The One Big Beautiful Bill (OBBB) has many tax provisions that will be impactful to business owners in the next few years.
Most significantly the bill extends, permanently, many provisions introduced by the 2017 Tax Cuts and Jobs Act that are favorable to business owners. Here are seven of the top provisions included in the bill that set up for a favorable environment for the next few years for business owners to consider significant acquisition or sale transactions.
1. Individual Income Tax Rates
Permanent extension of the Tax Cuts and Jobs Act income tax rates that were set to expire at the end of 2025. The top marginal tax rate remains at 37% instead of increasing to 39.6% providing 2.6% savings for those that may find themselves in the top bracket in a year of sale on any ordinary income.
2. Capital Gains Rates
There are no provisions in the bill addressing the capital gains rates, however by omission it provides certainty that there will not be a change in this rate until a potential future tax bill, which is unlikely in the next few years. The top rate remains 20% for long-term gains. Most sale transactions will give rise to significant long-term capital gain income which is taxed at this beneficial tax rate.
3. 100% Bonus Depreciation
Restores bonus depreciation back to 100% expensing and makes it permanent. Certain eligible property acquired through normal capex spend or through the acquisition of a trade or business is again eligible for a deduction of 100% of the cost in the year acquired and placed in service.
4. 163(j) Interest Deductibility Limitation
Reverts back to the pre 2022 formula to determine the deductibility of interest expense on an annual basis equal to Tax EBITDA multiplied by 30% for tax year 2025 and thereafter. This allows for improved tax efficiency on transactions where debt is utilized to fund acquisition as compared to the limitation required for tax years 2022-2024.
5. Qualified Business Income Deduction
Permanent extension of this deduction was introduced in the Tax Cuts and Jobs Act which was set to expire as of 12/31/25. Ordinary income arising from sales could effectively be taxed at 29.6% instead of 37% assuming a full deduction is available, and the owner is in the highest tax bracket.
6. State and Local Tax Deduction Limitation Increased and Preserved Work Around
The Federal deduction increased from 10,000 to 40,000 (subject to phase out for high income earners) and preserved the deductibility of state income tax paid by pass-through entities without limitation in states with an available election.
If a pass-through entity tax election is made in the year of sale and the sale is structured as an asset sale for tax purposes the selling business can deduct all state taxes paid as a business expense and pass the deduction through to owners without limitation rather than an individual Federal itemized deduction limited to $10,000 or $40,000.
7. Opportunity Zones (OZ) Extended
The OZ program was made permanent, and gains realized in a sale transaction could be deferred by rolling into an OZ investment with the original Tax Cuts and Jobs Act basis step up programs enhanced for new investments in OZ property if held for the required time period.
How Can Schneider Downs Help?
For more information on the impact of the OBBB, please visit www.schneiderdowns.com/obbb or contact us at [email protected]
About Schneider Downs Tax Services
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