduces sweeping changes across the tax landscape.

Our previous article covered how the OBBB affects individual taxpayers and estate and gift taxes. In this article, we explore the key changes that could impact businesses and tax-exempt organizations.

The Impact of the OBBB on Businesses

The business-related tax provisions contained in the OBBB appear to be designed to encourage business in America and stimulate the economy by restoring and adding tax- favorable (although not all provisions are favorable) business provisions, including:

• Business Interest Deduction: The OBBB permanently reinstates the “taxable EBITDA” limitation for tax years beginning after December 31, 2024. Accordingly, for the purpose of calculating the business interest limitation for these years, adjusted taxable income is computed without a reduction for depreciation, amortization or depletion, thereby increasing the amount of interest expense that can be deducted.

The OBBB also modifies the definition of “motor vehicle” for purposes of the floorplan financing interest and floorplan financing indebtedness definitions to include any trailer or camper that is designed to provide temporary living quarters for recreational, camping or seasonal use and is designed to be towed by or affixed to a motor vehicle.

Finally, the OBBB provides rules for coordinating the business interest limitation rules with rules on the capitalization of interest.

The new rules don’t change other numerous and complex compliance business interest limitation rules already in place, including the definition of interest and its different impact on partnerships and partners compared to S corporations and their shareholders.

• Special Depreciation Allowance for Qualified Production Property: The OBBB aims to encourage growth in domestic manufacturing by creating a new tax incentive that allows for the immediate deduction for investment in both new and refurbished manufacturing facilities (i.e., buildings) by adding new subsection (§168(n)), and by creating an immediate deduction for a new class of property called “qualified production property” for property acquired and placed in service after January 19, 2025 and before January 1, 2031.

• Bonus Depreciation: The OBBB permanently reinstates a 100% additional first-year depreciation deduction under §168(k) for qualified property (new or used property with a recovery period of 20 years or less) acquired and placed in service after January 19, 2025. There are still other options available to elect out of 100% bonus depreciation.

• Section 179 Business Expensing of Capital Acquisitions: The OBBB increases the maximum expense deduction to $2,500,000 while increasing the phaseout threshold to $4,000,000 (both indexed for inflation) beginning in tax years after December 31, 2024.

• Research and Experimental Cost Deduction: The OBBB permanently provides for the immediate deduction of domestic (but not foreign) R&E costs in the year incurred for tax years beginning after December 31, 2024. Capitalization and amortization are no longer required, but can be elected. Further, it provides retroactive relief for smaller companies with average gross receipts of $31 million or less over the past three years to either amend returns for tax years 2022 through 2024 or take a catch-up deduction in either one year in 2025 or over two years in 2025 and 2026. Larger companies are limited to either of the catch-up provisions, but not the amended return option for remaining unamortized capitalized costs. The 15-year amortization rule remains in place for foreign R&E; these costs are still excluded from the Section 41 research credit.
• Qualified Opportunity Zones: The OBBB revitalizes the QOZ program by creating a permanent set of provisions and benefits that are separate from those originally established by the TCJA. The Act calls for the designation of additional qualified opportunity zones under a modified definition of a low income community. It also creates a second type of QOZ known as a “rural area” QOF, provides differing gain exclusion periods based on holding periods of qualifying investments, and increases compliance reporting requirements.
• Qualified Business Income Deduction: The OBBB makes permanent a 20% deduction against “adjusted taxable income” (though the original House OBBB wanted to increase the deduction to 23%, a number that was not acceptable to the Senate and was removed prior to passage). You’ll recall that the deduction is available to individuals regardless of whether they itemize their deductions. The OBBB makes a few additional but nominal enhancements, including providing for a new minimum $400 deduction for those with at least $1,000 of qualified business income, and expands the deduction limit by increasing phaseout amounts. It makes no changes to the treatment of income to professional service business owners of “specified service trade or businesses.”

• Excess Business Loss Deduction: The excess business loss provisions for noncorporate taxpayers are made permanent, including treating the loss disallowed and carried forward to future years as a net operating loss.
• C Corporation Floor on Charitable Contributions: The OBBB creates a floor equal to 1% of taxable income on corporate charitable donations exceeding 1% of taxable income for donations in taxable years beginning after December 31, 2025. Total charitable donations are still limited to a maximum 10% of taxable income (before the floor). Carryforwards are available.
• Section 179D Energy Efficient Commercial Buildings Deduction: The OBBB terminates the deduction for qualified property that begins construction after June 30, 2026.
• Exception To Percentage-Of-Completion Method Of Accounting For Certain Residential Construction Contracts: The OBBB made two significant changes to rules related to residential construction contracts entered into in tax years beginning after July 4, 2025.

First, it expands the exception to the percentage-of-completion method of accounting to include residential construction contracts. For tax purposes. residential construction contracts are defined differently than home construction contracts, the primary difference being the number of dwelling units in the building. In general, home contracts contain four or fewer units while residential contracts contain more than four dwelling units.

The second material change that the OBBB made to residential construction contracts is that an alternative minimum tax (AMT) adjustment is no longer required for any residential construction contracts entered into in a tax year after July 4, 2025 (Code Section 56(a)(3). The elimination of the AMT adjustment further aligns the tax treatment of residential and home construction contacts because home construction contracts have long benefited from the fact that an AMT adjustment was not required on home construction contracts.

• Administrative Accounting for Tips and Overtime Earned by Employees: The OBBB includes provisions for employers that require additional compliance reporting obligations to both employees and the IRS to allow for the proper claiming and verification of deductions.

• Form 1099 Information Reporting: The OBBB increases the information return (Form 1099) threshold for certain payments to individuals engaged in a trade or business and payments of remuneration for services to $2,000 in a calendar year (up from $600). The threshold amount will be indexed annually for inflation in calendar years after 2026; the provision is effective for payments made after December 31, 2025.

The Impact of the OBBB on Tax-Exempt Organizations

The final version of the OBBB includes only a few changes that directly impact tax-exempt organizations. Several provisions that raised concerns following the release of the House’s initial draft in May were ultimately excluded from the final version of the legislation. The excluded provisions include an increase in the rate of tax on net investment income of certain private foundations, an increase in unrelated business taxable income (UBTI) by the amount of certain fringe benefit expenses for which deduction is disallowed, and name and logo royalties being treated as UBTI

There are also a number of provisions that indirectly impact tax-exempt organizations. These are discussed elsewhere. but include changes in the treatment of charitable contributions by individuals and corporations and a change in the reporting threshold for information reporting forms with respect to compensatory payments to certain payees.

• Tax on Excess Compensation Within Tax-Exempt Organizations: The OBBB expands the application of an excise tax on the excess compensation of tax-exempt organizations. It changes the definition of a “covered employee” to mean any employee (including any former employee employed after 2016) of an applicable tax-exempt organization, not just the five highest-compensated in each year after 2016. This amendment works to increase the excise tax by effectively erasing the limitation on the number of employees that can be considered new “covered employees” each year.
• Modification of Excise Tax on Investment Income of Certain Private Colleges and Universities: The OBBB amends the law by adding a tiered tax rate structure based on the student-adjusted endowment as follows:

The new law also increases the number of tuition-paying students to be considered an applicable educational institution to 3,000 from the current 500. Additionally, under the new law, the net investment income subject to the excise tax will include student loan interest income and royalty income from federally funded research. Schools that are subject to this excise tax will be required to report the number of tuition-paying students and the number of total students on their Form 990, Return of Organization Exempt from Income Tax.

If you have questions about how the OBBB may affect you or your organization, please reach out to us at [email protected].

This article is part of our ongoing series on the potential impact of the One Big Beautiful Bill. You may view our full library on our OBBB Resource Center.

About Schneider Downs Tax Services

Schneider Downs’ tax advisors have experience and expertise in a wide range of industries, including Automotive, Construction, Real Estate, Manufacturing, Energy & Resources, Higher Education, Not-for-profits, Transportation and others. Our industry knowledge and focus ensure the delivery of technical tax strategies that can be implemented as practical business initiatives.  

To learn more, visit our dedicated Tax Services page.