In the spring 2026 edition of the Pennsylvania CPA Journal, we discussed the individual provisions enacted by the One Big Beautiful Bill Act (OBBBA). Now, with the extended tax return filing season upon us, we turn to the OBBBA’s business tax provisions, which include some of the most significant pro-growth capital investment incentives enacted in recent memory.
Three primary sources underlie our summary: the OBBBA itself,¹ the IRS’s OBBBA provisions guidance page and related notices and regulations,² and the Joint Committee on Taxation’s explanation of the tax provisions.³ This feature reflects our best interpretations as of the date of publication, subject to additional guidance. We gratefully acknowledge the many thoughtful analyses, observations, and technical insights shared by members of the tax profession over the past year. Those contributions, together with our independent review of the statutory language, legislative history, Joint Committee explanations, and IRS guidance, helped identify important issues, evaluate competing interpretations, and ultimately form the conclusions reflected in this article.
Many provisions are described as “permanent,” but future legislation or administrative guidance may materially affect these provisions. State tax conformity with the OBBBA is beyond the scope of this article.
One of the OBBBA’s most significant capital investment incentives is the qualified production property (QPP) provision. A new Section 168(n) allows an immediate 100% special depreciation allowance for qualifying nonresidential production buildings that would otherwise depreciate over 39 years and do not qualify for standard bonus depreciation. Unlike Section 168(k) bonus depreciation, which applies automatically unless the taxpayer elects out, QPP requires an affirmative election, which simultaneously triggers an election out of Section 168(k) for that property.
QPP is the portion of nonresidential real property that is used as an integral part of a qualified production activity; is placed in service in the United States or a U.S. possession; has original use commencing with the taxpayer; has construction beginning after Jan. 19, 2025, and before Jan. 1, 2029; is placed in service after July 4, 2025, and before Jan. 1, 2031; is not subject to the alternative depreciation system; and is not “ineligible” property. Notably, QPP excludes any portion used for offices, administrative services, sales, research, and other functions unrelated to production.
A qualified production activity means manufacturing, production, or refining of a qualified product (with the term “production” limited to agricultural and chemical production, while “manufacturing” and “refining” having broader applicability) that results in a “substantial transformation” of tangible personal property. Notice 2026-16 provides examples of qualifying and nonqualifying activities, clarifies that raw-material storage qualifies (while finished-goods storage does not) and includes favorable integrated-facility and de minimis safe harbor allocation rules.
A special rule extends QPP eligibility to certain previously used facilities acquired after Jan. 19, 2025, and before Jan. 1, 2029. It permits renovating and repurposing facilities that otherwise might fail the original-use and construction-commencement requirements, if the property was not used in a qualified production activity between Jan. 1, 2021, and May 12, 2025, and subject to various anti-abuse restrictions.
Notice 2026-16 generally denies QPP treatment to standard operating leases, subject to certain consolidated-group and related-party exceptions.
Planning Considerations: QPP is a significant business investment provision, allowing the potential accelerated deduction of hundreds of billions of dollars over the next decade based on the announcements of build-out in the semiconductor, server, battery, pharma, defense, chemical, and food industries, and the energy grid. (AI-related chip manufacturing, server manufacturing, and power generation manufacturing facilities generally should qualify, but the status of data centers is uncertain absent further guidance.) Advisers should model the impact of QPP immediate expensing on future years’ taxable income levels, tax rates, and Section 172 80% NOL carryover limitation, as well as various income-based limitations. The limitations may include interest expense under Section 163(j); the QBI deduction under Section 199A; the Section 461(l) excess business loss limitation for pass-through owners; the Section 250 FDII/GILTI deduction; and the Section 170 corporate charitable contribution base. For individuals, Section 168(n)(3) generally allows the QPP deduction for alternative minimum tax (AMT) purposes without adjustment under Section 56. This is a meaningful benefit for high-income pass-through owners who might otherwise face AMT exposure from large, accelerated depreciation deductions. For large C corporations subject to the 15% corporate alternative minimum tax (CAMT), note that the tax is computed on adjusted financial statement income (AFSI) under Section 56A rather than taxable income. Accordingly, CAMT may apply even if the QPP deduction reduces its regular taxable income to zero. However, Treasury has been issuing interim CAMT guidance reducing certain book/tax mismatches under Section 56A; whether QPP’s Section 168(n) deduction reduces AFSI under Section 56A(c)(13) has not yet been confirmed.
Recapture – QPP carries a harsh recapture rule. Within 10 years of the placed-in-service date, any change in use out of qualified production activity triggers 100% ordinary income recapture of the entire depreciation deduction under Section 1245, regardless of actual gain on disposition, unlike standard Section 1245 recapture, which is capped at gain realized if lower.
Planning Consideration: Because QPP recapture can be triggered by a change in use with no sale required, a cost-segregation study is essential before electing QPP. Production buildings often contain components independently eligible for Section 168(k) bonus depreciation with no QPP election and no use-based recapture exposure (e.g., equipment foundations, process piping, cleanroom partitions, and dedicated ventilation systems).
The OBBBA increases the Section 48D Advanced Manufacturing Investment Credit, originally enacted under the CHIPS Act of 2022 for qualified investments in facilities that primarily manufacture semiconductors or semiconductor manufacturing equipment. The OBBBA raises the rate from 25% to 35% for qualified property placed in service after Dec. 31, 2025, provided construction begins before Jan. 1, 2027. It is available only to taxpayers that are not foreign entities of concern and have not engaged in an applicable transaction with such foreign entities. The enhanced credit supports the multibillion-dollar boom aimed at strengthening domestic semiconductor supply chains (including several significant projects in Pennsylvania).
A qualified investment is the basis of tangible depreciable (or amortizable) property constructed, reconstructed, erected, or acquired, with original use commencing with the taxpayer, that is integral to an advanced manufacturing facility. Qualified property includes not only the related equipment, but also the buildings and structural components, excluding office, administrative, and other unrelated-function space.
Because acquired property must generally satisfy the original-use requirement, purchasing an existing warehouse or factory ordinarily does not qualify, though subsequent construction or improvements might. The credit excludes any basis attributable to Section 47 rehabilitation expenditures, and basis is reduced by 100% of the credit claimed for subsequent depreciation.
Final regulations confirm that ownership of the advanced manufacturing facility itself is not required to claim the credit. A taxpayer need only own qualifying property that is integral to the facility’s operation. The regulations also confirm that a lessee’s use of property satisfies the integral-to-operation test, but do not clarify which party (lessor or lessee) is entitled to claim the credit in a leasing arrangement. Entitlement should be analyzed under general federal tax ownership principles.
Planning Considerations: Given the credit’s dependence on the “primary purpose” test, mixed-use facilities require careful cost-segregation support, particularly for co-located property like air separation units or utility infrastructure serving a semiconductor fabricator facility. Taxpayers investing in property integral to another taxpayer’s fabrication facility should evaluate their own Section 48D eligibility independently. Regarding recapture, Section 48D carries two rules under Section 50: a standard sliding-scale recapture (100% in year one down to 20% in year five) if the property ceases to be investment-credit property within five years, and a Section 48D-specific rule imposing 100% recapture if the taxpayer engages in a material expansion of semiconductor manufacturing in a foreign country of concern within 10 years, unless terminated within 45 days of IRS notice.
Under prior law, bonus depreciation was to phase down in steps, from 100% in 2022 to 20% in 2026, with full phase-out after that. The OBBBA permanently restores 100% bonus depreciation for qualified property acquired and placed in service after Jan. 19, 2025, subject to acquisition date and binding agreement provisions. Bonus depreciation generally applies to both new and used property, provided the taxpayer has not previously used the property and acquires it in an arm’s-length transaction.
Qualified property generally includes tangible property with a modified accelerated cost recovery system (MACRS) of 20 years or less, qualified improvement property (QIP), and certain land improvements. Nonresidential real property generally (with its 39-year recovery period) and property required to be depreciated under the alternative depreciation system (ADS), do not qualify.
Bonus depreciation applies automatically for all qualifying property within a class unless the taxpayer elects otherwise. Elections out of bonus depreciation and limited elections for reduced bonus percentages remain available.
Planning Considerations: Above, we note that claiming a large immediate expensing deduction is not always optimal. Similar considerations apply here: the Section 461(l) excess business loss limitation, the Section 172 80% NOL cap, future marginal rate expectations, and income-based limitations such as interest expense under Section 163(j), and the Section 199A QBI deduction.
Section 179 lets taxpayers elect to expense all or part of the cost of qualifying property in the year placed in service, on an asset-by-asset basis or partial-cost basis. Unlike bonus depreciation, Section 179 applies only if affirmatively elected; an unmade election generally cannot be made later. An unclaimed Section 179 opportunity is lost for that asset, though it remains subject to bonus depreciation or MACRS. The expense benefit is constrained by an annual dollar limitation, an investment phase-out, and a taxable income limitation.
The OBBBA did not change what qualifies as Section 179 property, but did substantially raise the dollar limits effective for property placed in service in tax years beginning after Dec. 31, 2024, indexed for inflation thereafter. (See table below.)
| Section 179 Limit | Pre-OBBBA 2025 | OBBA 2025 | 2026 |
|---|---|---|---|
| Maximum Deduction | $1.25 million | $2.50 million | $2.56 million |
| Phase-Out Begins | $3.13 million | $4.00 million | $4.09 million |
| Deduction Fully Phased Out | $4.38 million | $6.50 million | $6.65 million |
| Source: IRC Section 179(b)(1),(2) as amended; Rev. Proc. 2025-32 Section 4.24 (2026 inflation-adjusted amounts). | |||
Qualifying Property – Qualifying property includes depreciable tangible personal property, off-the-shelf software, and qualified real property under Section 179(e). The most important real-property categories are QIP (interior improvements to existing nonresidential buildings placed in service after the building was originally placed in service) and roofs, HVAC systems, fire protection and alarm systems, and security systems placed in connection with nonresidential real property under Section 179(e)(2). While QIP generally qualifies for both Section 179 and bonus depreciation, many components listed in Section 179(e)(2) generally do not qualify for bonus depreciation, making Section 179 particularly relevant as an immediate-expensing mechanism.
Ordering Rule and Limitations – Section 179 is applied first, with bonus depreciation computed on the remaining basis. As a planning matter, taxpayers generally get the most benefit by applying Section 179 first to the longest-lived qualifying assets since short-lived property already is eligible for full bonus depreciation.
The Section 179(b)(3) limitation restricts deductions to active trades or business income, with excess amounts carried forward indefinitely. Additional limitations apply at both the entity and owner levels for pass-through businesses.
Planning Considerations: Some advisers view Section 179 as being eclipsed by bonus depreciation, but the OBBBA preserves several situations in which Section 179 remains relevant. Section 179 permits expensing only a portion of an asset’s cost, which is useful for noncorporate taxpayers seeking to fine-tune taxable income to a target amount, such as remaining below the Section 461(l) excess business loss threshold. In an income-limited year, unused Section 179 may be suspended and carried forward indefinitely, while bonus depreciation may create a current-year loss subject to the Section 461(l) limitation for noncorporate taxpayers or contribute to a net operating loss subject to the Section 172 80% limitation – a tradeoff worth modeling. Finally, it may provide the only immediate-expensing path for roofs, HVAC systems, fire protection and alarm systems, and security systems placed in connection with nonresidential real property.
Another significant provision is the restoration of an immediate deduction for domestic research and experimental (R&E) expenditures. The Tax Cuts and Jobs Act of 2017 (TCJA) replaced the long-standing rule permitting immediate deduction with a mandatory five-year amortization for domestic R&E (15 years for foreign R&E), effective for amounts paid or incurred in tax years beginning after Dec. 31, 2021. It increased after-tax cash costs for many innovation-intensive businesses. The OBBBA restores the immediate deduction of domestic R&E, effective for tax years beginning after Dec. 31, 2024. Foreign R&E remains subject to 15-year amortization. Taxpayers may instead elect to capitalize and amortize domestic R&E over a period of at least 60 months.
Taxpayers with domestic R&E costs capitalized during 2022-2024 do have several transition alternatives under the OBBBA and Rev. Proc. 2025-28.
Planning Considerations: Immediate expensing is not always optimal. Businesses should model whether the Section 174A deduction or 60-month amortization election produces the better result, considering the Section 172 80% NOL limitation, the Section 163(j) interest expense rules, and, for multinationals, the interaction with base erosion and anti-abuse tax (BEAT) and the renamed foreign-derived deduction-eligible income (FDDEI) and net controlled-foreign-corporation tested income (NCTI) provisions. Taxpayers claiming the Section 41 research credit must also coordinate the Section 280C(c) adjustment. Under Section 280C(c)(1), the gross credit requires a dollar-for-dollar reduction in the 174A deduction; alternatively, under Section 280C(c)(2), the taxpayer may elect a reduced credit (which for a C corporation taxed at 21% is effectively 15.8%) and retain the full deduction. The two approaches generally produce equivalent after-tax results for C corporations; pass-through owners at higher individual rates should model both before electing. Also, AMT treatment of R&E expenditures may differ from regular tax treatment.
One of the most consequential provisions for pass-through entities is the permanent extension of the Section 199A QBI deduction, which had been scheduled to expire after 2025. Section 199A allows a deduction of up to 20% of QBI from pass-through entities and sole proprietors, capped at 20% of taxable income less net capital gain. Above certain income thresholds, the deduction becomes subject to wage-and-property limitations and may phase out entirely for specified service trades or businesses (SSTBs).
In addition to the permanence of the deduction, the phase-in ranges were widened for the W-2 wage and qualified property limitation and SSTB exclusion, and a new $400 minimum deduction was created for taxpayers with at least $1,000 of QBI and who are materially participating in one or more active trades or businesses. All are effective for tax years beginning after Dec. 31, 2025. (See table below.)
| Section 199A | 2025 Prior Law | 2026 OBBBA | |
|---|---|---|---|
| Married Filing Jointly (phase-in range) | $394,600 - $494,600 | $403,500 - $553,500 | |
| Others (phase-in range) | $197,300 - $247,300 | $201,750 - $276,750 | |
| Minimum Deduction | N/A | $400 (if QBI ≥ $1,000) | |
| Sources: Rev. Proc. 2024-40 and Rev. Proc. 2025-32. Note: Married filing single has a threshold of $201,775 and top of range of $276,775. | |||
Planning Considerations: The permanence and expanded applicability of this section make this an appropriate time to revisit entity choice.
For stock issued before July 5, 2025, Section 1202 lets individuals, trusts, and estates exclude up to 100% of gain from QSBS in a domestic C corporation held at least five years, subject to a per-issuer cap of the greater of $10 million or 10 times the taxpayer’s basis, and a $50 million gross asset limit at issuance. The five-year holding period was previously all-or-nothing (i.e., selling at four years produced zero exclusion). The corporation must also operate an active qualifying business. For this purpose, financial services, consulting, law, health care, and certain other service businesses are excluded, similar to, but not identical with, the SSTB exclusions under Section 199A.
For stock issued after July 4, 2025, there are three changes: a tiered holding period allowing a 50% exclusion at three years and 75% at four years, with 100% exclusion still requiring five years; the per-issuer cap rises to $15 million (inflation-indexed); and the gross asset threshold rises to $75 million (also indexed).
Planning Considerations: The enhancement reduces the all-or-nothing risk of the prior five-year holding requirement. The exclusion applies only to C corporation stock, not S corporations, LLCs, or partnerships, so founders in pass-through entities must operate through a C corporation to benefit. Any gain remaining after a partial exclusion is taxed at a maximum 28% rate under the special QSBS capital gain rules (or the taxpayer’s lower applicable rate), rather than the more familiar 20% maximum long-term capital gain rate. Accordingly, the maximum effective regular federal income tax rate is approximately 14% after three years and 7% after four years. Net investment income tax may apply separately.
Section 163(j) generally limits a business interest expense deduction to the sum of business interest income, 30% of adjusted taxable income (ATI), and floor plan financing interest expense, unless the business meets the Section 448(c) gross receipts exception ($32 million for 2026) or another statutory exception. ATI starts with taxable income and adds back business interest expense, the NOL and capital loss deductions, and the Section 199A QBI deduction, among other items, then subtracts business interest income and floor plan financing interest. For tax years beginning before 2022, depreciation, amortization, and depletion were added back, computing ATI on an EBITDA basis. That addback expired for 2022–2024. The OBBBA restores the addback for tax years beginning after 2024, returning ATI to an EBITDA basis.
Planning Considerations: The restored EBITDA addback substantially increases deductible interest capacity for capital-intensive businesses financing equipment, facility expansions, or leveraged acquisitions. This benefit complements the other incentives discussed above by preventing many of the accelerated deductions from reducing ATI.
The OBBBA also expands, or permanently extends, several additional business incentives, including the employer-provided childcare credit (Section 45F), the paid family and medical leave credit (Section 45S), the low-income housing tax credit (Section 42), the New Markets Tax Credit (NMTC - Section 45D), and the Qualified Opportunity Zone regime (Section 1400Z-1 and -2). Among the most significant changes are expanded employer-provided childcare incentives, expanded service eligibility for family and medical leave, a permanent NMTC authority, and a permanent Opportunity Zone framework featuring rolling gain-deferral periods for future investments.
The OBBBA offsets some of its business tax relief with several revenue-raising provisions. While this article focuses on the growth side of the OBBBA, a brief summary of the offsets is worth including as a reminder during compliance season.
Corporate Charitable Contribution Floor – For tax years beginning after Dec. 31, 2025, corporations may deduct charitable contributions only to the extent they exceed 1% of taxable income (computed without regard to the charitable deduction itself, the dividends received deduction, NOL and capital loss carrybacks, and certain other adjustments), with the existing 10% ceiling and five-year carryforward unchanged.
Excess Business Loss Limitation Made Permanent – The OBBBA permanently limits the net business losses noncorporate taxpayers can deduct against nonbusiness income at a certain threshold, removing the scheduled 2028 sunset. Separately, the OBBBA resets the inflation-adjustment baseline, lowering the 2026 threshold to $256,000 ($512,000 joint) from $313,000 ($626,000) in 2025. Disallowed losses carry forward as an NOL, subject to the 80%-of-taxable-income limitation.
Miscellaneous Business Tax Changes – The OBBBA eliminates or limits several previously available business tax benefits, including certain employer meal deductions, moving-expense benefits, and executive-compensation deductions.
Energy Credit Repeals and Accelerated Phaseouts – The OBBBA repeals or accelerates the phaseout of numerous energy-related credits and deductions. Taxpayers relying on these incentives should review the applicable transition rules carefully.
International Provisions – The OBBBA also makes significant changes involving NCTI (formerly GILTI), FDDEI (formerly FDII), and BEAT. Due to its primary relevance to multinational taxpayers, these are beyond the scope of this article.
In summary, the OBBBA may be the most significant business-friendly tax package enacted in recent memory, built around rewarding investment, innovation, and workforce development. Advisers who invest the time to understand these provisions fully and help their clients act on them effectively will deliver meaningful value before year-end and for the next several years.
1 One Big Beautiful Bill Act, Pub. L. No. 119-21, 139 Stat. 72 (July 4, 2025). Full text at www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf.
2 IRS, One Big Beautiful Bill Provisions – Guidance, Notices, and Fact Sheets (2025–2026), continuously updated at www.irs.gov/newsroom/one-big-beautiful-bill-provisions.
3 Joint Committee on Taxation, General Explanation of the Tax Provisions of Public Law 119-21 (JCS-1-26), May 2026. Available at www.jct.gov.
Robert Duquette, CPA, is a teaching full professor in the College of Business at Lehigh University and a retired EY senior tax partner. He serves on PICPA’s Federal Tax Thought Leadership Committee and is a member of the Pennsylvania CPA Journal Editorial Board.
Mike Pinette is a recent graduate of Lehigh University’s College of Business and is now pursuing CPA licensure. He is a member of KPMG’s commercial audit practice.
The views expressed herein are of the authors’ only and not those of Lehigh University, EY, or KPMG. This article is general in nature. Seek professional tax and legal advisers for specific advice.