The U.S. House of Representatives recently passed the “One Big Beautiful Bill Act” (OBBBA), or “Big Beautiful Bill,” is a comprehensive legislative package. Championed by former President Donald Trump, the bill aims to expand upon the 2017 Tax Cuts and Jobs Act (TCJA), while also introducing new tax provisions and spending measures. The legislation encompasses a wide array of policy areas, such as tax reform, defense spending, border security, and social program adjustments.
Key Tax Provisions and Their Impacts
1. Research & Development (R&D) Tax Credits
The OBBBA proposes to temporarily suspend the requirement to amortize Section 174 research and experimental (R&E) expenditures, allowing immediate expensing of these costs. This change would apply retroactively for tax years beginning in 2022 and expire for tax years beginning in 2026. The legislation introduces new Section 174A, which permits taxpayers to capitalize and amortize all or part of the R&E costs over the useful life of the research. There is a 60-month minimum for Section 174A. Software development costs would be included in the Section 174A definition of R&E. Taxpayers would be required to reduce all Section 174A amounts by any research credits, with rules similar to Section 280C(c).
2. Section 179D Energy-Efficient Commercial Building Deduction
The bill doe snot directly change any of the greater legislation nor structure of Section 179D. However, broader tax language within the “Big Beautiful Bill” does open the door for potential reinforcement of the tax provision. By making 179D a permanent part of the tax code and expanding its benefits through the inflation reduction act, 179D is now more accessible and potentially more impactful for those who take advantage of it.
3. Cost Segregation and Bonus Depreciation
The legislation extends 100% bonus depreciation for property placed in service through the end of 2025. This extension allows businesses to fully expense qualifying assets in the year they are placed in service. This enhances the overall benefits of cost segregation studies. Cost segregation enables businesses to identify and reclassify personal property assets to shorter depreciation periods, accelerating depreciation deductions and improving cash flow .
4. Section 179 Expensing
The bill increases the Section 179 expensing limit to $2.5 million, with a phase-out threshold of $4 million, both indexed for inflation. This expansion allows businesses to immediately expense a larger amount of qualifying property, including certain improvements to nonresidential real property, such as roofs, HVAC, fire protection, and alarm systems .
Additional Provisions
- Estate Tax: The bill maintains the current estate tax exemption amount of $13.99 million per person, avoiding the scheduled reduction to approximately $7 million in 2026. This provision provides certainty for estate planning and wealth transfer strategies .
- SALT Deduction: The state and local tax (SALT) deduction cap increased from $10,000 to $40,000 for taxpayers with income below $500,000. This provides relief to taxpayers in high-tax states .
- Child Tax Credit: The child tax credit increased to $2,500 through 2028 and $2,000 thereafter. This offers additional support to families .
- Remittance Tax: A 5% tax on remittances sent from the U.S. to other countries set. This can potentially impact individuals who regularly send money abroad.
Impact on Stakeholders
- Businesses: Enhanced deductions and immediate expensing provisions improve cash flow and incentivize capital investments.
- Real Estate Owners: Expanded Section 179D deductions and extended bonus depreciation make energy-efficient upgrades and property improvements more financially attractive.
- Architects and Engineers: Increased eligibility for Section 179D deductions allows designers of energy-efficient systems to benefit from tax incentives.
- R&D-Intensive Companies: Immediate expensing of R&E costs reduces tax liabilities and encourages increased investment in innovation.
- High-Income Individuals: Increased SALT deduction caps and maintained estate tax exemptions provide significant tax relief.
- Low-Income Households: Potential reductions in social program funding and increased work requirements may lead to decreased access to essential services.
Conclusion
The “One Big Beautiful Bill Act” represents a significant shift in U.S. tax policy, aiming to stimulate economic growth through enhanced deductions and incentives. By temporarily suspending amortization requirements for R&E expenditures, expanding availability of Section 179D deductions, extending bonus depreciation, and increasing Section 179 expensing limits, the bill seeks to provide immediate financial benefits to businesses and encourage investments in energy efficiency and innovation. However, the bill also introduces measures that may disproportionately affect low-income households, such as reductions in social program funding and increased work requirements.
To strategically take advantage of the additional benefits of the “Big Beautiful Bill,” consult one of our experts at CSSI. Whether it be Cost Segregation, Section 179D, or R&D Tax Credits, CSSI has you covered.
