Understanding the Impact of the OBBB on Business Tax Incentives

On July 4, 2025, President Trump signed the tax reconciliation bill (H.R. 1), also known as the OBBB, into law. The bill introduces substantial changes to a range of business tax credits and incentives. These updates are especially relevant to CPAs, business owners, and taxpayers planning for capital investment, innovation, or clean energy initiatives. Below is a breakdown of the most significant changes, the impact they may have, and the types of companies that should consider acting now.

Cost Segregation: Expanded Opportunities for Immediate Deductions

One of the key changes under the OBBB is the permanent restoration of 100% bonus depreciation for property acquired and placed in service on or after January 19, 2025 (Section 168(k)). This reverses the previous law, which phased bonus depreciation down to 0% by 2027. The ability to immediately deduct the full cost of qualifying property in the year it is placed in service provides substantial cash flow benefits for businesses with real estate investments.

Additionally, Section 179 expensing limits have increased significantly—from $1,250,000 to $2,500,000—with the phase-down threshold raised to $4,000,000, effective for property placed in service in tax years beginning after December 31, 2024.

The bill also introduces a new depreciation election (Section 168(n)) for U.S.-based facilities used in the manufacturing, agricultural production, chemical production, or refining of tangible personal property (TPP). To qualify, construction of the facility must begin after January 19, 2025 and before January 1, 2029.  The facility must be placed in service before January 1, 2031.

Companies that should consider cost segregation planning now include:

• Owners of newly constructed or recently renovated commercial or residential rental properties
• Real estate investors involved in Section 1031 exchanges
• Businesses constructing or expanding U.S.-based manufacturing facilities

These changes are designed to incentivize domestic investment and offer immediate deductions that improve cash flow.

Research and Development (R&D): Favorable Treatment for Domestic Innovation

The OBBB permanently reinstates the 100% deduction for domestic research and experimental (R&E) expenditures, effective for tax years beginning after December 31, 2024 (Sections 174 and 174A). This reverses the prior five-year amortization rule and simplifies compliance for businesses engaged in qualifying domestic R&D activities.

Notably, taxpayers may also elect to deduct unamortized R&E expenses incurred between 2022 and 2024 over one or two years starting in 2025. Small businesses—defined as having average annual gross receipts of $31 million or less—may amend prior returns to claim missed deductions for those years.

Foreign R&E remains subject to a 15-year amortization schedule, and guidance is still pending on how to make the new elections.

Taxpayers who should take note include:

• Companies developing new or improved products, processes, software, formulas, techniques, inventions, or improving existing ones
• Engineering and technology-driven businesses
• Small businesses that may have previously forgone R&D credits due to amortization requirements

This update presents a valuable opportunity for taxpayers to revisit prior-year activities and claim significant tax benefits, particularly for domestic innovation efforts.

Energy Incentives: Accelerated Sunset Dates Require Urgent Planning

The OBBB shortens the timeline for claiming several popular energy-related tax incentives. The Section 179D deduction for energy-efficient commercial buildings will no longer be available for property that begins construction after June 30, 2026.

Similarly, the Section 45L credit for energy-efficient homes terminates for properties acquired after that date—well ahead of the previous 2032 expiration.

For renewable energy developers, the bill significantly alters the landscape for the Clean Electricity Investment Credit (Section 48E) and the Clean Electricity Production Credit (Section 45Y). Projects involving solar or wind facilities must now begin construction within 12 months of enactment to qualify for the full value of these credits. Energy storage technologies, however, remain eligible even if co-located with solar or wind facilities.

Organizations that should review project timelines include:

• Developers of solar, wind, or energy storage facilities
• Owners and designers of commercial buildings undertaking energy-efficiency upgrades
• Contractors and builders of energy-efficient residential properties

These updates underscore the need for careful planning and timely execution to secure these soon-to-expire incentives.

Employee Retention Credit (ERC): Stricter Deadlines and Increased Scrutiny

The OBBB officially disallows any Employee Retention Credit (ERC) claims for the third and fourth quarters of 2021 if submitted after January 31, 2024. It also extends the statute of limitations for IRS assessments to six years for claims made in those quarters, or six years from the date of filing, whichever is later. This includes extending the statute of limitations on improperly claimed income tax deductions related to ERC wages.

Additionally, the bill imposes penalties on ERC promoters and strengthens enforcement around improper claims.

Businesses that claimed the ERC in late 2021 should:

• Prepare supporting documentation in anticipation of potential IRS audits
• Evaluate any claims submitted through third-party advisors
• Confirm compliance with updated IRS rules to avoid penalties

These provisions reflect a broader enforcement effort and signal the importance of maintaining robust substantiation for past claims.  

Stay Tuned for More Guidance

The tax changes introduced by the OBBB present a mix of new opportunities and tightening deadlines. While many incentives have been extended or enhanced, others are sunsetting faster than expected. The IRS and Treasury are expected to issue further guidance on how to interpret and implement several of the provisions mentioned above.

Businesses and their advisors should take proactive steps to assess eligibility, revisit prior activities, and plan strategically for the months ahead. CTI will be hosting a series of on-going webinars as there are further developments and guidance.