2025 Business Tax Law Update

Embracing Change: How OBBA’s Business Tax Updates are Reshaping Financial Strategies

Congress recently passed the One Big Beautiful Bill Act (OBBB), ushering in significant changes to business taxation beginning in 2025. The legislation aims to stimulate domestic investment, manufacturing, and employment while simplifying certain compliance burdens. While many provisions are labeled “permanent,” business owners should treat them as opportunities to act during a favorable planning window—as future Congresses retain the power to modify or repeal them. Below is a summary of the most impactful changes, along with planning insights. 

Bonus Depreciation – 100% Expensing Returns 
The OBBB Act permanently reinstates 100% bonus depreciation for qualified property placed in service on or after January 19, 2025, including certain plants that are planted or grafted. This allows immediate expensing of eligible purchases like machinery, vehicles, and leasehold improvements. The change provides a major cash flow advantage for capital-intensive businesses and aligns with broader goals to boost domestic productivity. 

Section 179 Expensing Expanded 
The maximum Section 179 expensing limit increases to $2.5 million, phasing out when total qualified purchases exceed $4 million. This update expands access to immediate expensing for small and midsize businesses investing in equipment, software, and tangible personal property. When paired with bonus depreciation, the increased limits offer substantial year-one tax savings for growing companies. 

R&D Expensing Restored for Domestic Innovation 
Starting in 2025, businesses can once again immediately deduct domestic research and experimental (R&E) expenditures under Section 174. Foreign-based research must still be amortized over 15 years. 
Businesses with less than $31 million in average annual gross receipts may retroactively apply this change back to 2022, and all taxpayers can accelerate remaining amortized R&D costs over a one- or two-year period for 2022–2024 expenses. This change removes a major barrier to innovation for small and midsize companies investing in U.S.-based R&D. 

Section 163(j) Relief: EBITDA Deduction Restored 
For tax years beginning after December 31, 2024, the limitation on business interest expense under IRC Section 163(j) reverts to being calculated using EBITDA rather than EBIT. This means businesses can again add back depreciation and amortization, increasing the amount of interest they can deduct—especially beneficial for capital-heavy industries such as manufacturing, construction, and real estate. 

For example, a company with $2 million in EBITDA and $600,000 of annual interest expense may deduct the full $600,000 (30% of EBITDA). Under the EBIT rule (which excludes depreciation and amortization), its adjusted taxable income might be only $1.3 million—limiting the deduction to $390,000 and deferring $210,000 of interest. The return to EBITDA helps restore that lost deduction. 

Businesses with average gross receipts under $30 million (for 2025, indexed annually) are exempt from Section 163(j) altogether under the small business exception, and can fully deduct their business interest without limitation. 

Paid Family and Medical Leave Credit Made Permanent 
The Section 45S credit for employer-paid family and medical leave is now permanent, removing uncertainty around renewals and extensions. Employers offering qualifying paid leave can continue to claim a credit of up to 25% of wages paid, which supports workforce retention and promotes competitive employee benefit packages. 

Incentives for Manufacturing and Production Property 
A 100% first-year depreciation deduction for “qualified production property,” which generally includes nonresidential real estate used in manufacturing. The IRS has not yet released many detailed public examples for the new OBBB Act special depreciation allowance on qualified production property, which begins in 2025. However, this provision builds on existing bonus depreciation rules outlined in IRS Publication 946 (How to Depreciate Property) and IRS Notice 2022-05, which covers related changes under the Inflation Reduction Act. For example, a manufacturer placing a $5 million new factory wing in service in mid-2025—meeting the qualification criteria—could elect to immediately deduct the entire $5 million cost that year, reducing the property’s basis to zero for future depreciation. If, at any time during the 10-year period beginning on the date that any qualified production property is placed in service by the taxpayer, such property ceases to be used in a qualified way, Section 1245 recapture applies. Official IRS examples and updated guidance are expected to be released in the coming months through updates to Publication 946 and additional IRS notices. 

Opportunity Zones and New Markets Credit Made Permanent 
The OBBB Act permanently extends both the Opportunity Zone program and the New Markets Tax Credit (NMTC). While the Opportunity Zone definition of “low-income community” is narrowed beginning in 2027, the permanency provides long-term stability for real estate developers, community lenders, and impact-focused businesses seeking to invest in underserved areas.