A Colorado-based design-build firm specialized in creating parking structures and other facilities for government entities, such as libraries, hospitals, and administrative buildings. Known for taking projects from concept to completion, the company handled both the design and construction phases. But because they didn’t own the completed structures, they assumed they couldn’t benefit from related tax incentives. 

Challenge 

While the firm regularly incorporated energy-efficient features into its designs, leadership was unaware that the energy efficient commercial building deduction under IRC Sec. 179D (179D) allowed primary designers of government-owned buildings to receive the tax benefit — even if they didn’t own the property. Without this knowledge, the company was missing out on valuable tax savings that could directly impact their bottom line. 

Approach 

Introduced to the company through a banking contact, MGO identified the opportunity and explained the 179D deduction in plain terms. At the time, the deduction offered up to $1.80 per square foot for energy efficiency improvements across three building systems: 

• Building envelope: Structural, exterior materials and insulation to optimize energy performance 

• HVAC: Systems meeting high efficiency ratings 

• Lighting: Energy-efficient lighting such as LED installations 

Because the firm acted as the primary designer for government-owned facilities, the government entity could allocate the deduction to them. MGO guided the client through the certification process — reviewing designs, materials, and energy calculations to confirm compliance with the required standards. 

Value to Client 

The project yielded approximately $250,000 in tax deductions — savings the company could reinvest in future projects. Beyond the immediate benefit, the engagement opened the firm’s eyes to an incentive they had never considered. They continued to apply 179D opportunities to other qualifying projects, creating an ongoing tax savings strategy that complemented their core business. 

Helping You Capitalize on Hidden Opportunities 

Tax incentives can be complex — and easy to overlook without the right guidance. MGO’s tax credits and incentives professionals can help you identify and claim the benefits you’ve earned.  

Contact our team today to find out how we can help you uncover savings to strengthen your business. 

The post Case Study: Unlocking Tax Savings for a Government Structure Designer  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Beginning in 2025, domestic R&D expenses under Section 174 will once again be immediately deductible, offering potential cash flow benefits.

• Companies that previously amortized R&D costs may be able to file Form 3115 and adjust past filings to recapture deductions.

• With IRS scrutiny rising and state tax rules varying, proactive planning and clear documentation are critical to maximizing benefits and minimizing risk.

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The return of immediate research and development (R&D) expenses under Section 174 is one of the most consequential shifts in the 2025 tax landscape — yet many mid-market companies have not updated their plans to reflect the change. From documentation of risk to transition-year amendments, these are the most common questions we’re hearing from finance and tax leaders:

What exactly is changing with Section 174 in 2025?

Beginning in tax year 2025, domestic R&D expenditures will once again be immediately deductible in the year incurred. This change reverses the five-year amortization requirement introduced under the Tax Cuts and Jobs Act (TCJA). However, current IRS guidance shows that amortization will still apply to certain foreign R&D expenses unless more legislative or regulatory relief is provided. Businesses should evaluate both domestic and international R&D classifications in preparation for the shift.

Will this improve our 2025 cash flow position?

It may — provided the new expensing rules are properly integrated into your financial and tax forecasting. Immediate expensing of domestic R&D reduces taxable income in the same year the costs are incurred, lowering overall tax liability. Companies that have not yet adjusted their estimated tax payments or quarterly modeling may be overstating liabilities and missing near-term cash flow efficiencies.

Can we amend our 2022–2024 returns based on this update?

In some cases, yes. Companies that previously amortized Section 174 expenses may be eligible to file Form 3115 to change their accounting method and apply a Section 481(a) adjustment. This could allow for partial or full deduction of deferred R&D costs in 2025. However, the benefits and eligibility vary depending on your current method, the types of R&D involved (domestic versus foreign), and whether returns were previously extended, filed, or audited. A review of your filing history and applicable IRS guidance is necessary before proceeding.

Currently, there is uncertainty as to whether Form 3115 will be required to change the method from capitalization to expensing of these costs. The IRS needs to provide guidance in this area and whether or not small businesses that have average annual gross receipts of under $31 million that have not filed their 2024 tax return yet will need to capitalize their R&D costs on the 2024 tax return and then file an amended return to expense these costs.

Should we still separate costs that qualify for the R&D tax credit?

Yes — and this distinction is critical. While Section 174 requires capitalization (or expensing, beginning in 2025) of all R&D costs, the R&D tax credit under Section 41 applies to a narrower subset of those costs. Documentation should clearly delineate which expenditures qualify for credit versus which are deducted under Section 174. Maintaining separate records supports credit claims and mitigates examination risk.

Will this affect our state tax filings?

It may. Some states conform to federal Section 174 treatment automatically, while others decouple and apply their own rules. This can create differences in how R&D is deducted at the state level. For companies working in multiple states, it’s important to review each jurisdiction’s treatment of R&D expenses and track how decoupling may affect apportionment, deductions, and compliance requirements.

What are CFOs and tax leads overlooking most frequently?

In our recent tax reform webinar polling, we asked CFOs and tax leaders how Section 174 has impacted their company’s R&D and tax planning. Their responses:

• 17% said Section 174 changes had a significant impact

• 24% said they made some adjustments

• Over 50% indicated the impact was minimal or unclear

This suggests a gap between policy changes and planning execution. Many companies have not yet updated forecasts or examined whether transition-year filings could improve cash position. As a result, opportunities to unlock deductions or perfect quarterly payments may be unrealized.

What actions should we be taking now? 

Section 174 expensing should be addressed proactively during 2024 planning and Q3-Q4 reviews. Start by reviewing how R&D is treated in your current financial models and incorporate the updated expense rules into your 2025–2026 forecasts. If you amortized expenses in prior years, evaluate whether filing a method change (Form 3115) could allow you to recapture deductions, depending on what guidance is issued by the IRS from a procedural standpoint.

It’s also essential to keep clear and contemporaneous documentation — especially if you’re claiming R&D credit or have international R&D exposure. The IRS has increased scrutiny around improper claims and substantiation. Additionally, continue checking IRS guidance related to foreign R&D and coordinate any tax position changes with your broader strategy and compliance obligations.

Strategic Considerations

Section 174 expensing brings welcome relief for businesses investing in innovation, but it also introduces complexity — especially for companies with multi-year R&D planning or global footprints. By updating forecasts, assessing historical filings, and aligning documentation now, CFOs and tax leaders can better prepare for the 2025 transition and minimize risk. Early action supports stronger compliance, cash management, and credit positioning in an evolving regulatory environment.

How MGO Can Help

Our tax professionals have deep experience navigating the complexities of Section 174 and R&D credits. Whether you need help modeling the impact of immediate expensing, evaluating a method change, or separating costs for credit eligibility, we can guide you through every step. Contact us today to align your R&D strategy with the latest tax reforms and uncover potential savings.

The post Answers to Your FAQs About Section 174 R&D Expensing appeared first on MGO CPA | Tax, Audit, and Consulting Services.

Bill Penczak: Mike, when we talk about MGO’s tax strategy for clients, credits come up a lot. Why are they such a focus? 

Michael Silvio: Because they’re often overlooked, and they can be game changers. Credits like R&D, cost segregation, 179D, and energy incentives can mean real money in clients’ pockets. We don’t just file tax returns; we look for ways to reduce taxable income through proactive planning. 

Bill: Let’s start with R&D credits. A lot of people think they’re only for high-tech companies. How do they apply more broadly? 

Mike: That’s a big misconception. We’ve helped manufacturers, food processors, even auto part designers claim R&D credits. The test is whether you’re solving technical problems or improving products and processes, not whether you wear a lab coat. One of my favorite examples: two guys who started an aftermarket auto parts business landed a contract with a major automaker. We found them more than $750,000 in R&D credits over three years, and that helped keep their business alive during the 2008 downturn. 

Bill: That’s powerful. What about 179D? Can you break that down? 

Mike: Sure. 179D is a deduction for the energy-efficient design of buildings and is available to developers, designers and builders that own these buildings. It is also available for the primary designers of government structures — think schools, libraries, hospitals. Most people assume you have to own the building, but if you’re the designer, you can also qualify. We had a design-build firm that had no idea this was even an option, and we helped them secure a $250,000 deduction they wouldn’t have otherwise seen. Keep in mind that under the “Big Beautiful Bill” this incentive sunsets as of June 20, 2026.  Construction must begin before this date to qualify for this incentive. 

Bill: And cost segregation. How does that fit in? 

Mike: Cost seg accelerates depreciation for real estate owners by identifying components that can be written off faster. We do that work, which is rare for a firm our size. That means we can act quickly when clients buy or renovate a property, and we often tie it into other credit strategies to create more value. 

Bill: Sounds like planning ahead is key. 

Mike: Exactly, always. I was just on a call with a client who’s running out of depreciation and facing big rental income. We didn’t just tell them to buy another building; we connected them with passive-loss investments that offset the income legally. It’s that kind of strategic, creative thinking that makes a difference. 

Bill: So, these aren’t just tax tricks — they’re real financial tools? 

Mike: 100%. And we tailor them to each client. No one-size-fits-all here. It’s about understanding the business and finding opportunities others might miss. 

Bill: Appreciate the insights, Mike. 

Mike: Always a pleasure, Bill. Let’s do it again. 

Want to see what tax credits might be hiding in your business? Let’s start a conversation. 

The post MGO Stories: Thinking Outside the (Tax Credit) Box appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The One Big Beautiful Bill Act accelerates clean energy tax credit deadlines and tightens eligibility for state and local governments and Tribal nations.

• Key credits for EV fleets, charging stations, and clean power generation now require faster project timelines to qualify.

• Acting now could help your government or Tribal nation preserve access to millions in federal clean energy funding before it disappears.

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In recent years, federal incentives have made it easier for state and local government and Tribal nations to fund sustainability projects such as electric vehicle (EV) fleets, charging stations, and renewable energy power infrastructure. But many of these benefits are now expiring sooner than expected.

The One Big Beautiful Bill Act (OBBBA) accelerates the deadlines and narrows the eligibility criteria for several cornerstone energy tax credits. These changes are already affecting planning decisions for fiscal year 2025 and beyond. If you don’t take action soon, your government or Tribal nation could lose access to millions of dollars in direct federal support for clean energy projects.

From the IRA to OBBBA: How We Got Here

When Congress passed the Inflation Reduction Act (IRA) of 2022, it dramatically expanded clean energy incentives across the country. Most notably, it introduced elective pay (also called direct pay) starting with tax years beginning after December 31, 2022 — giving state and local governments and Tribal nations the ability to receive the full value of qualifying clean energy tax credits as a cash payment from the IRS even if they have no federal tax liability.

The elective pay option helped governments, Tribes, and nonprofits (tax-exempt) launch projects that previously lacked financial viability. However, with the passage of the OBBA on July 4, 2025, new restrictions are coming into play. Understanding these changes is essential if you want to stay on track — and fully capture the credits you’re eligible for.

What’s Changing — and What It Means for Your Government or Tribal Nation

Several key clean energy tax credits have been modified under the OBBBA. Here’s what’s changing and how it could affect your clean energy initiatives:

Commercial Clean Vehicle Credit (§45W)

If your government or Tribal nation is planning to transition to electric buses, trucks, or light-duty fleet vehicles, this credit likely plays a critical role in your funding model.

Previous Rule:

Credit available through December 31, 2032

OBBA Update:

Accelerated expiration — vehicles must be placed in service by September 30, 2025

Credit Value:

• Up to $7,500 per vehicle under 14,000 pounds
• Up to $40,000 per vehicle over 14,000 pounds

What This Means for You:

Fleet upgrades must be finalized soon. Procurement and delivery timelines are critical — if vehicles aren’t placed in service by the deadline, you may miss out entirely.

Alternative Fuel Infrastructure Credit (§30C)

If you’re installing EV charging stations or alternative fuel infrastructure (like hydrogen), this credit directly offsets installation costs.

Previous Rule:

Available through December 31, 2032

OBBA Update:

Accelerated expiration — equipment must be placed in service by June 30, 2026

Credit Value:

• 6% base credit, up to $100,000 per unit/port
• 30% credit when prevailing wage and apprenticeship requirements are met

What This Means for You:

If you have eligible projects in the pipeline, now is the time to accelerate timelines — ideally placing ports in service by the end of the current calendar year. This strategy could help you preserve credit eligibility.

Clean Electricity Investment and Production Credits (§48 and §48E)

These credits apply to large-scale clean energy generation projects — including solar, wind, and other qualifying technologies.

OBBA Update:

• Construction on wind and solar projects that begins by June 2026 (12 months from the passage of the OBBBA) is not subject to the accelerated placed-in-service date. These projects can be placed in service within four calendar years after the year construction begins.
• Accelerated timeline applies to wind and solar projects starting construction after June 2026. These projects must be placed in service by December 31, 2027.
• Prohibited foreign entity restrictions and material assistance applies for projects starting construction in 2026 or later, disqualifying projects with certain supply chain components.

Credit Value:

• 6% to 70% for investment credit
• Production credit varies depending on source and place-in-service date. Credit is between 0.3 cents to 2.8 cents/kWh.

What This Means for You:

Project lead times are long, especially for solar and wind. Now is the time to meet with relevant departments to identify project timelines and prioritize needs to begin construction by mid-2026. You should also assess any foreign involvement in current or planned energy projects as materials or partnerships linked to prohibited foreign entities could affect eligibility starting in 2026, and why starting construction by December 31, 2025, may be necessary for eligibility.

What You Should Do Now

These accelerated timelines mean waiting is no longer an option. To protect your ability to access elective pay and federal clean energy credits, you should:

• Engage tax and legal advisors immediately to review your current project portfolio and identify which initiatives can realistically meet the new requirements. Consider safe harbor strategies that might preserve current credit rates for projects already in development.
• Accelerate project timelines for any clean energy projects in your pipeline. Review permitting, financing, and construction schedules to ensure they align with new deadlines.
• Secure allocations and submit documentation now rather than waiting for more convenient timing. The administrative processes for these credits can be complex and time-consuming.
• Coordinate across departments to ensure your legal, tax, engineering, and procurement teams are aligned on the urgency of these changes and new timeline requirements.
• Explore transitional provisions or grandfathering opportunities that might apply to projects already in your planning pipeline.
• Stay agile with your project planning given ongoing legislative uncertainty around continued support for renewables under current terms.

Why These Changes Matter to Your Government or Tribal Nation

These credits represent not just funding — but flexibility. They make it possible to stretch your budget, pursue larger projects, and deliver visible environmental and economic benefits to your community. With federal support shifting, your ability to act decisively today will shape your portfolio for years to come. Delays now could mean leaving millions in funding on the table.

How MGO Can Help

Our team of experienced Tax Credits and Incentives professionals helps state and local governments and Tribal nations navigate the evolving clean energy tax landscape with confidence. We work closely with you to assess project eligibility, interpret the latest credit rules, and prepare the documentation required to claim elective pay. Don’t miss out on this critical funding for your government or Tribal nation — reach out to our team today.

The post New Clean Energy Credit Deadlines Are Here — Is Your Government or Tribal Nation Ready? appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The IRS has prioritized ERC enforcement — focusing on eligibility, substantiation, and promoter-prepared claims.

• Many mid-market companies are under review or unclear on their ERC position, especially for Q3 2021 (a red flag for audits).

• CFOs should proactively review ERC filings, gather documentation, and consult with advisors to manage risk and avoid penalties.

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For most companies that claimed the Employee Retention Credit (ERC), the checks have long since cleared. But now the IRS is focusing on next steps — eligibility, substantiation, and calculation accuracy. Enforcement is no longer theoretical; it’s already happening.

Thanks to extended statutes of limitations, expanded audit budgets, and a public crackdown on abuse, ERC compliance has become one of the IRS’s highest priority areas.

Why the IRS Is Taking Aim

At its peak, the ERC offered up to $26,000 per employee, making it among the most generous pandemic-era incentives. But rapid rule change, shifting eligibility rules, and aggressive third-party promoters left many claims vulnerable to scrutiny. 

This environment led the IRS to flag ERC as a “high-risk” credit and, in turn, prompted significant congressional attention. Every ERC claim from 2020–2021 — valid or not — is now within the audit scope.

The Impact of the OBBA

The One Big Beautiful Bill Act (OBBBA) has reshaped the IRS’s enforcement strategy around the ERC. Enacted on July 4, 2025, the OBBBA:

• Disallows pending ERC claims for Q3 and Q4 of 2021 if they were submitted after January 31, 2024

• Preserves eligibility for taxpayers who filed prior to that date or already received refunds

• Extends the IRS statute of limitations for ERC audits from three years to six years

• Introduces new penalties, including a 20% penalty on erroneous refund claims — a provision previously only applied to income tax

• Adds due diligence standards for ERC promoters, requiring them to substantiate eligibility and amounts or face a $1,000 penalty per failure to comply 

Importantly, professional employer organizations (PEOs) are excluded from these due diligence penalty rules. 

With these expanded enforcement tools and clear audit triggers tied to filing dates, the IRS has a more defined roadmap for which claims to prioritize — and Q3/Q4 2021 claims will likely be at the front of the line.

Where Your Peers Stand

During a recent MGO-hosted webinar with mid-market tax and finance leaders:

• ~60% said they are undergoing ERC review (internal or external)

• ~10% expect a formal audit

• ~30% reported being unsure of their current ERC status

This uncertainty is what the IRS is targeting — and it’s why companies need to revisit their filings now before the IRS does.

What the IRS Is Looking At

In early audits and soft letters, we’re seeing recurring red flags:

• Eligibility assumptions based on vague shutdowns or indirect disruptions

• Wage overlaps with Paycheck Protection Program (PPP) forgiveness, resulting in double-dipping

• Missing or incomplete documentation (e.g., health orders, employee schedules)

• Claims prepared by outsourced firms without backup or compliance support

Even if your claim is technically sound, a lack of documentation can lead to disallowance or penalties.

What Should CFOs and Tax Leaders Do Now?

Rather than waiting for an IRS inquiry, take proactive steps:

• Conduct a thorough review of ERC claims — with focus on Q3 2021

• Compile all supporting documentation (eligibility rationale, employee records, payroll data)

• Request full backup from any third-party preparers, especially if a legal review wasn’t performed

• Monitor for IRS soft letters or information documents requests (IDRs), which often precede formal audits

• Rescind your claim: If you have not received your ERC refunds or you have received your refunds and have not cashed them yet, and you are skeptical or uncomfortable with claiming the ERC, the IRS will allow you to rescind your claim for those quarters. Doing so may help you avoid penalties and interest.

Readiness isn’t just about paperwork. It’s about building a defendable position with confidence.

How MGO Can Support Your ERC Readiness

As enforcement ramps up, companies that take initial action will be best positioned to respond. Our ERC advisory professionals help clients evaluate risk exposure, gather proper documentation, and — when necessary — prepare for audit response or voluntary corrections. We work alongside CFOs, controllers, and tax teams to bring clarity and control to a complex compliance landscape.

Contact us today to schedule your ERC audit readiness review.

The post ERC Audits Are Escalating: What CFOs Need to Know appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Texas R&D tax credit rates rise to 8.722%, or 10.903% for research with universities, offering bigger returns for companies investing in innovation. 

• The franchise tax credit is now permanent, and the sales tax exemption for R&D assets will expire January 1, 2026, simplifying state tax planning. 

• Businesses with no Texas franchise tax due may now qualify for a refundable R&D credit, boosting liquidity for startups and pre-revenue firms. 

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If your business operates in Texas and conducts research and development (R&D) in biotech, manufacturing, or technology, there’s a new opportunity to improve your tax position. S.B. 2206, signed into law on June 17, 2025, overhauls the Texas R&D tax incentive program, ultimately raising credit rates, aligning with federal standards, and introducing the potential for refundable credits, even if your company owes no franchise tax. 

This article outlines the key updates, how they impact your operations, and what strategic steps your team can take to maximize the enhanced R&D tax credit in Texas. 

Background: Why This Matters Now 

Texas aims to stay competitive as a national leader in innovation. Sectors like biotech, technology, life sciences, and advanced manufacturing are driving job creation and economic growth. The newly passed S.B. 2206 positions the state’s R&D tax framework to better support these industries with more predictable, flexible, and valuable incentives. 

Previously, businesses had to choose between a franchise tax credit and a sales tax exemption under Section 151.3182 of the Texas Tax Code. As of January 1, 2026, that sales tax exemption will be repealed, streamlining options and focusing support through an improved R&D franchise tax credit. 

What’s New in the Texas R&D Tax Credit? 

1. A Permanent Franchise Tax Credit – The Texas R&D tax credit is no longer set to expire. Your business can now rely on this long-term tax incentive for ongoing innovation and strategic planning. 

2. Higher Credit Rates -Texas-based businesses can now claim: 

• 8.722% of qualified research expenses (QREs), up from 5% 

• 10.903% for research conducted in partnership with a Texas higher education institution 

This creates a strong incentive for industry-academic collaboration in Texas. 

3. Federal Alignment with Form 6765 -Texas’s definition of “qualified research expenses” now matches the federal standard under IRS Form 6765. If your company is already claiming the federal R&D credit, aligning your Texas claims will be easier and more consistent. Learn more about federal R&D credits. 

4. Refund Potential for Zero-Tax Businesses – A major win for startups and pre-revenue firms: if your business owes no Texas franchise tax, you may still be eligible for a refundable R&D credit — a significant improvement that enhances cash flow and makes early-stage innovation more viable. 

5. Sales Tax Exemption Phase-Out -The current sales and use tax exemption for R&D property (Section 151.3182) will sunset on January 1, 2026. From that date forward, businesses will only use the franchise tax credit path, removing the need to choose between two conflicting benefits. 

What It Means for Your Texas Business 

Whether you’re a CFO at a tech startup, a tax leader in a life sciences company, or running operations for a mid-market manufacturer, these changes directly affect your 2025 and 2026 tax strategies. 

• Biotech firms working with Texas universities can earn a higher credit and gain access to academic IP, talent, and lab facilities. 

• Manufacturers modernizing production processes may find simplified rules improve ROI on automation and product improvements. 

What You Should Do Now 

• Reevaluate your R&D activities to identify additional expenses eligible for the Texas credit under the new definition. 

• Model scenarios using both current and post-2026 rules to optimize credit use in light of the sales tax exemption repeal. 

• Explore partnerships with Texas universities or colleges to unlock the higher 10.903% rate. 

• Work with your tax advisor or our team to ensure your federal and Texas filings align efficiently and maximize credit potential. 

MGO Provides Support for Navigating Texas’s R&D Tax Changes 

MGO supports mid-market companies across sectors in navigating complex state and federal R&D tax credit programs. Our team delivers targeted tax consulting and compliance support, from identifying qualified research activities to managing multi-state credit opportunities and preparing for audits. We also advise on refundable credit strategies, particularly relevant under the updated Texas franchise tax credit framework.  

With deep knowledge of Texas-specific tax law, our professionals can help you assess eligibility, document expenses, and fine-tune claims across both the federal and state levels. Contact us to discuss how your business can take advantage of the enhanced Texas R&D tax credit and improve your overall tax position. 

The post Unlock Bigger R&D Tax Credits for Your Texas Business  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• 100% bonus depreciation is back, and real estate owners and developers should act quickly to maximize deductions based on timing and qualified property use.

• Permanent Section 199A and 163(j) changes offer increased planning certainty and expanded benefits for REITs and other real estate businesses.

• New rules for residential condo developers and REIT subsidiaries provide you with targeted relief and flexibility, but only for contracts and tax years moving forward.

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The reconciliation tax bill signed into law by President Trump on July 4 sets out sweeping tax changes, with many provisions of interest to the real estate industry. This Alert highlights the most important changes for the industry to focus on in tax planning.

With the legislation now final and generally in effect, taxpayers in the real estate industry should evaluate the implications of the new legislation for their business and work with tax advisors to assess the impact of the provisions, especially those noted below, and identify planning opportunities and challenges.

Bonus Depreciation

The legislation permanently restores 100% bonus depreciation for property acquired and placed in service after January 19, 2025, for which there was no written binding agreement in effect before January 20, 2025. It also creates a new elective 100% depreciation allowance under Section 168(n) for any portion of nonresidential real property that is considered “qualified production property” (the QPP election). The QPP election is available if construction on the property began after January 19, 2025, and before January 1, 2029, and the property is placed in service by the end of 2030.

A qualified production activity includes the manufacturing of tangible personal property, agricultural production, chemical production, or refining. Qualified production property does not include property located outside the U.S. or U.S. possessions or any portion of building property that is used for offices, administrative services, lodging, parking, sales activities, research activities, software engineering activities, or other functions unrelated to qualified production activities. Property with respect to which the taxpayer is a lessor is not considered to be used by the taxpayer as part of a qualified production activity even if the property is used by a lessee in a qualified production activity.

There is an exception from the original use requirement if acquired property was not used in a qualified production activity between January 1, 2021, and May 12, 2025. Special recapture rules apply if the property is disposed of within 10 years after it is placed in service.

Insights

The restoration of 100% bonus depreciation is a welcome provision of the new legislation.  Qualified improvement property will continue to qualify for bonus depreciation, as will land improvements and other MACRS recovery property with a recovery period of 20 years or less. The placed-in-service date will be important, as property placed in service in 2024 will qualify only for 60% bonus depreciation and property placed in service between January 1, 2025, and January 19, 2025, will qualify only for 40% bonus depreciation.

Additionally, allowing producers, refiners, and manufacturers to fully expense buildings rather than depreciate them over 39 or 15 years is a substantial benefit. The definition of “production” will be important, and generally requires “a substantial transformation of the property comprising the product.” Taxpayers with buildings that house both qualified production activities and other administrative, office, or research functions will also likely need to perform an analysis to allocate costs between functions.

Section 199A

The legislation makes permanent the 20% deduction for qualified business income under Section 199A and favorably adjusts the phaseout of the deduction for taxpayers who do not meet the wage expense and capital investment requirements or who participate in a “specified service trade or business.”

Insights

The permanency of this provision provides welcome certainty for real estate investment trusts (REITs) and other real estate businesses. The safe harbor for rental activity to qualify as a Section 199A trade or business under Rev. Proc. 2019-38 remains in effect.

Section 163(j) Interest Deduction Limit

The legislation permanently restores the exclusion of amortization, depreciation, and depletion deductions from the calculation of adjusted taxable income for purposes of Section 163(j), which generally limits interest deductions to 30% of adjusted taxable income. The change is effective for tax years beginning after 2024.

Insights

This provision should allow many taxpayers in the real estate industry to reduce or eliminate their Section 163(j) interest expense limitation without making a real property trade or business election, which will preserve their ability to take bonus depreciation on qualified leasehold improvement property.

Taxable REIT Subsidiary Asset Test

The legislation raises from 20% to 25% the portion of the gross asset value of a REIT that may be attributable to equity and debt securities of taxable REIT subsidiaries, effective for tax years beginning after 2025.

High-Rise Residential Condominium Development, Construction and Sale

The legislation allows the completed contract method of accounting for many residential condominium, construction, and sale projects, effective for contracts entered into after July 4, 2025. For residential developers meeting the average annual gross receipts test under Section 448 ($31 million in 2025), the maximum estimated contract length is increased from two years to three years to qualify for the exception from the UNICAP rules under Section 263A.

Insights

This provision provides much needed tax relief to condo developers who often had to report income under the percentage of completion method, which often required the reporting of income before receiving payment. Allowing the use of the completed contract method of accounting allows better matching of reporting taxable income with the receipt of cash by the developer.

Unfortunately, the relief is provided prospectively, only for contracts entered into after the July 4, 2025, enactment date.  Therefore, taxpayers with contracts entered into prior to the enactment date will continue to be subject to the old rules. Moreover, reporting income for projects begun in prior years may be bound to the prior method of accounting.

SALT Cap

The legislation makes the state and local tax (SALT) cap permanent while raising the threshold for 2025-2029 before reverting to $10,000 in 2030. The cap is increased to $40,000 for 2025 but phases down to $10,000 once income exceeds $500,000. Both thresholds will increase by 1% for each year through 2029. The final version of the legislation does not include the provision in the earlier House bill that would have shut down taxpayers’ ability to use pass-through entity tax regimes to circumvent the SALT cap.

Other Important Provisions and Notable Omissions

There are many other significant changes in the legislation. Of particular interest to the real estate industry, the legislation:

• Makes permanent the qualified opportunity zone program, including the deferral of capital gains through investments in a qualified opportunity fund, and updates the rules for investments made after 2026; current QOZ designations will expire early at the end of 2026.
• Phases out many Inflation Reduction Act energy credits early and imposes new sourcing restrictions.
• Repeals the deduction for energy efficient improvements to commercial buildings under Section 179D for property beginning construction after June 30, 2026.
• Makes permanent the increases to the low-income housing tax credit.
• Makes permanent the new markets tax credit.

In addition, there were several provisions under discussion that would have affected the real estate industry but that were not ultimately included in the final legislation. The final legislation:

• Does not include the “revenge tax” or “retaliatory tax” under proposed new Section 899, which had been included in the initial House-passed version of the bill and would have increased tax and withholding rates on taxpayers resident in countries imposing “unfair foreign taxes.”
• Does not include a provision included in the earlier House bill that would have required disallowed losses to remain subject to the Section 461(l) active loss limitation in future carryover years.
• Does not eliminate the carried interest “loophole,” despite President Trump having expressed support for such a provision.
• Does not include a limit on state and local tax deductions for businesses.

For a broad discussion of the provisions in the legislation, see BDO’s Tax Alert, “Republicans Complete Sweeping Reconciliation Bill,” and Comparison Chart of Key Provisions in the 2025 Tax Legislation.

How MGO Can Help

Navigating the sweeping tax changes in this new legislation requires more than a surface-level understanding. It calls for strategic foresight, detailed analysis, and expert guidance. At MGO, our real estate tax professionals are here to help you assess the impact of these new rules, strengthen your tax positions, and uncover planning opportunities tailored to your portfolio or operations. Whether you’re a REIT, developer, investor, or owner-operator, we’re ready to provide clarity, confidence, and customized strategies to help you thrive under the new tax landscape. Contact us to learn more.

Written by Julie Robins and Robert Schachat. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com

The post New Tax Law Includes Numerous Provisions Affecting Real Estate Industry appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Energy tax credits like §45W and §30C face 2025/2026 phaseouts, placing urgency on electric vehicle (EV) and charging station timelines for businesses planning capital expenditures.

• Many mid-market companies haven’t aligned project timelines with placed-in-service deadlines, risking partial or lost clean energy credits.

• Wage rules, documentation, and foreign-sourcing bans can disqualify credits — early compliance checks help preserve full tax benefit.

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For many businesses, the Inflation Reduction Act (IRA) was a green light to pursue electric vehicles, charging infrastructure, and other sustainable projects — backed by strong federal tax incentives. But in 2025, the rules have changed. And companies that haven’t adapted to new deadlines and eligibility requirements may leave valuable credits behind.

Tax provisions like §45W and §30C — which offer up to $7,500/$40,000 per EV and $100,000 per charging port — remain available. But with stricter placed-in-service timelines, prevailing wage requirements, and supply chain sourcing restrictions now in effect, the process has grown more complex.

At MGO, we’ve seen a growing sense of urgency among tax leaders and CFOs looking to retain the full value of these incentives. The common thread? It’s not enough to start building — you need to verify that your timeline, documentation, and sourcing all meet current standards.

What’s Changing — and Why It Matters

Businesses investing in clean energy may qualify for:

• §45W Commercial Clean Vehicle Credit: Up to $7,500 per eligible EV under 14,000 pounds (cars, vans, trucks, etc.) and up to $40,000 per eligible EV over 14,000 pounds (school buses, semi-trucks, etc.)

• §30C Alternative Fuel Infrastructure Credit: Up to $100,000 per qualified charging port

• § 48 (Pre-2025) Investment Tax Credit for Energy Property/§ 48E Clean Electricity Investment Tax Credit: 6% of qualified investment increased to 30% if a taxpayer meets prevailing wage and apprenticeship requirements or exceptions. Eligible to be transferred to an unrelated taxpayer.

But, beginning in 2025, these credits are affected by key IRS updates. Most notably:

• Credits are tied more strictly to placed-in-service deadlines

• For EVs, the deadline to place in service is September 30, 2025

• For charging ports, the deadline to place in service is June 30, 2026

• For wind and solar, allowed to be placed in service in four calendar years if construction occurs prior to June 30, 2026; if not, then deadline is December 31, 2027

• Bonus credits now require detailed compliance with wage and apprenticeship standards

• The foreign entity of concern rule may limit credit access based on component sourcing, particularly for EV batteries

In short, technical compliance now carries real financial consequences. Projects that would have qualified two years ago may fall short today — even if the investment itself hasn’t changed.

Where CFOs Stand on Readiness

During a recent MGO webinar, we asked mid-market tax leaders how ready they felt for the upcoming shift. Their responses reflected a common trend:

• 40% said they were not prepared

• 30% were somewhat prepared

• Only 5% were fully prepared

• 25% said it was not applicable to their business

This signals a significant planning gap. Despite rising investment in electric fleets and infrastructure, many companies haven’t realigned their tax strategy to fit the changing requirements. Without that alignment, even well-intentioned efforts can lose value.

Key Areas Where Companies Face Risk

Several issues have emerged as common barriers to full credit access:

• Project delays that affect placed-in-service eligibility

• Inconsistent wage documentation that disrupts bonus credit calculations

• Foreign-sourced components that invalidate certain credits

• Disconnection between tax and operations, leading to missed planning windows

As these rules evolve, companies that aren’t regularly reviewing their compliance posture may struggle to capture the full benefits — or may face clawbacks if later audited.

Planning Priorities for 2025

To prepare for the upcoming changes and protect your tax position, MGO recommends focusing on four core actions:

1. Check Placed-in-Service Schedules 

Review your project timelines to confirm that EVs, chargers, or facilities will be operational before IRS deadlines. Delays — even short ones — can affect eligibility. 

2. Coordinate with Tax Early

Bring your tax team into capital expenditure planning discussions to evaluate credit exposure and prioritize projects with the most favorable timelines and tax treatment.

3. Review Wage and Sourcing Documentation

Work closely with contractors and procurement teams to track wage compliance and verify sourcing for battery or component parts.

4. Run Credit Risk Scenarios 

Model potential loss of credits based on current projections, and adjust project sequencing or vendors accordingly to maintain incentive value.

How MGO Supports Clean Energy Credit Planning

MGO works with businesses across industries to evaluate, strengthen, and align your approach to energy tax incentives. Our teams help assess eligibility, document compliance, and provide the analysis you need to make informed decisions — especially as 2025/2026 deadlines draw closer.

If your organization is investing in EVs, charging stations, or energy property, now is the time to revisit how those projects connect to your tax strategy. Reach out to our Tax Credits and Incentives team today for support.

The post Clean Energy Tax Credits: 2025 Deadlines and Strategy appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Immediate R&D expensing may return in 2025, but many companies haven’t modeled the impact or updated their budgets to reflect the change.

• Heightened IRS scrutiny of the Employee Retention Credit is prompting CFOs to audit past claims and tighten documentation to avoid penalties.

• Accelerated clean energy credit deadlines are forcing businesses to fast-track investments and project timelines to maximize available incentives.

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The 2025 tax landscape is shifting dramatically — and mid-market CFOs and tax leaders are being forced to rethink their planning in real time. In a recent webinar hosted by MGO, hundreds of finance professionals weighed in on how three major areas are impacting their strategy: Section 174 research and development (R&D) treatment, IRS enforcement around the Employee Retention Credit (ERC), and the accelerated rollback of clean energy tax credits.

Here’s what your peers are saying — and what you should be doing now to stay ahead:

Key Insight #1: Section 174 Relief Is Coming — But Not Everyone Is Ready

Takeaway:

The upcoming allowance for immediate expensing of domestic R&D starting in 2025 offers cash flow relief. Yet many companies still haven’t modeled the impact — or taken advantage of transition-year elections.

Action items:

• Model multi-year R&D tax savings now

• Explore amending 2022–2024 returns under new rules

• Build R&D forecasting into 2025–2026 budgeting

Key Insight #2: ERC Enforcement Concerns Are Rising

Takeaway:
With expanded penalties, longer statutes of limitation, and uncapped promoter fines, the IRS is sending a clear message: ERC compliance is a top audit priority.

Action items:

• Conduct an internal audit of any ERC claims

• Review Q3 2021 filings for risk exposure

• Tighten documentation — especially for eligibility support

• Monitor communications from IRS for pre-audit activity

Key Insight #3: Clean Energy Credit Deadlines Require Immediate Action

Takeaway:
New end dates for §45W and §30C credits create urgency around construction, delivery, and placed-in-service deadlines. Many companies still haven’t adjusted timelines to capture full benefits.

Action items:

• Accelerate capital expenditure for EVs and charging infrastructure

• Confirm placed-in-service dates for Q3 and Q4 2025

• Consider design changes to meet prevailing wage rules

• Review supply chain for prohibited foreign entity risks

Proactive Beats Reactive in a Shifting Tax Environment

The 2025 tax landscape is a moving target, but that doesn’t mean you need to wait in limbo. CFOs and tax leaders who act early — by reassessing R&D strategies, auditing ERC positions, and accelerating energy investments — stand to gain the most. With cash flow, compliance, and credit all on the line, now is the moment to turn insights into action. Whether you’re facing uncertainty or opportunity, a proactive approach will help you lead with confidence and clarity in the year ahead.

How MGO Can Help

Our Credits and Incentives team is here to guide you through the complexities of today’s evolving tax environment. We can help your organization identify, model, and unlock tax-saving opportunities across R&D, clean energy, and other federal and state credit programs. Reach out to our team today to see how we can support your success in 2025 and beyond.

The post R&D, ERC, and Energy Credits: What 2025 Tax Reform Means for You appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• OBBBA has expanded excise taxes on compensation and endowment income for tax-exempt entities. 

• Charitable contribution rules now include new deduction floors and reinstated nonitemizer deductions. 

• Clean energy credit limits and “direct pay” changes could impact your project funding timelines. 

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President Donald Trump signed into law a sweeping reconciliation tax bill, commonly known as the “One Big Beautiful Bill Act” (OBBBA) at a July 4 signing ceremony, capping a furious sprint to finish the legislation before a self-imposed Independence Day holiday deadline. The Senate had approved the bill in a 51-50 vote on July 1 after making a number of last-minute changes following intense bicameral negotiations. The House then voted 218- 214 on July 3 to send the bill to the president’s desk. 

With the legislation now final, tax-exempt organizations should focus on assessing its impact and identifying planning opportunities and challenges. The OBBBA introduces both tax cuts and tax increases that would affect nearly all businesses and investors. The Joint Committee on Taxation (JCT) scored the bill as a net tax cut of $4.5 trillion over 10 years using traditional scoring. Under the current policy baseline the Senate used for purposes of the reconciliation rules, that cost drops to just $715 billion. The Senate scored the provisions against a baseline that assumes temporary provisions have already been extended, essentially wiping out the cost of extending the tax cuts in the Tax Cuts and Jobs Act (TCJA). 

Several areas of the final bill have tax implications for tax-exempt organizations, summarized below. 

Section 4960 Excise Tax on “Excess” Compensation 

The OBBBA expanded the group of individuals covered by the Section 4960 excise tax on compensation over $1 million paid by certain tax-exempt organizations. Under the act, all employees and former employees of the organization are now subject to Section 4960, not just the top five highly compensated employees in the current year or prior years. The final bill kept the language in Section 4960 that limits the group of individuals covered to those who were employees of the organization during taxable years beginning after December 31, 2016. The amendment to Section 4960 will apply to tax years beginning after December 31, 2025.  

Takeaway 

• This provision will have a significant impact on tax-exempt organizations that pay more than $1 million in remuneration to more than five individuals or provide certain severance payments to an employee (even one earning significantly less than $1 million). 

• Tax-exempt organizations should begin to look at future planning opportunities in structuring compensation, severance, and retirement agreements to mitigate the impact of the expansion of the scope of individuals covered under Section 4960. 

• The exceptions for licensed medical professionals providing medical services and non-highly compensated employees as defined under Section 414 remain available.   

Section 4968 Excise Tax “Endowment Tax” 

The OBBBA will have a significant impact on the excise tax imposed on net investment income of applicable education institutions under Section 4968. Under prior law, the excise tax rate was calculated using a flat 1.4% rate. The OBBBA increases the rate, utilizing a new tiered structure. For applicable institutions with student adjusted endowments: 

• Over $500,000 but not exceeding $750,000, the rate remains at 1.4% 

• Over $750,000 but not exceeding $2,000,000, the rate is increased to 4% 

• Over $2,000,000, the rate is increased to 8% 
   

For purposes of Section 4968, “student adjusted endowment” is the aggregate fair market value of the institution’s assets (as determined at the end of the preceding taxable year), other than assets that are used directly in carrying out the institution’s exempt purpose, divided by the number of students at the institution. The original House bill included a provision that would have excluded foreign students from the total number of students, but that provision was removed from the final version of the act. 

The OBBBA also updated the definition of applicable educational institution to exempt institutions with fewer than 3,000 tuition-paying students in the preceding tax year. This amount was increased from 500 tuition-paying students prior to the act.   

The OBBBA also requires institutions to include student loan interest from a loan made by the institution (and any related organization) and federally subsidized royalty income as gross investment income. This amendment overrides the existing regulations under Section 4968. 

The amendment to Section 4968 will apply to tax years beginning after December 31, 2025.  

The OBBBA will have a significant impact on institutions with the largest per-student endowments; however, the rates are lower than those in President Trump’s original proposal — 35% — and the original House bill, which included tiered rates of 1.4%, 7%, 14%, and 21%. 

Takeaway 

The increase in the tuition-paying student threshold from 500 to 3,000 is a positive change that will decrease the number of institutions subject to the tax, specifically those with a relatively small number of tuition-paying students. 

Educational institutions will need to closely monitor their enrollment and assets, as small fluctuations in the student-adjusted endowment may have a significant impact on the institution’s tax rate in the new tiered rate structure.  

Institutions that will face a significantly higher tax rate beginning in 2026 may want to consider reverse planning strategies to recognize income before the change takes effect.  

For purposes of this section, the assets and investment income of any related organization are treated as assets and net investment income of the educational institution; therefore, it is important to closely monitor and coordinate any activities of related organizations to anticipate and reduce potential tax exposure. 

The OBBBA also directs the Secretary of the Treasury to issue regulations and other guidance necessary to prevent avoidance of tax under this section. 

Direct Pay and Energy Credits 

The OBBBA retained the “direct pay” mechanism under Section 6417 for tax-exempt organizations and state, local, and tribal governmental entities. The direct pay (or elective pay) process allows the entities described above to receive a cash payment for clean energy tax credits they qualify for but are unable to use due to the entities having no tax liability.  However, the act curtailed and eliminated many of the clean energy credits.  

Here is a brief summary of some of the key clean energy credits impacted by the OBBBA: 

• The alternative fuel vehicle refueling property credit (Section 30C), which includes EV chargers, is not available for property placed in service after June 30, 2026. 

• The qualified commercial clean vehicle credit (Section 45W), for which no credit is available with respect to vehicles acquired after September 30, 2025.  

• The technology-neutral clean electricity investment credit (Section 48E) for certain wind and solar facilities is terminated for property that does not begin construction within one year of enactment (by July 4, 2026) or is not placed in service by December 31, 2027. For other facilities, and for energy storage (battery) technology, the current credit phaseouts that begin in 2032 generally apply (although the potential for a later phaseout was eliminated).  

• Revisions to the Section 48E clean electricity investment credit include higher phased-in domestic content requirements and new material assistance restrictions for projects sourcing from certain Chinese supplies and other foreign entities of concern (for projects beginning construction after 2025). However, the revisions contain no provision accelerating the phaseout of the investment tax credit available for geothermal energy property under Section 48, as the House bill proposed.  

• The transferable deduction for installation of certain energy-efficient property in buildings owned by certain government or tax-exempt entities (Section 179D) is no longer available for property beginning construction after June 30, 2026. 

Takeaway 

Tax-exempt organizations with planned clean energy projects should quickly assess their eligibility under the new restrictions and timelines. The ability to receive direct refundable credits has made energy projects more economically compelling for many tax-exempt organizations, and it may be prudent to accelerate some activity to avoid new restrictions or phaseouts. 

Employee Retention Tax Credit      

The bill makes several changes to the employee retention credit (ERC), including: 

• Barring ERC refunds after the date of enactment for claims filed after January 31, 2024; 

• Extending the statute of limitations on ERC claims to six years; and 

• Increasing preparer and promoter penalties on ERC claims.  

Takeaway 

The provision presumably will affect only refund claims that have not been paid by the IRS. The legislative language provides that no credit or refund “shall be allowed or made after the date of enactment” unless the claim was filed on or before January 31, 2024. The IRS had been slow to process claims, perhaps in anticipation of this provision, which had been included in a failed 2024 tax extenders bill. The provision is now estimated to raise only $1.6 billion, much less than the $77 billion estimated under the 2024 version. The difference may be the result of refunds that have already been paid, although it remains unclear how fast the IRS is processing claims filed after January 31, 2024. 

Corporate and Individual Charitable Contributions 

Corporations 

1.0% Floor on Charitable Contributions Deduction 

The OBBBA amends Section 170(b)(2)(A) to permit corporations to claim a charitable contribution deduction only to the extent it exceeds 1% of taxable income (up to the current 10% cap).   Excess contributions as well as contributions disallowed by the 1% floor can be carried forward for up to five years. However, if the aggregate corporate charitable contributions do not exceed 10% of taxable income, there will be no carryforward of charitable contributions disallowed due to the 1% floor.  

Individuals 

0.5% Floor on Charitable Contributions Deduction 

The OBBBA amends Section 170(b)(1) to allow individuals to claim a charitable contribution deduction only if all of the contributions exceed 0.5% of the individuals’ adjusted gross income (AGI). The act did not change current percentage limitations (related to type of contribution or organization that receives the contribution), but it does create a new limit on the value of itemized deductions that will affect charitable contributions. The value of itemized deductions is essentially capped so that the maximum benefit achievable is equivalent to offsetting income taxed at a top rate of 35%, rather than at the higher individual marginal rate of 37%. For individuals in the top bracket, this in effect creates a 2% tax on charitable deductions that would otherwise offset income at the 37% rate. 

Any excess charitable contributions, along with the contributions disallowed by the 0.5% floor, can be carried forward for five years. If an individual’s total contributions do not result in a carryover amount, there is no carryover of contributions disallowed due to the 0.5% floor.   

60% Limitation on Individual Charitable Contribution Deductions 

The OBBBA makes the current 60% deduction limitation of AGI permanent for charitable contributions of cash made by individuals to public charities (as well as certain private foundations as defined in Section 170(b)(1) (F)). This limitation was originally enacted as part of the Tax Cuts and Jobs Act (TCJA) and would have expired at the end of 2025. The act also amends the application of the 60% limit. This amendment appears to potentially allow individuals to deduct up to 60% of AGI even if they make total cash contributions to public charities that are less than 60% of AGI and also make charitable contributions of noncash property to eligible donees that are not public charities.  

Reinstatement of Partial Charitable Contribution Deduction for Nonitemizer Individuals 

The OBBBA amends and permanently reinstates the partial deduction for charitable contributions for individuals who do not itemize deductions on their individual tax returns. The maximum amount is increased to $2,000 for married filing jointly taxpayers and $1,000 for all other taxpayers. The deduction is available only for cash contributions made to certain charitable organizations. It does not include noncash contributions, contributions made to donor-advised funds, supporting organizations, and to most types of private foundations.  

All changes for both corporations and individuals are effective for tax years beginning after December 31, 2025.  

Takeaway 

The OBBBA includes both favorable and unfavorable provisions impacting charitable contributions.  The provisions may have funding implications for tax-exempt organizations that rely on contributions. 

Corporate contributions were previously capped at 10% of taxable income but the OBBBA includes a 1% floor that limits the deductibility of corporation contributions. This floor could result in a reduction in corporate contributions received.   

Individual contributors will be limited to amounts exceeding a .5% floor, which may result in an overall reduction in contributions from individual donors, with the potential to impact funding for tax-exempt organizations that rely on contributions.   

The reinstatement of the partial deduction for individuals that do not itemize and increases the maximum contribution amounts may result in increased charitable contributions from individuals that do not meet the threshold to itemize on their personal returns. 

Tax-exempt organizations should consider how these changes will impact their donor base and ultimately the total funding received from corporate and individual contributors. The available tax deduction for nonitemizers may entice taxpayers to make charitable contributions that they had not previously made, potentially providing additional funding to tax-exempt organizations. 

Tax Credit for Contributions to Scholarship-Granting Organizations 

The OBBBA allows a credit for contributions by individuals to a scholarship-granting organization. A scholarship-granting organization is a Section 501(c)(3) organization, excluding private foundations, that provides scholarships to 10 or more students, spends at least 90% of its income on scholarships for eligible students, and limits scholarships to qualified elementary or secondary education expenses. Scholarship-granting organizations must be identified to the Secretary of the Treasury by a participating state in an annual listing (issued by January 1). Eligible students include a member of a household with income that is not greater than 300% of area median gross income and is eligible to enroll in a public elementary or secondary school. The maximum credit for any tax year shall not exceed $1,700 (with a carryover period limited to five years) and must be reduced for any state tax credit received. To avoid a double benefit, no charitable contribution deduction is allowed for amounts claimed as a credit under this provision. 

Scholarships for qualified elementary or secondary education expenses will not be included in the scholarship recipient’s gross income. 

This provision is effective for tax years beginning after December 31, 2026.  

Takeaway 

The potential benefits of this provision may be limited depending on whether states voluntarily elect to participate in this program. This election must be made by the governor of the state or by an individual, agency, or entity designated under state law to make such elections on behalf of the state with respect to federal benefits. The burden is on the states to determine that scholarship-granting organizations meet the requirements described in this section. Each participating state must release a list of qualified organizations no later than January 1 of each year. 

Increase in State and Local Tax (SALT) Cap for Individuals 

The OBBBA provides a temporary increase in the cap on deducting SALT as itemized deductions.  The act temporarily increases the SALT cap to $40,000 (for married filing jointly taxpayers) beginning in 2025, with subsequent annual increases of 1% for tax years 2026 through 2029.  The SALT cap is reduced by 50% for filers other than married filing jointly. Beginning in 2030, this SALT cap will revert to $10,000.  For tax year 2025, the increased SALT cap begins to phase out when modified AGI exceeds $500,000 for married filing jointly taxpayers, with a 50% reduction for other filers. This phaseout amount increases 1% annually after 2025. The allowable SALT deduction amount will not result in a limitation amount of less than $10,000. 

Takeaway 

This provision will benefit individuals residing in states with high state taxes and will result in an increase in the overall number of taxpayers eligible to itemize on their personal tax returns. This may indirectly benefit tax-exempt organizations by enticing taxpayers to make charitable contributions, which would be more likely to result in a tax benefit.  

Next Steps 

The Act includes a limited number of provisions that will directly impact tax-exempt organizations and many others that will indirectly impact these organizations. Additionally, the Medicaid provisions included in the OBBBA may present challenges to tax-exempt organizations in the healthcare sector.   

While many of the OBBBA’s provisions will negatively impact tax-exempt organizations, it is important to recognize that many of the proposals included in the original House bill but struck from the final package would have had a more negative impact on the nonprofit sector. These include the potential revocation of tax-exempt status based on an organization’s support for terrorist organizations, increased excise tax rates for private foundations, the treatment of qualified transportation fringe benefits as unrelated business income, stricter rules for exemption of research income from unrelated business income, and the inclusion of name and logo royalties in unrelated business income.   

Tax-exempt entities should assess the impact of the changes that did survive and consider mitigation strategies.  

Written by Jake Cook, Sandra Feinsmith and Todd Teresco. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

Helping Tax-Exempt Organizations Navigate New Tax Complexities 

At MGO, we help nonprofits, foundations, and educational institutions proactively respond to regulatory changes like those in the OBBBA. From expanded excise taxes to revised charitable contribution rules and curtailed energy credits, these updates present both risks and opportunities for exempt organizations. Our team offers tailored support in compensation structuring, donor impact analysis, tax credit optimization, and compliance strategy — so you can focus on your mission while we handle the shifting tax landscape. Contact us to learn more.  

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