OBBB Tax Reform: What it really means for businesses

On July 4, 2025, after months of deliberation and negotiation, lawmakers enacted “The One Big, Beautiful Bill” (OBBB).  The legislation delivers a robust tax reform package that’s reshaping the U.S. tax code.

It permanently extends existing provisions, repeals or modifies others, and introduces new measures.

Below is a breakdown of the most impactful changes related to research and development, depreciation, energy credits, and employee retention tax credits.

Research and Development 

OBBB introduces long-anticipated reforms to the tax treatment of research and experimental (R&E) expenditures.

The most significant change is the creation of new Section 174A. Which allows businesses to immediately expense domestic R&E costs, reversing the prior law’s amortization requirement.

Section 174 remains, but it now applies solely to foreign R&E expenditures. Which must be amortized over 15 years. 

New Section 174A: Domestic R&E Expensing 

Beginning in tax years after December 31, 2024, taxpayers may fully deduct domestic R&E expenditures in the year incurred. These are costs paid or incurred within the U.S. as part of the taxpayer’s trade or business.

Foreign R&E costs, as defined in IRC §41(d)(4)(F), are excluded.

Scope and Limitations

Section 174A does not apply to: 

However, domestic R&E expenditures eligible for expensing under §174A explicitly include software development costs. 

Small Business Retroactive Relief

Eligible taxpayers (excluding tax shelters) that satisfy the gross receipts test under section 448(c) for their first tax year beginning after December 31, 2024, may elect to amend prior returns.

They can apply the new Section 174A rules to tax years 2022–2024, which were previously subject to mandatory Section 174 capitalization.

For tax years beginning in 2025, the section 448(c) gross receipts test is met. 

Eligible taxpayers must make this election within one year of the bill’s enactment date. 

Accelerate Previous Capitalized and Amortized Expenses  

All taxpayers may elect to deduct remaining unamortized amounts entirely in 2025. Or deduct such amounts ratably over two years, 2025 and 2026.

This change is treated as an automatic method change, applied on a cut-off basis without requiring §481 adjustments. 

Planning

Effective after December 1, 2024, OBBB repeals the amortization requirement imposed by Tax Cuts Job Act (TCJA) under section 174. Businesses may now immediately deduct eligible domestic research expenditures in the year they’re incurred.

Businesses now can again fully deduct qualifying domestic research expenses in the year incurred. This change restores the pre-TCJA tax treatment of immediate qualifying domestic research expenses, thereby helping to reduce taxable income.

It further simplifies tax compliance by reducing the need to track amortization schedules for qualified domestic research expenditures. 

This change gives businesses faster tax relief for research investments and enhances the benefit and utility of the research credit. Accordingly, businesses should reassess their tax planning and consider elections before the end of 2025 to optimize benefits. 

Depreciation 

The recently enacted OBBB includes several significant tax provisions affecting businesses. Among the most impactful are permanent changes to bonus depreciation and enhancements to the Section 179 expensing limits. 

Bonus Depreciation and New Section 168(n) Election

The legislation permanently reinstates 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.

Additionally, Section 168(n) introduces a new elective depreciation regime for nonresidential real property classified as ‘qualified production property.

This optional 100% depreciation applies to property with construction starting after January 19, 2025, and before January 1, 2029, and placed in service by December 31, 2030.

Qualified production property includes facilities used in manufacturing of tangible personal property, agricultural production, chemical production, or refining. Any portions of buildings used for offices, administrative functions, lodging, parking, sales, research, software development, or unrelated activities are excluded. 

Expanded Section 179 Expensing

The bill raises the Section 179 deduction limit to $2.5 million, with a phaseout threshold of $4 million. Effective for property placed in service after 2024.

Both thresholds will be adjusted annually for inflation. 

Planning

Accelerated depreciation helps businesses deduct most or all of a qualifying property’s cost in the year it’s placed in service. Rather than depreciating it over several years.

This means lower taxable income and taxes in the current year, which boosts liquidity and enables reinvestment. 

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Energy Provisions

The enactment of OBBB rolls back several clean energy tax provisions introduced or expanded under the Inflation Reduction Act (IRA).

The bill accelerates sunset dates for key credits, imposes stricter domestic content requirements, and bars participation by certain foreign-affiliated entities.

These changes will impact investors, developers, and manufacturers operating in the renewable energy space. 

Phasing Out Key IRA Clean Energy Credits

The new law scales back multiple IRA-era clean energy incentives by advancing their expiration dates. 

Foreign Entity of Concern (FEOC) Restrictions

The new law bars eligibility for clean energy credits for projects owned, controlled by, or involving materials sourced from FEOCs. This includes indirect equity ownership or management participation. These rules apply retroactively to in-development projects that have not yet been placed in service. 

Domestic Content Rules Remain Critical

To qualify for a 10% bonus rate, projects must use U.S.-produced steel, iron, and manufactured components. Proper documentation and certification are required. Failure to meet domestic content or FEOC requirements may result in credit loss or IRS enforcement. 

45L: Home Energy Efficiency Credit

This provision amends Section 45L(h), which governs the New Energy Efficient Home Credit, a tax credit for eligible homebuilders and developers who construct or manufacture energy-efficient homes.

The new Section 45L credit accelerates the termination date for homes with construction starting after June 30, 2026.

Homes acquired (sold or leased) after June 30, 2026 will no longer qualify for the Section 45L credit.

This change significantly shortens the time developers and builders can benefit from this incentive. It may impact planning and construction timelines, especially for projects that expected to qualify through 2032.

179D: Energy Efficient Commercial Building Property 

Section 179D offers a tax deduction for energy-efficient commercial building property. The OBBB adds a termination clause that disqualifies any construction starting after June 30, 2026, from the Section 179D deduction.

Only buildings or systems with construction starting on or before June 30, 2026 remain eligible under the new law. Taxpayers must begin construction by June 30, 2026 to qualify for the energy-efficient building deduction.

Investment Tax Credit/Production Tax Credit under Sections 45Y & 48E 

Taxpayers generally may claim the section 45Y Production Tax Credit (PTC) for electricity produced and sold by a qualifying facility.

Alternatively, taxpayers may claim the section 48E Investment Tax Credit (ITC) for qualified investments in a qualified facility or energy storage technology.

A “qualified facility” typically means one with greenhouse gas emissions below zero, usually including wind or solar energy generators.

To qualify, projects using PTC or ITC must start construction within 12 months of the legislation’s enactment.

Projects placed in service after December 31, 2027, are no longer eligible for these credits.  

Planning

These changes to energy provisions require businesses to consider accelerating project starts to align with enhanced credit rates or expanded eligibility. Therefore, it is important to coordinate construction and placed-in-service dates to maximize credit claims. 

Additionally, taxpayers should consider combining energy credits with bonus depreciation and §179 expensing to maximize immediate tax benefits and improve cash flow.

This includes conducting cost segregation studies on renewable energy properties to accelerate depreciation of non-structural components.

Employee Retention Tax Credit

OBBB introduces significant provisions impacting taxpayers with outstanding Employee Retention Credit (ERC) claims, particularly for the third and fourth quarters of 2021. These changes also heighten scrutiny on promoters involved in ERC filings, altering both compliance requirements and enforcement timelines. 

Deadline for Filing ERC Refund Claims

The new legislation establishes a firm cutoff date for claiming ERC refunds related to third quarter (and fourth quarter for recovery startups) of 2021.

Specifically, the IRS will disallow any refund claims submitted after January 31, 2024.

Extended Statute of Limitations

In addition to the filing deadline, the bill extends the IRS’s statute of limitations to allow a six-year period for examination, adjustment, or assessment of ERC claims for the third and fourth quarters of 2021.

The extended statute of limitations would generally expire on April 15, 2028 or six years after filing the claim for credit or refunds, if later.

Aligned with the extended assessment statute, the legislation also extends the statute of limitations for credits or refunds on income tax related to wages not claimed as a deduction.

Increased Enforcement on ERC Promoters

The legislation also imposes tougher penalties and compliance standards on individuals and entities promoting ERC claims.

The IRS now has expanded authority to take action against promoter misconduct tied to ERC filings.

Planning Practical Implications and Recommendations

Given the increased IRS enforcement powers and longer exposure period, affected taxpayers and advisors should prepare for potential examinations and maintain comprehensive supporting records. 

Final notes on OBBB implementation

OBBB has changed tax provisions relating to research and development expenses, depreciation deductions, certain energy credits and handling of employee retention tax credits.

Careful attention to these rules and the need for required documentation and compliance is essential to mitigate risks and preserve taxpayer benefits under the new law. 

Get the full picture on how OBBB impacts your business!

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