On July 4, 2025, President Trump signed the bill known as H.R. 1 into law. This bill contains many tax provisions that will impact the American taxpayer. In this alert, our BRC Tax Professionals, will provide an overview of the most relevant business tax provisions contained in the bill and the impact they may have on you and your business.
The new bill, reinstates 100% bonus depreciation as well as eliminates the sunset provision from the TCJA, thereby making this 100% bonus depreciation permanent. Under the current law, bonus depreciation has been phasing out annually since being established at 100% by the Tax Cuts and Jobs Act of 2017.
Effective Date: The provision becomes effective for qualified property acquired after January 19, 2025.
Under the new bill, a company’s maximum Section 179 deduction and phase-out threshold will increase significantly. Further, the types of property which qualify for Section 179 deduction have been expanded.
- Increased Expensing Limit: The maximum Section 179 deduction is increased from $1 million to $2.5 million.
- The phase-out threshold, which reduces the allowed deduction based on the amount of property placed in service during a tax year, increases from $2.5 million to $4 million.
Note: These Section 179 amounts reflect pre-inflation values and will be indexed for inflation.
Effective Date: The provision becomes effective for property placed in service in taxable years beginning after December 31, 2024.
Under the new bill, companies will be able to immediately expense nonresidential real property using 100% bonus depreciation for property considered to be Qualified Production Property (QPP).
- QPP is defined as the portion of any nonresidential real property used in specific production activities, such as manufacturing, production, or refining of tangible personal property in the United States or in a United States’ territory. QPP does not include the portion of any nonresidential real property used for functions unrelated to qualified production activities (i.e., administration, sales, etc.)
- To qualify, the property’s original use must begin with the taxpayer, construction must begin between January 19, 2025 and January 1, 2029, and it must be placed in service by January 1, 2031. Property acquired by the taxpayer, provided it has not been utilized in a qualified production activity by any individual at any point from January 1, 2021, through May 12, 2025 may also qualify.
Effective Date: The provision becomes effective for qualified property placed in service after the date of the enactment of this bill.
Under the new bill, the Section 179D Deduction will be terminated. Section 179D provides a tax deduction for installing energy-efficient systems—like lighting, HVAC, or building envelope—in U.S. commercial buildings. The deduction amount depends on energy savings achieved, with higher deductions for meeting prevailing wage and apprenticeship requirements.
Effective Date: The provision terminates the 179D deduction for property on which construction begins after June 30, 2026.
Under the new bill, companies will once again be able to immediately expense their domestic R&D costs for tax years beginning after December 31, 2024.
This bill also offers a crucial path to retroactive relief for R&D costs that were capitalized in tax years beginning after December 31, 2021, and before January 1, 2025. Here’s how companies can take advantage of this:
- For all companies, you can choose to either deduct all of your remaining unamortized domestic R&D costs in the first tax year beginning after December 31, 2024, or spread those unamortized costs evenly over two years, starting with that same tax year.
- For certain small businesses, specifically those with average gross receipts less than $31 million for the first taxable year beginning after December 31, 2024, there’s an additional option. You can elect to amend prior returns to deduct domestic R&D costs that were previously capitalized and make a Section 280C election. This ability to amend returns, however, is limited to one year after the date the bill is enacted.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2024.
The bill ends the Qualified Commercial Clean Vehicle Credit, a tax credit for businesses buying clean commercial vehicles, provided under Section 45W. This credit currently offers the lesser of 30% of the vehicle’s basis (for electric vehicles) or the cost difference compared to a gas/diesel vehicle. The credit is capped at $7,500 for vehicles under 14,000 pounds Gross Vehicle Weight Rating (GVWR) and $40,000 for those 14,000 pounds or more.
Effective Date: The provision terminates the credit for any vehicle acquired after September 30, 2025.
IRC §163(j) limits the deduction for business interest expense to the sum of:
- Business interest income,
- Floor plan financing interest, and
- 30% of the taxpayer’s adjusted taxable income (ATI) for the taxable year.
Under prior law, for tax years beginning after 2021, ATI was calculated without adding back depreciation, amortization, or depletion. This change significantly reduced the amount of deductible business interest for many taxpayers.
The new bill permanently reinstates the addback of depreciation, amortization, and depletion in the ATI calculation. This revision increases ATI, thereby allowing taxpayers to deduct a greater portion of their business interest expense.
Effective Date: Applies to tax years beginning after December 31, 2024.
The new bill provides tax relief to small businesses by making the 20% qualified business income (QBI) deduction permanent, increasing the taxable income limitation phase-in, and introducing a minimum deduction amount.
- The bill makes the Section 199A (QBI) deduction provisions permanent, ensuring its availability to eligible taxpayers beyond the originally scheduled expiration at the end of 2025.
- The bill keeps the QBI deduction rate at 20%.
- The bill increases the taxable income limitation phase-in range for the QBI deduction, allowing more taxpayers to benefit. The previous phase-in range of $50,000 for single filers and $100,000 for joint filers is increased to $75,000 and $150,000, respectively.
- The bill introduces an inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 of QBI from one or more active trades or businesses in which they materially participate.
Effective Date: Applies to tax years beginning after December 31, 2025.
The new bill amended IRC §460(e) to expand the exception from the percentage of completion method (PCM) of accounting for certain residential construction contracts.
- The exception now applies to all “residential construction contracts”, including those with more than four dwelling units, provided 80% or more of estimated contract costs are for the construction of residential units and related expenses.
- The exception also now extends to other construction contracts estimated to be completed within the 3-year period (instead of the previously allowed 2-year period) beginning on the commencement date of the contract.
- This change allows developers of multi-unit residential buildings to potentially use the completed contract method (CCM) instead of PCM.
- Using CCM means income from these contracts can be recognized when sales close and proceeds are received, potentially aligning income tax reporting with cash flow.
Effective Date: Applies to contracts entered into in taxable years beginning after July 4, 2025.
The Bill introduces a significant change to how corporations can deduct charitable contributions. The Bill imposes a new threshold by which corporations may now deduct charitable contributions only if the total amount exceeds 1% of their taxable income.
New Deduction Floor – Previously, corporations could deduct up to 10% of taxable income in qualified charitable contributions without a minimum threshold. The Bill introduces a floor allowing corporations a deduction for contributions exceeding 1% of taxable income. The 10% of taxable income cap remains applicable in the Bill.
Carryforward – The 5 year carryforward period remains applicable to charitable contributions that are disallowed due to the 10% limitation.
Effective Date: The provision becomes effective for tax years beginning after December 31, 2025.
Under the new bill, qualified opportunity zones (QOZ) are here to stay.
In addition to making QOZs permanent, the bill also offers expanded tax benefits for capital gains invested into QOZs on or after January 1, 2027.
Here are some of the key changes related to QOZs:
- Designated QOZs may be designated by the states on July 1, 2026, with new designation dates commencing every 10 years on July 1.
- New “qualified rural opportunity fund” designation created, which are QOZs comprised entirely of a rural area.
- Deferral of capital gains invested into QOZs will be recognized on the earlier of: a) Date on which the QOZ investment is sold/exchanged, or b) 5 years after the date the QOZ investment was made.
- Deferred gain recognition for QOZs held at least 5 years: Deferred capital gain will be reduced by 10%; if the investment is in a qualified rural opportunity fund, the capital gain reduction is 30%.
- For QOZ investments held at least 10 years: a) If sold before 30 years after the date of the QOZ investment, the basis will be equal to the fair market value of the QOZ investment on the date sold or exchanged, or b) If sold after 30 years from the investment in the QOZ, the basis will be equal to the fair market value on the date 30 years after the date of the QOZ investment.
- Qualified Opportunity Funds will be required to file an annual return with statements being furnished to investors.
Effective Date: The new provisions are effective after December 31, 2026. These changes have no impact on current QOZ investors. Any gains that were deferred into QOFs under the Tax Cuts and Jobs Acts regime, must be recognized no later than the taxable year ending December 31, 2026.
Note: The provisions discussed within this alert are federal tax provisions. The various state taxing authorities may or may not conform to these newly enacted federal provisions.
If you have any questions about how this impacts you or your business, please don’t hesitate to reach out to your trusted BRC tax advisor.
To read other alerts associated with the passing of this bill, click here.