CLIENT ALERT: Notable Income Tax Changes in the “One Big Beautiful Bill Act”

On July 4, 2025, President Trump signed into law the “One Big Beautiful Bill Act” (the “Act”), extending many of the tax provisions in the 2017 Tax Cuts and Jobs Act that were due to sunset at the end of this year, and adding several new tax sections with significant implications for taxpayers. Summarized below are some notable income tax changes in the Act.

Deduction Limitations

• The SALT deduction cap is increased to $40,000 for taxable years 2025-2029 (with a 1% increase each year), subject to reduction for taxpayers whose modified adjusted gross income is over $500,000. In all cases, the cap will revert to $10,000 beginning in 2030. The Act also does not limit the ability of pass-through entity owners to deduct the entity’s state and local taxes as the SALT deduction cap workaround.
• Deductions for owners of pass-through entities’ qualified business income are made permanent with increased deduction limit phase-in amounts.
• Business bonus depreciation is made permanent and expanded to provide for a 100% allowance on certain property acquired and placed in service after January 19, 2025.
• The Act permanently disallows any “miscellaneous” itemized deductions for all taxpayers and imposes new limitations on the amounts of non-miscellaneous itemized deductions that taxpayers in the 37 percent income tax bracket can claim.
• The Act makes the limitation on excess business loss deductions permanent.
• The Act imposes new limitations on charitable contribution deductions for individual and corporate taxpayers.

Expansion of Qualified Small Business Stock (“QSBS”) Gain Exclusions

• For QSBS acquired on or before July 4, 2025, the gain exclusion is available only if the QSBS has been held for more than five years. Under the Act, QSBS acquired after July 4, 2025 is eligible for a new tiered gain exclusion, which begins after a three-year holding period. The percentage of gain exclusion increases with the length of the holding period, as follows:

• The total gain exclusion cap on QSBS issued by the same corporation is increased from $10 million to $15 million (or, if greater, 10 times the taxpayer’s basis in the QSBS).
• To qualify as QSBS, the stock must be originally issued by a C corporation with its aggregate gross assets at the time of the issuance not exceeding a statutory amount, which the Act prospectively increases from $50 million to $75 million and makes subject to inflation adjustments starting in 2027.

Changes Affecting Tax Deferrals

• The Act makes permanent and expands the Qualified Opportunity Zones provisions to provide for the deferral of gains that are invested in qualified opportunity zones.
• The Act makes clarifying changes to require taxable sale treatment of certain transfers between partners and partnerships unless the regulations provide otherwise.

Excise Tax on Endowments

• Private educational institutions with at least 3,000 tuition paying students during the preceding taxable year, 50% or more of which are located in the U.S., and having a “student adjusted endowment” of at least $500,000, will be subject to a graduated excise tax on their net investment income for the taxable year, depending on the size of the endowment: student adjusted endowments of (i) $500,000-$750,000 are taxed at 1.4%; (ii) $750,000-$2 million are taxed at 4%, and (iii) in excess of $2 million are taxed at 8%.

Outbound Investments

• Under the Act, a U.S. shareholder who owns stock in a foreign corporation on any day during the taxable year when the corporation is treated as a “controlled foreign corporation” must include the shareholder’s pro rata share of “subpart F income.”
• The Act makes permanent the exclusion of certain types of income of a related controlled foreign corporation and revises certain income inclusion calculations for U.S. shareholders
• The Act reinstates a certain constructive stock ownership rule to limit the potential for a foreign corporation to be treated as a “controlled foreign corporation” as a result of “downward attribution.”
• The Act also includes certain amendments regarding the use of foreign tax credits.

Other Notable Changes

• The Act makes permanent the income tax rate brackets as amended by the Tax Cuts and Jobs Act (“TCJA”) and increases standard deduction amounts.
• The Act allows limited deductions for taxpayers receiving qualified overtime compensation or qualified tips for taxable years 2025-2028 and allows limited interest deductions for qualified car loans during taxable years 2025-2028.
• The Act imposes a 1% excise tax on cash-based transfers from the U.S. to foreign recipients.
• The Act increases the threshold from $600 to $2,000 for certain required information reporting (e.g. on IRS Form 1099).
• The estate, gift, and generation-skipping transfer tax exemption is permanently increased to $15 million (single filers) and $30 million (joint filers) with annual inflation adjustments beginning in 2027.
• The Act also includes a penalty for failure to comply with due diligence requirements in claiming COVID-era employee retention tax credits.

Please contact the Olshan attorney with whom you regularly work or one of the attorneys below if you would like to discuss further or have any questions.

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