Trump tax bill poised for enactment; unpacking the tax provisions

Months of legislative negotiations among Republicans in Congress reached a crescendo on July 2 as the House advanced toward its final vote on H.R.1, the One, Big, Beautiful Bill (OBBB). The bill is expansive and implements many Republican policy priorities. This includes voluminous tax changes, including extension of rules from the Tax Cuts and Jobs Act (TCJA), implementation of campaign promises, and modification of many other existing rules. If the House approves the OBBB then it will head to President Trump for signature ahead of the July 4 holiday. With much to unpack, our specialists survey all of the tax provisions included in the bill.

A final sprint after a long process

The origin of the OBBB began last fall following the 2024 election. The result of that election set the stage for the coming tax debate by establishing who would be in office during 2025. Republican majorities in both chambers of Congress and the return of President Trump to the White House provided an indication of the policy choices that would be made. However, the process and timing involved were open for debate going into 2025. Complex negotiations among Republicans in the House and Senate ultimately settled on the choice to pursue one bill through the expedited budget reconciliation process. Stacking a wide range of policy goals into one bill — taxes, spending, and border security, among others — would increase the degree of difficulty during negotiations but would allow for the inclusion of many things.

When the legislative process began in earnest, Republican leadership aimed for a condensed schedule with passage in the House by Memorial Day and final enactment by the July 4 holiday as the key milestones. The House took the first steps to advance the OBBB during May and ultimately completed its efforts on May 22, ahead of the stated due date. As attention shifted to the Senate, the degree of changes and timeline involved were significant unknowns. Preliminary tax details emerged from the Senate Finance Committee on June 16, which included meaningful changes from the House bill. With the self-imposed July 4 deadline rapidly approaching, matters accelerated on June 28 with the release of updated bill text from the various Senate committees.

The final sequence of developments occurred in quick succession beginning on June 30. The Senate began its floor debate of the bill that morning, and the amendment process stretched until the late morning of July 1. Final negotiations culminated in a concluding amendment on the Senate floor and passage by that chamber on July 1. At that point, the process shifted to the House, with lingering questions about the degree of support following amendments in the Senate and the timeline for action. The House began debate on the OBBB during the morning of July 2 and appears poised to proceed to a final vote ahead of the July 4 holiday.

What’s in the OBBB? Please see below for detailed analysis by category: 

• Individual tax changes
• Estate and gift taxes
• The SALT Cap
• Business tax changes
• International tax changes
• Tax credits related to renewable energy production
• EVs, fuels, and residential energy
• Real estate investment
• Education and exempt organizations
• Immigration-related tax changes

Individual tax changes

The OBBB essentially preserves the TCJA’s tax structure relating to individual taxpayers on a permanent basis. This includes an extension of the tax brackets, increased standard deduction, elimination of personal exemptions, modifications of itemized deductions, and the child tax credit. In addition, Trump’s campaign pledges related to taxation of tips, overtime, and Social Security have been included in some form. However, the details matter, as additional technical adjustments were made to many of these rules.

TCJA extension and modification

• Tax brackets on ordinary income — The bill permanently extends the individual tax rates introduced by the TCJA, including the top rate of 37%. It also adds an extra year of inflation adjustment to the three lowest brackets of 10%, 12%, and 22%. There was limited discussion of any changes to the tax brackets during the OBBB legislative process, even though Trump signaled potential openness to increasing the top bracket and a similar amendment was considered on the Senate floor during final deliberations. The extension of tax brackets included in the OBBB provides stability as the existing rules carry forward.
• Standard deduction and personal exemptions — The TCJA repealed personal exemptions and doubled the standard deduction. The OBBB generally extends such changes on a permanent basis with a slight increase in the standard deduction. Beginning in 2025, the standard deduction for a single filer will increase to $15,750 ($15,000 under current law), head of household will increase to $23,625 ($22,500 under current law), and married taxpayers filing jointly will see an increase to $31,500 ($30,000 under current law). These increases will be permanent and will continue to increase annually for inflation. The increased standard deduction will also pair with the various “no tax” deductions described below to meaningfully increase the amount of income excluded from taxation for qualifying taxpayers.
• Limitation on itemized deductions — The TCJA temporarily suspended the overall limitation on itemized deductions, commonly known as the Pease limitation. The OBBB replaces the Pease limitation with a limitation whereby the benefit of an itemized deduction is limited to 35% for taxpayers in the 37% tax brackets. This is accomplished by reducing by 2/37ths the lesser of (1) the total value of those itemized deductions or (2) the amount of taxable income in excess of the 37% bracket.
• Excess business losses — A limitation on an individual taxpayer’s ability to offset business losses against nonbusiness income was implemented by the TCJA as Section 461(l). Under such rules, business losses may offset business income, but any net business loss may only offset $250,000 of nonbusiness income ($500,000 for joint filers). Such limitation was indexed to inflation and currently equals $313,000 in 2025 ($626,000 for joint filers). These rules were scheduled to expire after 2028. Losses that aren’t allowable in the current year carry forward to the following year as net operating losses (NOLs). The OBBB permanently extends these rules. It also resets the inflation adjustment such that the amount of nonbusiness income that can be offset resets to $250,000 ($500,000 for joint filers) in 2026, and inflation adjustments will begin again in subsequent years. Both the House and Senate originally proposed that carryforwards would be run through the Section 461(l) calculation in subsequent years, rather than converting to an NOL. However, that change did not make it into the final version of the OBBB. Thus, excess losses suspended in one year convert to NOLs for purposes of applying the carryforward rules.
• Child tax credit — The TCJA temporarily increased the child tax credit to $2,000. Such amount was further increased, on a temporary basis, in 2021 due to the American Rescue Plan Act. The OBBB makes the TCJA expansion permanent and also increases the credit to $2,200 beginning in 2025. That amount will be increased for inflation, which has never been a feature of the child tax credit in the past. Other changes to the child tax credit made by the TCJA are also made permanent, including the refundability of the credit, the $500 nonchild dependent credit, and the increased phase-out thresholds. However, all credits are limited only to those with valid Social Security numbers issued before the due date of a tax return.
• Alternative minimum tax (AMT) — The TCJA significantly increased the alternative minimum tax (AMT) exemption as well as the phase-out thresholds for the exemption. These increases would have sunset in 2026. The OBBB permanently extends them, but with several key changes to the exemption phase-out. First, it resets the exemption to the level initially established by the TCJA by removing all inflation adjustments that have occurred over the past several years. The 2025 phase-out threshold begins at $626,350 and $1,252,700 for single and married taxpayers, respectively, but would reset to $500,000 and $1,000,000 for single and married taxpayers, respectively, in 2026. Inflation adjustments will begin again starting in 2027. Second, the phase-out will occur twice as quickly once the thresholds are exceeded.
• Casualty loss deductions — The TCJA temporarily restricted casualty loss deductions to only those incurred in a presidentially declared disaster area. The OBBB permanently extends this provision but will expand the allowable deduction to disasters declared by state governors beginning in 2026. Please also see the discussion below regarding the computation of qualified disaster loss deductions as this is not the only OBBB provision related to disasters.
• Mortgage insurance premium deduction — Mortgage insurance premiums have been deductible alongside certain mortgage interest on and off for several years. However, since 2021, they have not been deductible. The OBBB will permanently permit mortgage insurance premiums on eligible acquisition debt to be deductible, beginning in 2026.
• Wagering losses — Losses from wagering transactions are generally deductible as an itemized deduction only to the extent of wagering gains. The TCJA temporarily included all expenses incurred in a wagering transaction in the definition of a wagering loss. The OBBB permanently extends the wagering loss deduction inclusion of all wagering expenses. However, it also restricts the deduction to only 90% of total losses incurred during the taxable year. The 90% restriction will begin in 2026.
• Student loan discharge — The TCJA temporarily excluded from taxable income student loan discharges occurring as a result of death or disability through 2025. The American Rescue Plan Act temporarily expanded that exclusion to cover essentially all student loan forgiveness through the end of 2025. The OBBB permits the American Rescue Plan Act expansion to expire but will permanently extend the TCJA exclusion of discharges resulting from death or disability of the borrower.
• Combat zone tax exclusion — Several tax rules provide benefits, such as income exclusions, to members of the armed forces serving in combat zones. The TCJA previously extended such rules on a temporary basis to qualified hazardous duty areas, including the Sinai Peninsula. The OBBB permanently extends the TCJA rules while also extending benefits to those serving in the Sinai Peninsula of Egypt, Kenya, Mali, Burkina Faso, and Chad beginning in 2026.
• Other TCJA items made permanent — Many other changes made by the TCJA are also made permanent without significant modifications, including:
  • Mortgage interest deduction — The cap on mortgage interest to loans of up to $750,000 of acquisition indebtedness.
  • Home equity loans — Repeal of deductions for interest on home equity loans.
  • Miscellaneous itemized deductions — Repeal of miscellaneous itemized deductions, other than for certain educator expenses.
  • Bicycle commuting fringe — Repeal of the exclusion from income of certain bicycling commuting benefits.
  • Moving expenses — Repeal of the deduction for moving expenses and the exclusion from income for qualified moving expense reimbursements, other than for certain members of the military. Beginning in 2026, this will also include members of the intelligence community alongside members of the military.
  • ABLE accounts and Saver’s Credit — Increase to the maximum contribution limitation for ABLE accounts, nontaxable rollovers from qualified tuition programs to ABLE accounts, other ABLE account modifications, and the provision treating ABLE account contributions as eligible contributions for purposes of the Saver’s Credit under Section 25B. The Saver’s Credit is also slightly increased to $2,100, up from $2,000.
  • Employer-provided student loan payments — Exclusion from income of up to $5,250 for employer-provided student loan payments. The maximum of exclusion for all employer-provided educational assistance programs would be indexed to inflation beginning after 2026.

New tax changes

Trump discussed many new tax changes on the campaign trail, with an emphasis on excluding various items of income from tax and providing additional deductions. The OBBB carries out those intentions, with hallmark features of the legislation focused on creating tax relief for tip income and overtime along with a deduction for certain auto loan interest. Trump focused on tax relief for social security, and the OBBB similarly effects this by way of an additional deduction available to all seniors regardless of whether they have taxable social security income. The OBBB also included a number of items of tax relief that were not campaign focuses but will be very significant for impacted taxpayers. These include education for elementary and secondary students, a new child savings vehicle called “Trump accounts” that functions in ways similar to IRA accounts, expansion of gain exclusions for qualified small business stock, and expansions of a variety of tax credits.

• No tax on tips — Trump’s promise to eliminate taxes on tips was a prominent feature of his 2024 campaign. The OBBB delivers on this promise by way of a deduction of up to $25,000 for qualified tips. The deduction will phase out at a rate of 10% of the individual’s modified adjusted gross income (AGI) that exceeds $150,000 ($300,000 for married taxpayers filing jointly). Thus, the deduction is fully phased out at $400,000 of modified AGI ($550,000 if filing jointly). Qualified tips must be received from a job “customarily and regularly” associated with tips prior to 2025. Treasury will provide a list of qualifying occupations within 90 days of the OBBB enactment date. The deduction will be available to individual taxpayers regardless of whether they itemize and will be available to employees and independent contractors alike. Employers and payors will generally be required to include tips on W-2s, Forms 1099-NEC, and similar information reports, and won’t be available to those working in a specified service trade or business. All individuals must include their social security numbers on their returns to qualify. Married taxpayers will need to file jointly to take the deduction. The deduction will be available from 2025 through 2028.
• No tax on overtime pay — Trump also promised to eliminate taxes on overtime pay during his campaign. Similar to the treatment of tip income, the OBBB accomplishes this policy through a deduction that will be available to both itemizers and non-itemizers. The OBBB will allow for a maximum deduction of $12,500 ($25,000 for joint filers) for qualified overtime compensation per year. Married taxpayers must file jointly to take the overtime pay deduction. The deduction amount phases out in the same manner as the tip deduction discussed above. Thus, it phases out at a rate of 10% of modified AGI in excess of $150,000 ($300,000 for married taxpayers filing jointly). Overtime compensation is defined by the rules in the Fair Labor Standards Act and generally includes the 50% extra amount paid to workers for overtime. Qualified overtime compensation will need to be reported separately on a W-2. Taxpayers will be required to include their Social Security numbers on their tax returns to be eligible. The deduction will be available from 2025 through 2028.
• Temporary deduction for seniors — A third “no tax” campaign promise related to Social Security benefits received by seniors. Ultimately, the OBBB utilizes a similar deduction mechanism with an income-based phase out. Specifically, seniors (those aged 65 or older at the end of the tax year) will be eligible for an additional deduction of up to $6,000 ($12,000 if both spouses on a joint return are over 65). The deduction is reduced by 6% of modified AGI that exceeds $75,000 ($150,000 for a joint return). The deduction will first be allowed in 2025 and will sunset after 2028. 
• Deduction of car loan interest — The OBBB provides individuals with a new deduction for qualifying vehicle loan interest paid for personal vehicles from 2025 through 2028. The deduction will be capped at $10,000 per year and will be phased out beginning at $100,000 of modified AGI ($200,000 for joint returns), with full phase-out at $150,000 ($250,000 for a joint return). The deduction will be available even if a taxpayer doesn’t itemize deductions. The deduction will only be available with respect to a new personal vehicle that is a car, minivan, van, SUV, pickup truck, or motorcycle for which final assembly occurred in the United States. Information reporting will be required by those receiving qualifying interest payments of more than $600 in a calendar year (e.g., a new form of Form 1098).
• Expansion of Section 1202 qualified small business stock (QSBS) exclusion — Section 1202 permits gain from the sale of certain QSBS held in a C corporation to be excluded from income if it is held for at least five years. To be a qualifying small business, the corporation must have less than $50 million in tax basis in its assets at the time the stock is issued to a shareholder, in addition to other requirements. The maximum exclusion for each shareholder is the greater of $10 million or 10 times the shareholder’s basis in their stock. The OBBB significantly expands this provision by making three key changes. First, it phases in the exclusion so that: a 50% exclusion will be available for stock held at least three years; a 75% exclusion will be available for stock held at least four years; and the full 100% exclusion will still exist at five years. Second, the $10 million minimum exclusion is increased to $15 million. Third, the $50 million asset threshold is increased to $75 million. These changes will be effective for stock issued after the OBBB’s enactment date while stock issued prior to that enactment date will continue to operate under the previous rules.
• Qualified disaster losses — As discussed above, only losses from federally declared disasters have been eligible for casualty loss deductions in recent years. However, even these deductions are only allowed to the extent that they exceed 10% of the taxpayer’s AGI and are subject to a per casualty floor. Congress has also periodically designated losses from certain disasters as being eligible for more generous qualified disaster loss rules that generally do not require a taxpayer to itemize deductions and remove the floors. The most recent Congressional extension of these more generous rules was the Federal Disaster Tax Relief Act of 2023, which was enacted on Dec. 12, 2024, and covered disasters occurring through Jan. 11, 2025. The OBBB will further extend such relief to disasters occurring up to 30 days after the date of the OBBB’s enactment.
• Adoption credit — The OBBB will allow up to $5,000 of the adoption credit to be refundable (the credit is not refundable under current law but carries forward for five years). The OBBB will also grant Indian tribal governments the authority to determine whether a child qualifies as having special needs, which permits the adoptive family to claim the maximum credit. These changes will take effect in 2025.
• Dependent care assistance — An employee is currently permitted to exclude from taxable income up to $5,000 ($2,500 in the case of separate returns) of dependent care assistance provided by an employer, including amounts dedicated to this purpose through a cafeteria plan. The OBBB will increase this amount to $7,500 ($3,750 in the case of separate returns) beginning in 2026.
• Child and dependent care credit — An individual may claim a credit for childcare and other household expenses incurred for children and other dependents. The credit is calculated by multiplying the amount of qualifying expenses (a maximum of $3,000 for one qualifying individual and up to $6,000 for multiple qualifying individuals) by the appropriate credit rate. The credit rate varies by the individual’s AGI, with a maximum credit rate of 35% that declines, as AGI increases, to 20% for taxpayers with AGI above $43,000. The OBBB increases the maximum credit rate to 50%, which begins to decrease when AGI exceeds $15,000. The lowest rate continues to be 20%, but the phase-outs are elongated so that the lowest rate does not occur under the OBBB until AGI exceeds $210,000 for married filers and $105,000 for all others. These changes are effective in 2026.
• Charitable contributions for non-itemizers — Taxpayers who claim a standard deduction aren’t generally entitled to charitable contribution deductions. However, a temporary rule applicable only in 2021 provided an additional deduction for such taxpayers of $600 for joint filers ($300 for all others). The OBBB will resurrect this above-the-line charitable contribution deduction for non-itemizers beginning in 2026 by allowing a permanent deduction of up to $2,000 for joint filers ($1,000 for all others).
• Charitable contribution for itemizers — The OBBB imposes a 0.5% floor on deductions to charitable contributions for those who choose to itemize. This change, effective beginning with the 2026 tax year, will limit the deduction by allowing it only to the extent the aggregate value of charitable contribution exceeds 0.5% of that individual’s AGI. The first 0.5% of charitable contributions aren’t deductible unless charitable contributions exceed the maximum limit permitted to be deducted, in which case the 0.5% amount disallowed will carry forward to subsequent years. Iin effect, this carryforward provision prevents the same pool of charitable contributions from being subject to the 0.5% floor across multiple years as they carry forward.
• Credit for contributions to scholarship granting organizations — The OBBB provides a new tax credit to U.S. citizens and residents who make charitable contributions to certain scholarship granting organizations. Scholarship granting organizations are those that give scholarships to elementary and secondary school students and spend at least 90% of their revenues on scholarships, among numerous other requirements. The credit for a given tax year is 100% of the contribution, not to exceed $1,700, and any unused credit can be carried forward for five years. The credit is reduced for any amount allowed as a state credit for qualified contributions. A double benefit provision denies a charitable contribution deduction for any contribution that is included in the credit calculation. Any scholarship granted by such an organization will be excludable from the income of the recipient. These provisions will apply beginning in 2027.
• Expansion of 529 plans — The OBBB allows 529 plans to be used for elementary and secondary tuition, including expenses for curriculum and curricular materials, books or other instructional materials, online educational materials, tutoring or educational classes outside the home, certain testing fees, fees for dual enrollment in an institution of higher education, and certain educational therapies for students with disabilities. It also allows funds to be used for qualified postsecondary credentialing expenses. These changes take effect for 529 plan distributions occurring after the enactment date of the OBBB. Additionally, beginning in 2026, the OBBB will increase the annual limitation of expenses eligible for payments from the 529 plan from $10,000 to $20,000.
• Trump accounts — The OBBB creates a new kind of savings account, dubbed “Trump accounts,” for beneficiaries under the age of 18. Accounts are functionally equivalent to individual retirement accounts (IRAs) except that contributions aren’t deductible and investments are limited to funds that track a broad index, have no annual fees, and an expense ratio of less than 0.1%. Contributions are capped at $5,000 per calendar year (adjusted for inflation in the future). The $5,000 limit doesn’t apply to certain rollover contributions, contributions from government organizations, and contributions made pursuant to the initial pilot program discussed below. Employers are permitted to make contributions to the Trump account of an employee or a dependent of an employee and such contribution will be excludable from the income of the employee, up to $2,500. Distributions are permitted only when the beneficiary is at least 18 years old. Distributions are taxable when received but will be reduced by the investment in the account, similar to contributions to a nondeductible IRA or an annuity. The beneficiary’s investment in the account will include contributions made by anybody other than the government or an employer (i.e., the beneficiary’s investment in the account includes contributions made by themselves, friends, and family members, but not by most other contributions). The OBBB creates a pilot program that, upon election, provides a $1,000 contribution to an account that is implemented via a tax refund regime. To qualify for this pilot, a child must be born between 2025 and 2029 and be a U.S. citizen.
• Native Alaskan whaling captain expenses — Current law provides for a deduction of up to $10,000 for expenses of whaling captains in carrying out sanctioned whaling activities. Qualifying expenses include acquisition and maintenance costs for boats and supporting gear, food and provisions for crew members, and storage and distribution of the catch. The OBBB will increase this deduction to $50,000 beginning in 2026.

Estate and gift tax changes

The TCJA doubled the value of the estate and gift tax exemptions beginning in 2018. For 2025, the exemption is currently $13.99 million per person. However, that increase was set to expire at the end of 2025, which would’ve effectively cut such amount in half beginning in 2026. The looming expiration of the increased exemption has been an important subject in recent years as estate planners worked with individuals to evaluate planning options.

Beginning in 2026, the OBBB will permanently reset the exemption to $15 million. Such amount will also be increased for inflation in future years. The increased exemption amount for 2026 is certainly a favorable change for taxpayers. However, the permanent nature of this extension might be even more important given that it provides some degree of certainty about the future of estate and gift tax rules.

The SALT cap

The annual limitation on an individual taxpayer’s deduction for state and local taxes (the SALT cap) is a complex subject that deserves its own discussion. This was first created by the TCJA, and the $10,000 annual limitation took effect beginning in 2018. It’s been scheduled to expire at the end of 2025. The impact of the SALT cap naturally escalates for taxpayers with higher incomes or living in higher-tax jurisdictions. However, the levels of state and local taxation — including income and property taxes — aren’t uniform across the country. Thus, the SALT cap is a substantial concern for some, but certainly not all, members of Congress.

After the enactment of the TCJA, states searched for opportunities to alleviate the impact of the SALT cap. The most common arrangement, state pass-through entity tax (PTET) tax regimes, shift the state tax burden from individuals to their pass-through entities. The Treasury Department approved such regimes in Notice 2020–75 by providing for federal, entity-level deductions for qualifying PTETs. In the years since that Notice, most states have adopted PTET regimes.

Taken together, Republicans in Congress were faced with a challenging series of questions. Should a version of the SALT cap be extended beyond 2025? If yes, then what amount of deduction should be provided to taxpayers on an annual basis? Should a version of the SALT cap be extended to corporations? And what, if anything, should Congress do to address the prevalence of state PTETs that were eroding the revenue that the SALT cap was designed to generate? To answer those questions, a variety of approaches were considered in the House and the Senate that would have limited and/or phased out SALT deductions and PTETs for various classes of taxpayers and at varying income thresholds. In the end, the OBBB includes the following changes to the SALT cap:

• Increase the cap on a temporary basis. The SALT cap will be increased from $10,000 to $40,000 ($20,000 in the case of a married taxpayer filing separately) beginning in 2025. Such amount will increase to $40,400 in 2026 ($20,200 if filing separately) and will then increase 1% per year through 2029. However, the $10,000 SALT cap will be restored for 2030 and beyond.
• Income-based phase out. The increased cap will be phased down for taxpayers based on their income but will never go below $10,000. For 2025, the phase out begins at $500,000 of modified AGI ($250,000 if married filing separately). That phase out will be equal to 30% of income above the phase-out threshold. Accordingly, the deduction will be fully phased down to the minimum for taxpayers with $600,000 or more of modified AGI ($350,000 if married filing separately). The income-based thresholds increase to $505,000 (or $252,500 if filing separately) in 2026 and then by 1% increments thereafter.
• No PTET changes. The final version of the OBBB excludes any further limitation on state PTETs. This retains the current status quo from a federal perspective. Although some states may need to take action to perfect their PTET regimes given the extension of the SALT cap beyond 2025. The absence of PTET changes will be welcomed by many pass-through business owners that would have encountered new limitations had prior approaches from the House or Senate been adopted.

The resolution of the SALT cap concludes a controversial period of negotiations within Congress for at least several years. The final deal resulted in an increased cap and the removal of technical amendments related to PTETs. However, the looming restoration of a $10,000 cap in 2030 sets the stage for further legislative deliberations in the years to come.

Business tax changes

The OBBB addresses the so-called “trifecta” package of business tax provisions: the expensing of research and development (R&D) costs under Section 174, computational changes to the interest expense limitation under Section 163(j), and restoration of the 100% bonus depreciation deduction in the first year certain property is placed in service. The qualified business income deduction under Section 199A would also be made permanent and modified slightly. Additional changes — new deductions and technical modifications — will require further analysis to fully unpack the tax planning opportunities.

TCJA extension and modification

• Qualified business income deduction (QBID) — The TCJA introduced a 20% QBID, which created relative parity between flowthroughs and corporations, complementing the TCJA’s reduction of the corporate rate to 21%. QBID has limitations, including an income-based phase out for service companies (specified service trades or businesses) and reduced benefits if the underlying business fails to pay a sufficient amount in W-2 wages or hold a requisite amount of property. The OBBB extends QBID on a permanent basis while elongating the range of income over which the phase outs occur. It also creates a minimum deduction of $400 for certain taxpayers with active business income. The original House version would have increased the deduction to 23% while making more notable changes to the phase-outs, but these changes were excluded during deliberations in the Senate.
• R&D expenditures under Section 174 — The OBBB will reinstate the immediate deductions for all domestic research and experimental expenses. This will be a change from current law, which requires a five-year amortization period for such expenses. Foreign costs are excluded from the OBBB changes and will continue to be amortized over 15 years. Under the OBBB, any remaining domestic R&D capitalized in 2022, 2023, or 2024 may be deducted immediately in 2025, or else spread evenly between 2025 and 2026. Certain small taxpayers with gross receipts under $31 million will be permitted to amend their returns from 2022 through 2024 to remove the capitalization of domestic R&D. Software development expenses will be permanently treated as research expenses under Section 174. The OBBB also makes certain changes to the research credit, alternative minimum tax adjustments, and other related provisions insofar as they interact with research expenses.
• Interest expense limitation under Section 163(j) — The OBBB restores the interest expense limitation under Section 163(j) to its initial form. Since 2022, the limitation has been calculated after allowing deductions for depreciation, amortization, and depletion. That form has reduced adjusted taxable income (ATI), the base upon which the limit is applied, thereby reducing annual business interest expense deductions for many taxpayers. The OBBB will restore the add-backs for depreciation, amortization, and depletion deductions. The OBBB also makes a specific modification that will expand the definition of a motor vehicle for the floor plan financing exception to include any trailer or camper. These modifications are effective for 2025 and will be permanent. However, the OBBB also tightens the interest limitation by requiring it to be calculated before any elective interest capitalization under Section 263(a) or Section 266. It further excludes , net income inclusions under Sections 951(a), 951A(a), and 78 from the definition of ATI. Two different effective dates will apply to these changes. Those restrictions will be in place beginning in 2026.
• Bonus depreciation — Bonus depreciation will return to its initial TCJA level of 100% for property acquired and placed in service after Jan. 19, 2025. The 100% bonus depreciation deduction will be permanent (absent any potential future changes by Congress).
• Section 179 expensing — The OBBB doubles the Section 179 deduction from $1,250,000 to $2,500,000 and increases the asset acquisition limit from the current $3,130,000 to $4,000,000 (meaning that the point at which the full deduction would be phased out would be increased from $4,380,000 of asset purchases to $6,500,000 of asset purchases). These increases take effect in 2025.
• Employer childcare credit — Employers are permitted a credit of up to $150,000 for providing childcare for the benefit of employees. The credit is calculated as 25% of the employer’s costs of building and operating a childcare facility or the cost of contracting with a third party provider. The OBBB increases this portion of the credit to 40% (50% for small businesses). It also increases the total credit limit to $500,000 ($600,000 for small businesses). It also allows for small businesses to pool their resources to provide childcare to their employees as well as for all businesses to use third-party intermediaries to facilitate childcare services on their behalf. These changes all take effect in 2026.
• Employer family and medical leave credit — The TCJA created a two-year credit for compensation paid to employees while on family or medical leave as long as a plan existed for such arrangement that met certain requirements. That credit was subsequently extended several times and was set to expire at the end of 2025. The OBBB permanently extends this credit while also expanding it in three key ways. First, the credit is expanded to include premiums paid by an employer on an insurance policy covering employee family and medical leaves. Second, any leave paid for by a state or local government is included in the determination of whether the employer has a plan that meets the thresholds, but the amounts paid under the plan still do not qualify for the credit. Third, it lowers the minimum employee work requirement from one year to six months. These changes all take effect in 2026.
• Business meals — Current law under Section 274 disallows a variety of deductions that might otherwise be allowable as expenses. Among the disallowed expenses include meals at the convenience of the employer, which was added by the TCJA. The OBBB relaxes this limitation by allowing a deduction as to expenses for goods and services — including the use of facilities — sold in a bona fide transaction for full value. The limitation under the OBBB will also be relaxed for food and beverages provided to crews of commercial vessels. The OBBB changes will take effect beginning in 2026.
• Advanced manufacturing credit — The CHIPS Act of 2022 created a 25% credit for investments made in facilities that manufacture semiconductors or semiconductor manufacturing equipment. The credit is scheduled to expire for property whose construction begins after 2026. The OBBB does not change the expiration date but increases the credit to 35% for property placed in service after 2025.
• Publicly traded partnerships (PTPs) — These entities are generally treated as corporations for federal income tax purposes, though some may still qualify as partnerships. The OBBB modifies the PTP rules to expand the definition of qualified income (which, generally speaking, is a passive type of income) to include income from Inflation Reduction Act projects. This includes income from hydrogen storage, carbon capture, advanced nuclear, hydropower, and geothermal energy projects. These changes will take effect for tax years beginning after Dec. 31, 2025.

New tax changes

• Special depreciation for qualified production property (QPP) — The OBBB will create a new 100% deduction for qualified production property (QPP). This deduction coordinates with the 100% bonus depreciation deduction to incentivize the construction of manufacturing and production facilities in the U.S. The deduction will be made by election and taken in the year the QPP is placed in service. QPP is any nonresidential real property that is integral to the taxpayer's qualified production activity (QPA). The property must be in the U.S. for the deduction to be available. QPP must be new property for which construction begins after Jan. 19, 2025, but before Jan. 1, 2029. Property must also be placed in service before 2031. However, used property will qualify as QPP if: (1) it’s acquired between Jan. 19, 2025 and Jan. 1, 2029, (2) is not used in a QPA by any taxpayer during the period of Jan. 1, 2021 and May 12, 2025, (3) is not used by the taxpayer or related parties prior to the acquisition date, (4) will be used by the taxpayer in a QPA, and (5) is in the United States. A QPA is any manufacturing, production, or refining of tangible personal property that results in the substantial transformation of the product. QPP doesn’t include property used for offices, parking, administrative services, sales activities, research activities, software development, engineering activities, or any other non-QPA activity. Any deduction will be recaptured if the QPP is used for something other than a QPA in the 10-year period following the initial deduction. Lessors of property cannot qualify, as they do not use facilities in their own QPA.
• Expensing of qualified sound recording production costs — The OBBB expands on the specific rules as to expensing for certain costs for film, television, and live theatrical productions to also include up to $150,000 of qualified sound recording productions. It also modifies the bonus deprecation rules under Section 168(k) to include qualified sound recording productions. These changes are effective for productions commencing after the date of enactment of the OBBB.
• Charitable contributions of corporations — Corporations are permitted to deduct charitable contributions up to 10% of taxable income. The OBBB will place a 1% floor on deductions to charitable contributions made by corporations beginning in 2026. The contributions under the floor would become permanently nondeductible unless the corporation exceeds the 10% limitation (i.e., contributions exceed 11% of taxable income) in which case the amount disallowed within the 1% floor will carry forward to prevent the same contributions from being subjected to a 1% floor across multiple years as it carries forward.
• Payments to partners for property or services — Existing partnership tax rules govern when a partner and the partnership are viewed as engaging in arms-length transactions with respect to services and property transfers (or disguised sales). Such rules, found in Section 707(a)(2) are applicable “under regulations prescribed” by the Treasury Secretary. The OBBB includes a technical clarification altering that phrase to make such rules applicable “except as provided” by the Treasury Secretary. This will potentially expand those rules by making them applicable unless guidance provides an exception. This clarification applies to services performed and transactions occurring after the date of enactment. However, no inference is provided as to the impact of this change on prior arrangements.
• Corporate alternative minimum tax for intangible drilling costs — For purposes of calculating the corporate alternative minimum tax (CAMT), adjusted financial statement income is generally reduced by tax depreciation rather than book depreciation to bring CAMT in alignment with tax with respect to depreciation concepts. The OBBB also creates this alignment with respect to intangible drilling costs so that the GAAP requirement to capitalize certain costs wouldn’t adversely impact any calculation under the CAMT regime. This change is effective in 2026.
• Excess compensation deduction of public corporations — Publicly traded corporations are generally prevented from deducting compensation of covered employees to the extent it exceeds $1 million and doesn’t meet an exception to the rules. Beginning in 2026, the OBBB will broaden this by introducing an aggregation rule that applies more broadly across controlled groups.
• ERC retroactive termination and enforcement — Congress created the employee retention credit (ERC) at the outset of the COVID-19 pandemic in March 2020. As time has progressed, the IRS has been increasingly concerned about fraudulent ERC claims and took extraordinary measures in response. These actions included pausing processing and allowing taxpayers access to multiple rounds of voluntary disclosure and recission programs. Upon enactment, the OBBB will disallow refund claims filed for the third and fourth quarters of 2021 that weren’t filed by Jan. 31, 2024. Generally, the statute of limitations will be extended to six years and additional rules will coordinate wage deductions for disallowed claims. The OBBB also imposes due diligence requirements on ERC promoters, which will work similarly to those for the earned income, child, and education credits. There are additional penalties for the failure of promoters to file reports with the IRS. Most of these provisions will take effect immediately upon enactment.
• Expansion of FICA tip credit to beauty services — The FICA tip credit allows employers in the food and beverage industry to reduce their federal income tax by the amount they pay for the employer's share of Social Security and Medicare taxes on employee tips. The credit is calculated based on the tips reported by employees, but it excludes tips that are used to meet the federal minimum wage. The OBBB expands this credit to services in connection with barbering, hair care, nail care, esthetics, and body and spa treatments. The credit begins in 2025.
• Increased threshold for 1099 reporting — The dollar threshold for information reporting on Forms 1099 for services performed has been set at $600 for many years. The OBBB increases that threshold to $2,000 beginning with respect to payments made in 2026 and indexes the amounts for inflation beginning with the 2027 calendar year.
• Distilled spirits — Under current law, excise taxes collected on rum imported to the U.S. are transferred to Puerto Rico and the Virgin Islands. The amount transferred per proof gallon is currently limited to the lesser of $10.50 or the tax imposed on each gallon. Beginning in 2026, the OBBB will increase the baseline rate to $13.25 per gallon.

International tax changes

• Modification of GILTI and FDII calculations (elimination of QBAI) — In general, a global intangible low-taxed income (GILTI) inclusion is calculated by reducing the net CFC tested income by 10% of qualified business asset investment (QBAI) of each CFC. QBAI means the average of the adjusted bases in specified depreciable tangible property used in a trade or business. Similarly, a domestic corporation’s foreign-derived intangible income (FDII) deduction is partially based on the excess of the deduction eligible income over 10% of the corporation’s QBAI. The OBBB eliminates the 10% QBAI base for both GILTI and FDII, which has the effect of increasing GILTI inclusions and increasing FDII deductions. Without the QBAI base, the names of each provision are changed so that GILTI becomes net CFC tested income (NCTI) and FDII becomes foreign-derived deduction eligible income (FDDEI). (Note: For clarity, this alert will continue to use GILTI and FDII nomenclature.) These changes will apply beginning in 2026.
• Modification of GILTI and FDII deductions — The OBBB modifies the preferential rates used in core international tax rules implemented by the TCJA. Currently, GILTI inclusions are offset by a 50% deduction while FDII deductions are calculated using a 37.5% rate. Under the TCJA, those deduction rates were scheduled to decrease to 37.5% and 21.875%, respectively, beginning in 2026. The OBBB tempers the magnitude of the decrease to 40% and 33.34%, respectively. This is intended to cause the effective tax rate of both pools of income to be 14%. FDII also excludes income from the disposition of property of a type that gives rise to rents or royalties and deductions are limited to only those “directly related” to such income rather than those “properly allocable” to such income. All of these changes take effect in 2026.
• GILTI foreign tax credit limitation — The OBBB modifies the rules for the allocation and apportionment of deductions to GILTI for the purposes of determining the foreign tax credit limitation. The only deductions allocable to GILTI are (1) the Section 250 deduction relating to GILTI and (2) any other deduction only if such deduction is directly allocable to such income. No interest expense or research expenditures are allocable to GILTI. This applies to both individuals and corporations beginning in 2026.
• GILTI deemed paid credit — The foreign taxes associated with GILTI are generally limited to 80% of the amount paid or incurred. The OBBB increases this limit to 90% starting in 2026.
• Inventory sourcing for foreign tax credit — For purposes of the foreign tax credit limitation, the income from the sale of inventory is generally sourced to the location of the production of the inventory. The OBBB provides that, beginning in 2026, 50% of inventory income is sourced to a foreign jurisdiction if the taxpayer maintains a branch in a foreign jurisdiction (e.g., an office or other fixed place of business) and the inventory is sold by the branch.
• Base erosion anti-abuse tax (BEAT) modifications — The BEAT is an additional tax imposed on certain multinational corporations. The additional tax generally equals the excess of 10% of the modified taxable income of the taxpayer over the taxpayer’s regular tax liability reduced by certain credits not including the research credit. Under the TCJA, the rate was scheduled to increase to 12.5% and the research credit was to begin reducing the regular tax liability in 2026 (thus increasing the BEAT liability). The OBBB limits the increase in the tax rate to only 10.5% and also prevents the research credit from reducing the regular tax liability that the tentative BEAT is compared to. These changes are effective in 2026. Previous proposals in the House and Senate would have increased the BEAT rate even further and would have made a variety of other taxpayer unfavorable changes to the tax calculation which ultimately were not included in the final bill.
• Permanent extension of the look-through rule — The CFC look-through rule excludes from foreign personal holding company income (FPHCI) dividends, interest, rents, and royalties received or accrued by one CFC from a related CFC to the extent attributable or properly allocable to income of the payor which is neither subpart F income nor income treated as effectively connected with the conduct of a trade or business in the United States (ECI). The look-through rule was set to expire after 2025. The OBBB makes the CFC look-through rule permanent beginning in 2026. 
• Repeal of 1-month deferral tax year — In general, certain foreign corporations are required to use the same tax year as their majority U.S. shareholder but may elect a tax year beginning one month earlier than the U.S. shareholder’s tax year. The OBBB repeals the 1-year deferral election for foreign corporation tax years beginning after Nov. 30, 2025.
• Restoration of certain limitations on downward attribution — For purposes of determining when a person is a U.S. shareholder, the constructive ownership rules of Section 318(a) apply with a few modifications. The TCJA required downward attribution, which caused certain foreign subsidiaries held by a foreign parent to be attributed to the parent’s U.S. subsidiaries. This caused those foreign subsidiaries to be treated as CFCs of the U.S. subsidiary despite there being no direct ownership. The OBBB generally restores the limitation on downward attribution but still requires downward attribution in certain circumstances.
• Modification to pro-rata share rules — While downward attribution rules would change in certain circumstances, newly enacted Section 951B would create situations in which certain U.S. shareholders may recognize subpart F and GILTI inclusions. Such inclusions would relate to foreign corporations that don’t meet the CFC definition but are considered a foreign controlled foreign corporation (FCFC). Current pro-rata shareholder rules under Section 951(a)(2) generally provide that the U.S. shareholder on the last day of the year in which a foreign corporation is a CFC recognizes a subpart F or GILTI inclusion into income. The OBBB would adjust these rules by requiring that each U.S. shareholder owning stock in the foreign corporation at any time during the taxable year must include its pro- rata share of the CFCs subpart F or GILTI inclusion in its income. The newly enacted Section 951B and changes to the pro-rata rules apply for tax years beginning in 2026.
• Retaliatory tax to address discriminatory taxation by foreign jurisdictions — The House and Senate both originally proposed a new retaliatory tax regime under Section 899. This regime would have allowed the United States to increase rates on income earned by persons in jurisdictions considered to impose discriminatory taxes on U.S. taxpayers. For example, such rules could be deployed in reaction to digital services taxes, diverted profits taxes, or undertaxed profits under Pillar 2 imposed by foreign governments. The reaction of many foreign jurisdictions was swift, and a tentative agreement was reached between the United States and the G7 countries whereby U.S. corporations would be will not be included in any Pillar 2 taxes in those jurisdictions. As a result of this tentative agreement, the retaliatory tax was removed from the OBBB before it was enacted. 
• Tariff related changes — The U.S. Tariff Act at Section 321 provides a de minimis exemption to allow goods valued at $800 or less to enter U.S. markets free of tariffs. The White House has been focused on tariffs in the early days of the administration, and under the OBBB, there will be a penalty on any party that attempts to use the exemption through an importation that otherwise violates U.S. law. This provision will take effect 30 days after the date the OBBB is enacted.

Tax credits related to renewable energy production

The Inflation Reduction Act (IRA) was the signature tax legislation of the Biden administration and greatly expanded the available tax credits for renewable energy production. Those included the creation of a new production tax credit (PTC) under Section 45Y and a new investment tax credit (ITC) under Section 48E for wind, solar, energy storage, and other technologies. A companion credit, under Section 45X, provides incentives for the production of qualifying components for renewable energy (e.g., wind, solar, and batter components) and the production of critical minerals. Additional credits integrate with those core elements and provided incentives for the ecosystem of renewable energy production.

The enhanced IRA credits have been the subject of considerable debate, especially during the 2024 election cycle. At the outset of the OBBB process, Republican leaders focused attention on modifying or repealing large portions of the IRA. The House initially took a more aggressive line in modifying these credits before the Senate appeared ready to delay expiration dates in many cases. The final version of the OBBB represents a form of compromise between those approaches, with significant modifications to the credits but with at least some delayed implementation.

Accelerated termination of the PTC for wind and solar

The OBBB will accelerate the phase out of the Section 45Y PTC for wind and solar projects that are placed in service after Dec. 31, 2027. However, a safe harbor transition rule will preclude application of that cut-off for any wind and solar projects that begin construction within 1 year of OBBB enactment. This initial expiration date only applies to wind and solar projects, so other projects eligible for the PTC will continue to qualify even if placed in service in future years.

The insertion of a transition effective date along with a short-term credit phase out date will create a window of opportunity for wind and solar credits. Smaller scale projects might be completed on a shorter timeline, such as beginning of construction and placing in service within the 2027 calendar year. However, larger scale projects, especially those requiring months or years of supply chain lead time, will need to mobilize quickly to meet the beginning of construction test within the next year.

Restrictions related to foreign entities

The OBBB adds complex rules restricting the PTC depending on the degree of connection to specified foreign entities and foreign-influenced entities. These restrictions are heavily definitional and rife with potential nuance. This will be an area of focus for taxpayers pursuing PTC projects moving forward given the potential for missteps.

• Material assistance — The definition of a “qualified facility” for purposes of the PTC will exclude facilities that are constructed with material assistance from a prohibited foreign entity. This applies to projects where construction begins after 2025 and will apply to all PTC projects under Section 45Y. Thus, there’s no distinction between wind and solar and all other kinds of projects for this purpose. “Material assistance” is defined by reference to a cost ratio, with the numerator representing certain foreign costs and the denominator representing total costs. Layered onto the ratios would be safe harbors and exceptions. The threshold percentages are set out in detail and are generally set across the board to increase year over year.
• Foreign entities — The OBBB denies the PTC to any entity that is either a specified foreign entity or a foreign-influenced entity. These two terms will be newly defined in the Tax Code’s definitions section, Section 7701. “Specified foreign entity” will be defined by reference to non-tax laws but, in general, the term’s focus is on China, Russia, North Korea, and Iran, and won’t include just entities from those countries, but also businesses and individuals from those countries as well. Foreign-influenced entities are those that are owned or controlled by specified foreign entities to a specific extent: Entities that are 25% or more owned by a single specified foreign entity, and entities that are 40% or more owned by multiple of such entities will not be able to take the credit. Forms of effective control — like contracts and licensing agreements — will also cause an entity to be considered a foreign-influenced entity under the OBBB, though there are exceptions available for certain public companies. The new law will require some form of payment from the taxpayer to the specified foreign entity to trigger this rule and thereby deny the credit to the taxpayer.
• Restriction on transferability — IRA credits are generally transferable. So a taxpayer with rights to a credit may, in general, assign those rights to a third party under Section6418. However, the OBBB will restrict the transferability feature as it relates to specified foreign entities.

Nuclear energy communities

The IRA provided enhanced credits for projects located within defined energy communities. There are various aspects to that definition, but they largely focus on communities that previously produced coal, oil, or gas. The OBBB expands this concept to include nuclear energy communities. This generally includes communities with a requisite employment rate related to an advanced nuclear facility, advanced nuclear power research and development, nuclear fuel research, development, or production, and manufacturing of components for a nuclear facility. This modification will increase the availability of the 10% bonus credit for the PTC.

Investment Tax Credit (ITC) — Section 48E

Similar to the PTC changes, the OBBB will terminate the ITC under Section 48E for wind and solar projects placed in service after 2027. The same transition safe harbor applied to the PTC is adopted for the ITC. Thus, wind and solar projects that begin construction within one year after OBBB enactment won’t be subject to the Dec. 31, 2027 placed in service requirement. An exception to the wind and solar termination rule is provided for energy storage technology at such facilities. These changes also don’t impact projects that are otherwise eligible for the ITC.

Restrictions related to foreign entities

Some of the restrictions related to foreign entities described above also apply to the ITC. However, the OBBB treats the two sets of credits in meaningfully different ways. The ITC is available for qualified facilities, and that term (along with “qualified interconnection property”) will exclude projects that begin construction after 2025 if there is material assistance from a prohibited foreign entity. The OBBB will also deny the ITC to any entity that is a specified foreign entity or a foreign-influenced entity.

The OBBB also imposes a new tax credit recapture rule that’s triggered if the taxpayer claiming the ITC makes a payment to a specified foreign entity within 10 years of the property being placed in service. This change will apply to taxpayers allowed the credit for any tax year beginning two years after the OBBB enactment date.

Domestic content

One feature of the ITC, as expanded by the IRA, is a mechanism for increasing the ITC when qualifying components are produced domestically. These rules are complex on their own terms, but one key aspect is the percentage amount of domestic content in certain components. The OBBB will increase this percentage incrementally over time, beginning with facilities that begin construction after June 16, 2025. This means the domestic content “bonus” will be more challenging to unlock after that date.

Qualified fuel cell property

The OBBB allows taxpayers that place in service qualified fuel cell projects to claim the ITC at 30% of the property’s cost basis. But this is significant in that it would streamline the process for claiming such credit. However, this change will only apply to properties that begin construction after the tax year of enactment.

Cost recovery for the PTC and ITC

The IRA amended depreciation rules under Section 168 to include properties that qualify for the ITC or PTC as five-year property for depreciation purposes. The OBBB will pull this back, in part, by eliminating properties that qualify for the prior version of the ITC under Section 48 from five-year classification.

Advanced manufacturing production credit — Section 45X

The OBBB will modify the ways in which the advanced manufacturing production credit, Section 45X, will phase out and terminate. The credit for critical minerals will be reduced by 25% beginning in 2031 (i.e., 75% of the calculated credit can be claimed) with additional incremental reductions of 25% through to its elimination in the 2034 tax year. The credit wouldn’t be available as to the manufacture of wind components produced and sold after 2027. The definition of applicable critical minerals would also be expanded to include metallurgic coal that is produced and sold through Dec. 31, 2029. The OBBB will also introduce foreign entity limitations to Section 45X in ways not so different from those summarized above. All of these changes will generally be effective for tax years beginning after the OBBB enactment date.

Qualifying advanced energy project credit — Section 48C

Section 48C provides a credit for certain projects that apply for and are granted amounts related to advance energy projects. These typically involve clean energy manufacturing, recycling projects, industrial decarbonization, and critical minerals projects. A limited pool of credits is available through this program that is implemented by the IRS and Department of Energy.

Under current law, a credit recipient receives a notification from the IRS, after which they have two years to place their projects in service. Failure to meet this deadline results in a termination of that credit allocation, which is returned to the available pool. The OBBB will end this credit reservation process, effective in the current year. This means that if a taxpayer fails to place a project in service within the two-year period, then the credit amount otherwise associated with that project will never be restored to the pool.

Other credits:

• Section 45V clean hydrogen production credit — The OBBB accelerates the expiration of the clean hydrogen production credit under Section 45V by restricting eligibility to facilities that begin construction before Jan. 1, 2028.
• Section 45Q carbon oxide sequestration credit — The foreign entity restrictions, discussed above, will apply to the carbon oxide sequestration credit. This will make the credit unavailable for any tax year beginning after the date of the OBBB enactment if the taxpayer is a specified foreign entity or a foreign-influenced entity. The credit amounts vary under current law depending on how the captured carbon is stored or used, and the OBBB will create parity across these amounts.
• Section 45U zero-emission nuclear power production credit — The OBBB will modify this credit for tax years beginning after enactment of the bill. More specifically, no credit under Section 45U will be available to prohibited foreign entities. And beginning two years after the OBBB enactment date, no credit will be available to foreign-influenced entities.

EVs, fuels, and residential energy

While the renewable energy credits discussed above have generated a lot of attention in recent years, the tax credits for electric vehicles (EVs) have attracted even more headlines. Thus, the OBBB focuses on such credits by accelerating expiration dates on a very short timeline. The bill also modifies rules related to clean fuels and the adoption of renewable energy technologies at residential homes.

Early termination of EV and refueling credits

• The Section 45W commercial clean vehicle credit will be terminated for any vehicles acquired after Sept. 30, 2025.
• The Section 30D clean vehicle credit will be terminated for any vehicles acquired after Sept. 30, 2025.
• The Section 25E previously owned vehicle credit will also be terminated for any vehicles acquired after Sept. 30, 2025.
• Finally, the Section 30C alternative fuel vehicle refueling property credit (e.g., EV charging credit) will be terminated for property placed in service after June 30, 2026. This extended expiration, as compared to the EV credits, may be particularly beneficial for projects that are in development but more than 90 days from completion.

Fuels

The OBBB extends the clean fuel production credit under Section 45Z by an additional two years, meaning the credit will be available to transportation fuel sold through 2029. Beginning with fuel produced in the 2026 tax year, the OBBB will also deny the credit as to any feedstock that is not exclusively produced or grown in the U.S., Mexico, or Canada. The bill will make technical amendments to the rules regarding emissions rating for indirect land changes and animal manures. Finally, further amendments will be made to the sustainable aviation fuel credit and the small agri-biodiesel producer credit.

The OBBB will also provide a refund, without interest, in situations where a taxpayer: (1) removes from a terminal diesel fuel or kerosene that had been indelibly dyed; (2) already paid tax on the fuel; and (3) the fuel is exempt from tax. This change will apply to dyed fuel removed 180 or more days after the OBBB’s enactment date.

Residential and commercial energy property

• The Section 25D residential clean energy credit will terminate for any expenditures made after Dec. 31, 2025.
• The Section 25C energy efficient home improvement credit will terminate for any property placed in service after Dec. 31, 2025.
• The Section 45L energy efficient home credit will not be available for any new energy efficient homes acquired after June 30, 2026.
• The Section 179D energy efficient commercial buildings deduction will also terminate with respect to any property for which construction begins after June 30, 2026.

Real estate investment

The OBBB largely modifies and extends existing rules related to real estate development. However, a few new provisions were added during negotiations in Congress.

• Opportunity zones (OZ) — The OBBB substantially changes the OZ program by making it permanent, creating a rolling 10-year OZ designation for zones beginning on Jan. 1, 2027. It updates various definitions and eligibility requirements, including restricting the ability of contiguous tracts that aren’t low-income communities to be designated as an OZ, among a number of other changes. The investor benefits of investing in OZs are generally preserved, but the OBBB provides additional incremental basis increases for each year that an investor remains invested in an OZ. The basis increases by 1% per year for years one through three, 2% per year for years four and five, and 3% for each year thereafter. Many of the changes would be effective beginning in 2027.
• Low-income housing credit (LIHTC) — The OBBB would permanently increase the state allocation ceiling from 9 to 12% beginning in 2026. It would also lower the bond-financing threshold to 25% for projects financed by bonds starting in 2026.
• New markets tax credit (NMTC) — The OBBB would permanently extend the NMTC program, which was otherwise set to expire after 2025.
• Residential construction contracts percentage of completion accounting — Construction contracts are generally required to be reported under the percentage of completion method (PCM) of accounting with a few exceptions. One exception is for certain residential construction contracts, which are permitted to be accounted for under the percentage of completion-capitalized cost method (PCCM), which generally means that 70% of the contract is accounted as PCM and 30% is accounted for under any other method of accounting available to the taxpayer, including the completed contract method or the cash method. Another exception is for certain home construction contracts, which are permitted to use any method of accounting available to the taxpayer. In general, home construction contracts are a subset of residential construction contracts. Under the bill, PCCM would be repealed and residential construction contracts and home construction contracts would be combined so that all such contracts would be permitted to be accounted for under any method available to the taxpayer. This would apply to contracts entered into after the date of enactment.
• Exempt facility bonds for spaceports — Exempt facility bonds are a type of tax-exempt private activity bond used to finance specific types of public infrastructure projects whereby the investors are generally not taxed on interest received. The bill would include bonds issued by state and local governments to fund the construction of spaceports in this exemption. A spaceport means a facility located at or near a launch site or reentry site for: (a) manufacturing, assembling, or repairing spacecraft or space cargo, (b) flight control operations, (c) providing launch or reentry services, or (d) transferring crew, participants, or cargo to or from spacecraft.
• Restoration of taxable REIT subsidiary asset test — Real estate investment trusts (REITs) are subject to a variety of requirements, including a limitation on the type of assets that can be held. Currently, a maximum of 20% of the value of REIT assets can be securities of a taxable REIT subsidiary. The OBBB would increase that threshold to 25% starting in 2026.
• Nonprofit development in western Alaska — There’s a community development quota program under a non-tax law, the Magnuson-Stevens Fishery Conservation and Management Act. The program supports western Alaskan villages through participation and investment in fisheries in the Bering Sea in and around the Aleutian Islands. A half dozen nonprofits represent these communities. The OBBB will clarify that the entities’ participation and investment will be considered substantially related to a tax-exempt purpose under Section 501.
• Sale of farmland property — The OBBB would create a new regime whereby the tax on gain from the sale of qualified farmland property to a qualified farmer would be payable over four years. This provision applies to sales occurring in 2026 and later years.

Education and exempt organizations

The OBBB would make the following tax changes in relation to universities and certain tax-exempt organizations:

• Expansion of excise tax for excess compensation — There is a 21% excise tax on tax-exempt organizations with respect to the compensation of the five highest paid employees of the organization to the extent that compensation exceeds $1 million any year. It also covers any employees who were included in the five highest paid employees in a previous year. The OBBB expands this excise tax by covering every employee and former employee who receives more than $1 million in compensation for a year. This provision is effective for tax years beginning after Dec. 31, 2025.
• Tiered increases to excise tax on university endowments — Current law, Section 4968, imposes a flat excise tax of 1.4% on the net investment income of certain universities. The OBBB would introduce higher rates on larger student-adjusted endowments. The rate would remain 1.4% for institutions with student-adjusted endowments between $500,000 and $750,000. It increases to 4% for student-adjusted endowments between $750,000 and $2,000,000, and 8% for institutions above that threshold. It would also alter the definition of the institutions covered by the tax, the students included in the calculation, and the measurement of net investment income. The changes take effect for taxable years beginning after Dec. 31, 2025.

Immigration-related tax changes

The Trump administration has focused considerable attention on border security and immigration since taking office in January. Such focus has carried over to the OBBB, which includes a new excise tax and other modifications to existing rules tightening eligibility based on immigration status or social security documentation. These provisions are also meaningfully different from those passed by the House in May.

• Excise tax on remittances — The OBBB would establish a new 1% excise tax to be applied to certain cross-border financial transactions, or remittance transfers. This provision was significantly modified during the legislative process, so the resulting provision is both lower in rate (1% versus 5%) and more limited in application than previously proposed in the House version. Specifically, the remittance tax wouldn’t apply to transactions funded by either: (1) accounts held in or by a U.S. financial institution, or (2) debit or credit cards issued in the U.S. transfers, originating in the United States or any territory or possession of the United States. Thus, the primary focus of this tax would be on remittances funded by cash, money orders, cashier’s checks, or similar instruments. The effective date of the remittance tax would also be deferred until 2026.
• Premium tax credit limitations — The premium tax credit, Section 36B, was introduced by the Affordable Care Act roughly 15 years ago. The credit is meant to help those individuals and families who purchase healthcare coverage on the insurance marketplace. The OBBB will tighten the credit’s availability through several provisions with various effective dates over the next three years. These modifications relate to eligibility and verification requirements and also include changes to how recapture works for advance payments.
• Modifications to educational tax credits — The American Opportunity Tax Credit and Lifetime Learning Tax Credit provide credits for certain types of qualified tuition and related educational expenses. The OBBB modifies eligibility requirements by requiring the inclusion of a social security number of the taxpayer and any other relevant individuals (e.g., a dependent child) beginning in 2026.