Key Provisions of the OBBBA for Converters

August 29, 2025

On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This budget reconciliation bill is massive in both its scope and overall effect on our country. It will be analyzed and commented on for many months and years to come as to whether it is good or bad for us both economically and socially. At this point, we are not in a position to make any determinations on the bill as a whole, except to say that it should be a very good thing for most businesses. There are, however, a few key provisions that converters, who are by and large small-business owners, need to be aware of immediately.

Equipment Expensing

One-hundred percent bonus depreciation has been reinstated retroactive to assets placed in service after January 19, 2025, so make certain that nothing was placed in service in 2025 prior to that date. This provision applies to almost everything that you purchase. The law applies to anything with a MACRS (modified accelerated cost recovery system) life of less than 20 years, which pretty much covers everything but real property and includes new and used assets. It also includes computer software, and if you are planning to make a movie or a live theatrical production, those costs are also included.

The act also increases the limit for expensing assets under Section 179 to $2.5 million, which is double the current limit of $1.25 million and increases the overall limit for property acquired to $4 million. One-hundred percent bonus depreciation is still the way to go for most businesses, but some states give you a better break when using Section 179 versus bonus depreciation. You can also use it if you did in fact place assets in service prior to January 20, 2025.

Research Expenses

One-hundred percent deductibility for domestic research or experimental expenses has been reinstated for expenses incurred after December 31, 2024. Foreign expenses must be capitalized and written off over 15 years. Small-business taxpayers (those with gross receipts of $31 million or less) can elect to retroactively elect to apply this change to years beginning after December 31, 2021. The election must be made prior to July 4, 2026. Pretty much any converter who was taking the research credit in prior years got caught in this trap of having to capitalize their research expenses and getting a write-off over five years.

This change is a tremendous break for all small businesses, who can now go back and file amended returns to get tax refunds for 2022, 2023, and 2024 (if not yet filed). Alternatively, all taxpayers may elect to write off all of their unamortized research expenses for 2022–2024 in 2025 or ratably over 2025 and 2026. Take a look at this as soon as possible, since you have only a year to make this election.

Business Interest Limitation

Deductibility of business interest is subject to a limitation of 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization) for years beginning after December 31, 2024. The limitation under prior law was 30% of EBIT (earnings before interest and taxes). Therefore, having a lot of bonus or Section 179 depreciation will not limit the deductibility of interest expense as it had under prior law. This provision is not retroactive.

Estate Planning

The basic exclusion amount for estate and gift taxes and the exemption amount for generation-skipping transfer (GST) tax purposes is increased to $15 million, before adjustment for inflation, for the estates of decedents dying and gifts and GSTs made after 2025. This provision effectively eliminates estate taxes for all but individuals with potential estates of over $15 million and for married couples with combined estates of over $30 million.

This provision from the Tax Cuts and Jobs Act of 2017 was slated to expire at the end of this year and has now been permanently extended. Without this extension, the exemption amount was going to go back down to $5 million per person (indexed for inflation), and the past few years have seen a flurry of estate and gift planning in anticipation of this expiration. Many gifts were made, and even more were contemplated. Based upon this permanent extension, gifting for those of us with less than $15 million in assets is probably a bad idea, since there is no step up in basis for heirs in a gift transaction, while there is a full step up to fair market value at the date of death for assets passing through an estate, even if no estate tax is paid. Most business owners will now have to revisit their estate plans.

Qualified Business Income

The deduction for qualified business income is made permanent. Modifications are made to the deduction limit phase-in. This is a giant win for those of you who own pass-through entities (S corporations and entities that are taxed as partnerships or sole proprietorships) that operate a trade or business. This 20% tax deduction (subject to wage and asset limitations) lowers the maximum tax rate from 37% to 29.6% on your business income and has been made permanent. The overall phase-in amounts for service businesses and businesses that don’t have the required W-2 or asset bases have been increased by $100,000 for married joint returns and $50,000 for other returns, which would make obtaining this deduction easier.

SALT

The state and local tax (SALT) deduction for individuals with less than $500,000 of adjusted gross income is increased to $40,000 for tax years 2025–2029. This threshold will revert to $10,000 in 2030; the threshold and income amounts are increased slightly each year until then. The legislation preserves taxpayers’ ability to avoid the SALT deduction limit through various pass-through entity tax rules of their state allowing partnerships and S corporations to elect to pay an entity-level state income tax.

QSBS

The qualified small-business stock (QSBS) gain exclusion rules are modified to provide for a tiered gain exclusion for QSBS acquired after July 4, 2025. The exclusion is 50% for stock held for three years, 75% for stock held for four years, and 100% for stock held for five or more years. Also, the per-issuer dollar limitation is increased to $15 million (adjusted for inflation after 2026) for stock acquired after July 4, 2025, and the aggregate gross asset ceiling is increased to $75 million (adjusted for inflation after 2026) for stock issued after July 4, 2025.

Many small businesses have been able to sell their stock (rather than their assets) over the past few years, and qualification as small-business stock under this provision provides for terrific tax savings. In fact, you can afford to sell for less than you would in an asset sale and still end up keeping more of the proceeds. They have also removed this gain exclusion as a preference item for the hated alternative minimum tax and made the provision permanent. Anyone who is considering selling in the next five years (or more) needs to take a look at this provision.

The OBBBA contains numerous
other provisions for individuals and businesses, which we can discuss in a future article, but these seven have significant implications on the actions that many small businesses will take over the next year. Please consult your tax advisor in the near future to make sure that you understand these implications on your tax, business, and estate planning.