• The new tax bill introduces a graded holding period for QSBS, with gain exclusions based on how long shares are held.

• The fixed gain exclusion under Section 1202 increases from $10 million to $15 million for qualifying shares issued after July 4, 2025.

• The asset cap for calculating the 10X adjusted basis exclusion rises from $50 million to $75 million, expanding potential gain exclusions for shareholders.

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The One Big Beautiful Bill Act, signed into law July 4, 2025, makes three significant changes to Section 1202. These changes affect the five-year holding period required and the amounts of gain exclusion under the law.

Here are answers to frequently asked questions about these changes:

How was the holding period requirement revised?

Under prior law — and for qualified small business stock (QSBS) shares prior to the Act taxpayers must hold QSBS shares for five years from the date of issue for any gain exclusion which is 100%.

For QSBS shares issued after the date of the new law, there is a so-called “graded” holding period. Thus, if you hold shares for three years from the date of issue, the gain exclusion is 50%. If four years from the date of issue, the gain exclusion is 75%. If shares are held for five years, which is consistent with prior law, the gain exclusion is the longstanding 100%.

This change affects both the holding period and the amount of gain excluded depending on the applicable holding period achieved.

Has the gain exclusion increased under the new law?

Yes, Section 1202 gain exclusion is based upon the greater of (a) $10 million (the “fixed” amount) or (b) 10 times adjusted basis in the qualifying QSBS shares (the “10X” amount). The new law makes changes to both elements of this gain exclusion calculation.

What is the change to the $10 million exclusion?

For qualifying shares issued after the enactment date of the new law, the “fixed” gain exclusion amount is now $15 million. Further, this $15 million amount is indexed for inflation for years beginning after 2026.

What is the change to the 10X adjusted basis gain exclusion?

The 10X exclusion provision involves the fair market value of the QSBS corporation’s assets at the time it issues qualifying shares. If the assets at this date are valued at, hypothetically, $27 million, then the 10X adjusted basis element yields an aggregate gain exclusion of $270 million for all shareholders.

Existing law was based on an asset cap of $50 million. The new law increases that cap to $75 million. Thus, hypothetically, if a corporation had an asset valuation upon conversion after the passage of the new law of $69 million, the aggregate gain exclusion for shareholders would be $690 million. This example reflects an increase in total gain exclusion by $190M over the prior maximum exclusion of $500M.

Like the $15 million element of gain exclusion, this asset provision is also indexed for inflation for years after 2026.

What New Section 1202 Changes Mean for You

These increases in gain exclusion expand the number of eligible entities that may consider a 1202 conversion. The increases also offer a significant expansion of the basic gain exclusion and continued adjustment upwards due to inflation indexing.

These are positive changes for development stage enterprises, the capital allocation flowing to them, and the entrepreneurs and investors involved in such businesses.

How MGO Can Help

Understanding the new Section 1202 rules is key to accessing available tax benefits — especially as you plan for growth, fundraising, or a future exit. Our tax professionals can help you assess eligibility under the revised law, develop documentation strategies, and prepare for investor reviews, audits, or transactions. Contact us today to learn how we can support your goals.

The post New Tax Act Changes to Qualified Small Business Stock Under Section 1202 appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• High-net-worth individuals often have multiple income streams and need to coordinate tax strategies across entity types and asset classes.

• The proper structuring of investments can often have a significant positive impact on the economic gain realized.

• Start to plan at least 18 to 24 months before the sale of a closely held business to ensure proper structure, boost business valuation, and improve after-tax outcomes.

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You’ve built significant wealth. As a result, taxes have become more than just a line item in your budget — they’re a force that can quietly erode your returns, complicate your business exit, and reshape your legacy.

Fortunately, you have a window of opportunity to take control. Proactive tax planning can help you align today’s strategies with tomorrow’s vision — whether you’re juggling multiple businesses, eyeing a potential sale of an investment, or preparing to transition out of your company.

This article examines how to approach tax planning to maximize your earnings and stay ahead as tax laws shift.

Understanding the Tax Implications of Different Income Streams

The average high-net-worth individual typically has around seven income streams. These can include salaries and wages, pensions and annuities, interest, dividends, capital gains, rental and royalties, business profits, and more.

Each type of income can face different tax rules and rates — which makes planning across all sources critical.

For example, you might defer income into years where your marginal rate is lower (such as in retirement or during a gap year after a business sale), accelerate deductions in high-income years to offset earnings, or swap investment property using a 1031 like-kind exchange to defer recognition of capital gains.

Strategically harvesting investment losses can also help manage bracket thresholds and your exposure to the net investment income tax (NIIT).

Also, consider how you generate income through various entities. Sometimes, an investment’s structure can have a greater impact on tax outcomes than the investment itself.

For example, at the federal level, income from a C corporation is taxed at both the corporate (21%) and shareholder levels (up to 23.8% on dividends), resulting in effective tax rates that leave less than half of earnings in your control once you layer in state taxes. In contrast, S corporations and other passthrough structures may offer favorable pass-through treatment and qualify for a QBI deduction (20% of the business income).

Planning for Business Exits with Taxes in Mind

Selling a closely held business may be a once-in-a-lifetime event. The company may make up a large portion of your net worth and, with so much at stake, the tax treatment of the sale can dramatically alter the outcome.

We recommend that business owners start preparing for a sale at least 18 to 24 months in advance. But even if a sale isn’t on the immediate horizon, business owners should operate as though the company is always “for sale”. Opportunities often arise unexpectedly and financials that aren’t sale-ready can delay or derail a deal. Minimize all working capital kept in the business for at least the year preceding a sale. You will not be paid any more money for a business with a ton of working capital versus the minimum.

A knowledgeable CPA can help you identify red flags, clean up reporting, and implement strategies that improve the business’s financial profile so you’re prepared to act when the timing is right.

A longer timeline gives you runway to halt unnecessary reinvestment and boost earnings before interest, taxes, depreciation, and amortization (EBITDA) — directly affecting the sale price and reducing excess working capital.

Structuring the Deal

The structure of a sale plays a crucial part in the tax treatment of potential gains. Many sales of closely held businesses take the form of asset sales rather than stock sales, mainly because asset purchases offer more favorable terms to the buyer. When a buyer purchases the company’s assets, they avoid inheriting legacy liabilities and can allocate the purchase price among depreciable assets for future tax benefits.

However, even for transactions legally structured as a stock sale, buyers may use a Section 338(h)(10) election to treat the deal as an asset sale for tax purposes. This hybrid structure provides the buyer with the benefits of an asset acquisition while technically acquiring the stock.

From the seller’s perspective, both methods can yield similar tax outcomes. The gain from the sale typically flows through to the owner as a capital gain. If any portion of the purchase price is allocated to depreciated fixed assets, there may be a small amount of ordinary income due to depreciation recapture. As long as the owner is actively involved in the business at the time of sale, it’s generally exempt from the 3.8% NIIT.

In some cases, especially in deals involving private equity, buyers want to retain the existing owner’s involvement, so the buyer may acquire a majority interest and require the seller to continue managing the business. This is often structured through an F-reorganization, which allows for tax deferral on the portion of the business not immediately sold.

Another common feature of modern deals is the earnout: a portion of the sale price that’s paid over time based on the company’s future performance — usually tied to EBITDA targets. Earnouts can create significant tax planning opportunities and risks when they extend over several years.

Finally, for owners concerned about a large tax hit, investing the gain into Qualified Opportunity Zone (QOZ) funds can provide a way to defer capital gains and potentially reduce future taxes. This benefit was made permanent by the One Big Beautiful Bill Act.

Working closely with a CPA who understands these nuances allows you to align the terms of the sale with your broader financial goals.

Potential Section 1202 Tax Saving Strategies

Selling qualified small business stock (QSBS) may qualify for Section 1202 treatment. This tax provision allows individuals to avoid paying taxes on up to 100% of the taxable gain recognized on the sale of QSBS. The gain exclusion is worth $10 million or 10 times investment basis and applies to C Corporation stock issued after August 10, 1993, and before July 4, 2025, held for at least five years.

The recently passed One Big Beautiful Bill Act increases the Section 1202 exclusion for gain to $15 million or 10 times basis for QSBS acquired after July 4, 2025, and held for at least five years. There is a reduced gain excluded if the stock issued after July 4, 2025, is only held for three years (50% exclusion) or four years (75% exclusion).

Section 1202 creates an effective tax rate savings of up to 23.8% for federal income tax, and many states follow the federal treatment — resulting in even more substantial savings.

How MGO Can Help

Tax outcomes are rarely 100% predictable, but we can help shape them with foresight and planning.

Now is the time to take a closer look at your income, investments, and business interests. Don’t wait until the tax code changes. Schedule a planning session with an MGO advisor to start building a roadmap today.

The post Proactive Tax Planning Strategies for Exiting Your Closely Held Business appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Most Americans lack an up-to-date estate plan, leaving inheritances at risk of delays, disputes, and unintended distributions.

• Wills and trusts help clarify intentions, avoid probate, and protect beneficiaries.

• Review and update estate plans regularly — especially after major life events — to reflect changes in family structure, assets, and federal and state laws.

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The U.S. is on the precipice of the largest generational transfer of wealth in history. Baby Boomers account for 51.8% of the country’s total wealth, and over the next two decades (through 2045) an estimated $68-84 trillion will transfer to their spouses, descendants, trusts, and family foundations.

This massive shift will affect millions of families, yet too many are unprepared — both those who will pass on wealth and those who will inherit it. Despite rising awareness of the importance of estate planning, an estimated two-thirds of Americans don’t have any estate planning documents (wills, living trusts, healthcare directive, durable power of attorney, etc.), and won’t bother until a medical diagnosis or the death of a family member compels them. And those who do prepare estate planning documents typically either: (1) fail to update them on a regular basis, or (2) don’t place their assets in the trust’s name — subjecting those assets to probate and court proceedings.

One recent development adds even more urgency to the need for estate planning conversations. The newly enacted One Big Beautiful Bill Act (OBBBA) permanently raises the federal estate tax exemption to $15 million per person or $30 million for married couples (with proper planning) starting in 2026. This increase shields more wealth from the 40% federal estate tax and creates new planning opportunities for high-net-worth families.

With more flexibility under the new exemption levels, now is the time to take a look at your estate plan. A thoughtful and regularly updated estate plan is essential for families looking to preserve and pass on wealth. Here’s what that entails:

Start With the Fundamentals: Wills and Trusts

A will outlines how you want your assets distributed after your death and names guardians for minor children (if applicable). Without one, the state’s intestacy laws take over — which can delay the process and distribute assets in ways you may not have intended.

Certain trust structures take it a step further by allowing assets to bypass probate. This saves time, reduces legal and administrative fees, and helps maintain privacy. Trusts also offer greater control over how and when beneficiaries receive assets. This is particularly important for families with minor beneficiaries, blended families, or those with concerns about their heirs’ financial readiness.

Creating these documents is only the beginning. One common breakdown in estate plans comes from mismatched asset titling. For example, a trust may be established to hold real estate or investment accounts. But, if the assets are still titled in the individual’s name, they may fall outside the scope of the trust — requiring them to go through probate like any other asset.

After establishing a trust, review every asset — including bank accounts, brokerage accounts, and real property, to ensure correct titling and beneficiary designations.

Revisit and Refresh as Life Changes

Estate planning is not a one-time task. Documents drafted years ago may no longer reflect your current family structure, financial picture, or wishes.

Too often, we see wills and trusts that were never updated after:

• Marriage, divorce, or remarriage

• Birth or adoption of children or grandchildren

• Total disability of a beneficiary

• Death of a named trustee or beneficiary

• Significant changes in wealth or business ownership

Additionally, federal and state laws are constantly evolving — and these changes can have profound effects on your estate plan. Schedule time for a full estate plan review every three to five years, or after major life events.

Leverage Gifting to Reduce Estate Size

Structured gifting can be a powerful yet simple way to reduce the taxable value of an estate, especially for families with closely held business interests.

In 2025, individuals can gift up to $19,000 annually to any number of recipients without using their lifetime exemption or filing a gift tax return. Married couples can gift $38,000 per recipient.

For high-net-worth families, these amounts may not be significant enough to matter on a year-to-year basis. However, when multiplied over several recipients over a decade or more, the total can be substantial.

For example, if a couple gifted $76,000 annually to an adult child and their spouse, that’s $760,000 over a decade. That amount is removed from the estate and potentially sheltered from the 40% estate tax.

This strategy can also include gifting fractional shares of a closely-held business to heirs over time. Doing so gradually helps prepare the next generation for future ownership while reducing the size of the taxable estate.

Be sure to work with your advisors to properly execute and document these gifts to avoid triggering unwanted tax consequences or disrupting business control.

Prepare the Next Generation for What’s Coming

An estimated 15% of Americans will receive an inheritance in the next 10 years, yet most lack the financial knowledge to handle the responsibility. Often, beneficiaries are unaware of the size of the estate or the decedent’s intention — and the disconnect can create confusion, resentment, or financial missteps after a family member’s death. Most family members are under the misbelief that they will be taxed upon the receipt of an inheritance.

Open communication about inheritance plans, values, and responsibilities reduces these risks. Consider involving heirs in estate planning conversations, educating them about trusts and business succession plans, and giving them opportunities to participate (with guidance) in philanthropic or investment decisions.

Address Complex Assets Like Family Businesses

Families with significant business holdings should pay special attention to succession planning and ownership transfer structures. Options may include:

• Establishing a family limited partnership (FLP)

• Using grantor-retained annuity trusts (GRATs)

• Gifting non-voting or minority business interests gradually

• Consider having a formal buy-sell agreement

These strategies require coordination between estate planning attorneys and tax advisors to align the legal structure with business operations, tax liabilities, cash flow needs, and long-term ownership goals.

How MGO Can Help

Wealth transfer doesn’t happen automatically. Without planning, estates of any size can become a source of friction, tax exposure, or missed opportunity.

At MGO, we help individuals and families develop tailored estate strategies that reflect your values, protect your assets, and align with evolving tax laws.

If you’re ready to take the next step in preserving your legacy and preparing future generations, reach out to our team today to start the conversation.

The post Estate Planning Essentials for Seamless Wealth Transfer 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 One Big Beautiful Bill Act restores 100% bonus depreciation for qualified property placed in service after January 19, 2025.

• A new provision allows 100% expensing of qualified production property used directly in U.S.-based manufacturing, with strict eligibility criteria.

• Manufacturers should begin planning now to align construction timelines and tax strategy.

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The One Big Beautiful Bill Act (OBBBA) contains wide-reaching tax provisions that could reshape capital investment decisions for manufacturers and distributors. Two potentially impactful provisions are the return of 100% bonus depreciation and the introduction of a new incentive for qualified production property (QPP). For asset-intensive businesses, the new rules present significant planning opportunities.

This article outlines the OBBBA’s key bonus depreciation and QPP provisions, and how they apply to your manufacturing or distribution business.

100% Bonus Depreciation Returns in 2025

Bonus depreciation allows your business to immediately deduct a significant portion of the cost of qualifying property in the year it’s placed in service, rather than depreciating it over several years. Under prior law, bonus depreciation was gradually phasing down from 100% to 0% by 2027.

OBBBA resets that clock: For qualified property placed in service after January 19, 2025, 100% bonus depreciation is restored and made permanent. This applies to a wide range of capital investments — including machinery, equipment, and certain improvements to nonresidential real property.

However, for 2025, it’s crucial to keep the placed-in-service date in mind. Property placed in service on or before January 19, 2025, remains subject to the prior phase-down schedule (40% for 2025).

Bonus depreciation is generally automatic, meaning you need to elect out of it if you don’t want to take it. It’s available for both new and used property.

New: 100% Expensing for Qualified Production Property

In addition to bonus depreciation, OBBBA introduces a new, separate provision for 100% expensing of QPP with unique eligibility rules and timelines.

This is a major development if your manufacturing business is planning new facility construction, as bonus depreciation generally doesn’t apply to buildings (although it does apply to certain qualified improvements).

What Is Qualified Production Property?

Qualified production property includes a portion of nonresidential real property that is:

• Newly constructed in the United States

• Used as an integral part of manufacturing activities

• With construction beginning after January 19, 2025, and before January 1, 2029

• Placed in service before January 1, 2031

To qualify, the space must be used directly in the manufacturing process. The provision doesn’t apply to any square footage used for administrative offices, research and development, sales, or other ancillary functions.

Crucially, there is no de minimis exception — meaning there’s no threshold below which non-manufacturing space can be ignored. So even small areas used for offices or other non-manufacturing functions must be identified and excluded from the QPP calculation. This will likely drive demand for more detailed cost segregation studies to allocate building costs appropriately.

It’s also important to note that, unlike bonus depreciation, QPP expensing is not automatic. Taxpayers must affirmatively elect into this deduction. Final regulations will clarify how and when taxpayers must make the election and whether a single election applies across multi-year construction projects.

Who Qualifies?

This provision applies specifically to manufacturing businesses engaged in the production of tangible property involving “substantial transformation”. The IRS will issue regulations to define this standard more precisely, but the intent is to reward activities that significantly alter raw materials or components into finished goods.

Some exclusions apply. Lessors of the property and businesses preparing food and beverages on-site (such as a deli in a grocery store) are not eligible. Additionally, property subject to the alternative depreciation system (ADS) does not qualify.

A Word on Recapture

There’s also a 10-year recapture provision. If the use of the property changes during that period — such as converting a manufacturing area into administrative offices — the taxpayer may have to recapture the expensed depreciation as ordinary income under Section 1245.

Section 179: Increased Limits, but Strategic Considerations

OBBBA also raises Section 179 expensing limits. For 2025, your business can expense up to $1 million in qualifying property — with the deduction phasing out once total equipment placed in service exceeds $2.5 million. For assets placed in service after December 31, 2025, the expense limit increases to $2.5 million — with the deduction phasing out if total fixed assets placed in service exceed $4 million.

While small and mid-sized businesses often use Section 179 to write off qualifying property, it can be more limited in application than bonus depreciation (if available) since Section 179 is (a) limited to the amount of business taxable income; and (b) only available for assets used 50% or more for business purposes.

However, it may still be worth considering when bonus depreciation isn’t available or when coordination with taxable income limitations makes Section 179 more beneficial. There also may be benefits at the state level, as some states conform with the federal 179 expensing provisions while decoupling from federal bonus depreciation rules.

Taxpayers should discuss their fixed asset strategy with their advisors to decide how and when to leverage bonus depreciation, Section 179, and QPP expensing.

Implications for Manufacturing and Distribution

The manufacturing sector can benefit from these provisions with careful planning and implementation. Here are some decisions and considerations to discuss with your tax advisor:

1. Facility construction and expansions: The QPP rules reward businesses that start new construction after January 19, 2025, but before January 1, 2029. Companies on the fence may want to move quickly to meet the deadline and qualify for 100% expensing.

2. Cost segregation studies: Because only certain portions of a facility count as “qualified production property”, taxpayers will need cost breakdowns to support their deductions if any part of the building is used for non-qualified activities.

3. State conformity is uncertain: Some states may decouple from the federal rules, particularly for QPP expensing, given its potentially large impact on revenue. Businesses with operations in multiple jurisdictions will need to monitor state responses.

4. Private equity and tax-exempt complications: The use of ADS, especially when tax-exempt entities are involved, could disqualify certain projects from QPP expensing. Additional analysis will be required in joint ownership scenarios.

5. Recapture risk: Planning should also account for potential changes in facility use within the 10-year recapture window.

Looking Ahead

Bonus depreciation has been part of the tax code in various forms since 2001, but this is the first time it’s been made permanent. Meanwhile, the addition of a new QPP expensing provision clearly shows that the federal government wants to incentivize domestic manufacturing investment.

As with any major tax law, the details matter — and many remain forthcoming. We expect the U.S. Treasury Department and the IRS to release additional regulations clarifying key definitions, election mechanics, and compliance requirements.

In the meantime, manufacturers and distributors should begin evaluating capital plans for the next five years — especially if you are contemplating large-scale facility construction.

How MGO Can Help

At MGO, we help manufacturing and distribution companies identify opportunities and understand the potential tax outcomes. From evaluating capital investments to coordinating cost segregation studies and modeling the effects of federal and state tax treatment, we work alongside clients to support informed decision-making.

If you’re planning to expand or modernize your operations, our team can help you assess how these provisions apply to your business and align your plans with the latest tax laws. Contact us today to start the conversation.

The post Bonus Depreciation and Qualified Production Property: What Manufacturers Need to Know appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The new tax law permanently restores 100% bonus depreciation for qualified property placed in service after January 19, 2025.

• This change allows you to fully deduct eligible improvement costs upfront — improving cash flow and long-term planning.

• Real estate investors should watch for state-level differences and consider cost segregation studies to maximize the benefit.

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On July 4, President Donald Trump signed the One Big Beautiful Bill Act into law. Among the sweeping tax and spending provisions, one key change stands out for real estate investors: the return of 100% bonus depreciation.

Bonus depreciation is a powerful way to front-load deductions on qualifying property. Although it was first introduced in 2002 following the events of Sept. 11, the percentage deduction has varied over the years. Most recently, the 2017 Tax Cuts and Jobs Act (TCJA) increased bonus depreciation to a full 100% deduction. However, the TCJA also included a phasedown schedule — dropping the deduction to 40% in 2025 and eliminating it entirely by 2027.

Now, that phasedown has been reversed. The new law permanently restores 100% bonus depreciation for qualified property placed in service on or after January 20, 2025.

5 Ways the Return of 100% Bonus Depreciation Could Impact Your Strategy

If you’re investing in real estate, the return of 100% bonus depreciation creates new opportunities. Here are five ways it could affect your planning and cash flow moving forward:

1. You Can Plan Ahead With Certainty

For years, bonus depreciation rates have been a moving target. With this new law, you get consistency. Knowing that 100% bonus depreciation is now permanent gives you the ability to map out property improvements or acquisitions with a clear understanding of the tax impact. No more rushing projects to get ahead of a phase-down deadline. This is especially useful if you’re managing multiple properties or planning major capital expenditures.

2. Bigger Deductions Mean Better Cash Flow

Land improvements and qualified improvement property (QIP) — such as parking lots, landscaping, and interior upgrades to commercial buildings — are major expenses for real estate investors. With 100% bonus depreciation, you can deduct these costs in full the year they’re placed in service. That’s a non-cash expense generating real tax savings, freeing up cash you can reinvest into more properties, upgrades, or operations.

3. Bonus Depreciation Is Automatic — But You Still Have Options

The new law keeps the same framework: bonus depreciation is automatic unless you elect out. This means you don’t have to remember to file any special paperwork to claim the deduction. But if you’re planning to sell a property soon and want to avoid a large depreciation recapture, you still have the option to elect out of bonus depreciation for specific asset classes. That flexibility gives you more control over your long-term tax strategy.

4. Don’t Forget About State Taxes

While federal bonus depreciation is back at 100%, state treatment varies widely. Some states conform fully, others partially, and some not at all. Several states have flip-flopped in past years, some years complying with federal bonus depreciation rules and other years decoupling from the federal deduction, so it’s important to monitor changes over time. Failing to account for federal-to-state differences in depreciation can lead to surprises when filing your state returns. Work with a professional to stay ahead of shifting state policies.

5. Cost Segregation Studies Just Got More Valuable

With 100% bonus depreciation locked in, cost segregation studies are more useful than ever. These studies help you identify components of your property — like lighting, flooring, plumbing, land improvements and specialty electrical systems — that can be depreciated over five, seven, or 15 years instead of the standard 39 years or 27.5 years for residential real estate. That makes more of your investment eligible for immediate expensing. If you’re buying, renovating, or developing commercial or residential property, a cost segregation study could lead to substantial tax savings (use our cost segregation assessment tool to see if you could benefit).

Increased Opportunity and Complexity for Real Estate Investors

The return of 100% bonus depreciation is big news for real estate investors. It gives you stronger cash flow, more predictable planning, and powerful incentives to invest in and improve your properties. But it also adds complexity — from deciding when to elect out to understanding how state rules diverge from federal law.

How MGO Can Help

Our Real Estate team is ready to help you take full advantage of the new bonus depreciation rules. Whether you’re planning improvements, exploring a cost segregation study, or preparing for a property sale, we’ll work with you to uncover tax-saving opportunities and support your long-term investment strategy.

Reach out today to start planning your next move.

The post What New Bonus Depreciation Rules Mean for Real Estate Investors appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Sweeping tax changes enacted through the reconciliation bill include permanent TCJA cuts and major reforms to business, individual, and international tax rules. 

• Taxpayers should begin modeling changes now, especially for bonus depreciation, research expensing, Section 163(j), and Opportunity Zones, to identify planning windows. 

• A wide range of industries including manufacturing, real estate, energy, and financial services will be affected, with varying opportunities and risks across sectors 

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The president signed into law a sweeping reconciliation tax bill in a July 4 signing ceremony, capping a furious sprint to finish the legislation before the self-imposed holiday deadline. The Senate 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 voted 218-214 on July 3 to send the bill to the president’s desk. 

Notable late changes to the version of the tax title released by the Senate Finance Committee on June 16 include: 

• Cutting Section 899 from the bill after reaching an agreement on Pillar Two with G-7 countries; 

• Significantly amending the provisions on global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII), and the base erosion and anti-abuse tax (BEAT); 

• Modifying the energy credits provisions; 

• Removing the shutdown of state pass-through entity workarounds to the cap on deducting state and local tax (SALT); 

• Removing an unfavorable expansion of the loss limit under Section 461(l); 

• Reducing the new tax on remittances; 

• Changing the opportunity zone provisions; 

• Expanding to all residential construction an exception to the long-term contract rules; and  

• Removing a new excise tax on litigation financing. 

Also, President Donald Trump reportedly promised House conservatives that he would strictly enforce the beginning of construction rules for wind and solar projects and potentially make the permitting process more difficult. 

With the legislation now final, taxpayers should focus on assessing its impact and identifying planning opportunities and challenges. The bill offers both tax cuts and 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). 

The bill not only makes the TCJA tax cuts permanent but amends them in important ways. The legislation also offers a mix of favorable and unfavorable new provisions. Key aspects of the bill include: 

• Making 100% bonus depreciation permanent while temporarily adding production facilities;  

• Permanently restoring domestic research expensing with optional transition rules; 

• Permanently restoring amortization and depreciation to the calculation of adjusted taxable income (ATI) under Section 163(j) while shutting down interest capitalization planning; 

• Increasing the FDII effective rate while changing the deduction allocations and other rules;  

• Increasing the GILTI effective rate while changing the foreign tax credit (FTC) haircut and expense allocation rules;  

• Increasing the effective rate on BEAT; 

• Phasing out many Inflation Reduction Act energy credits early and imposing new sourcing restrictions;  

• Creating new deductions for overtime, tips, seniors, and auto loan interest; 

• Imposing a 1% excise tax on remittances;  

• Increasing filing thresholds for Forms 1099-K, 1099-NEC, and 1099-MISC; 

• Extending opportunity zones with modifications; 

• Increasing transfer tax exemption thresholds; and 

• Increasing the endowment tax to a top rate of 8%. 

Takeaway

Now that the legislation is final, taxpayers should assess its impact carefully and consider planning opportunities. Several key provisions offer different options for implementation. The effective dates will be important, and there may be time-sensitive planning considerations.  

The following offers a more detailed discussion of the provisions. For a comparison of the tax provisions to current law and the campaign platform see BDO’s table. Join BDO July 10 for a webcast discussing the bill and its impact. 

Business Provisions 

Bonus Depreciation 

The bill permanently restores 100% bonus depreciation for property acquired and placed in service after January 19, 2025.  

The legislation 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 election is available if construction on the property begins 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 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.  

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.  

The bill also increases the Section 179 deduction to $2.5 million with a phaseout threshold of $4 million for property placed in service after 2024, with both thresholds indexed to inflation in future years. 

Takeaway 

Allowing producers, refiners, and manufacturers to fully expense buildings rather than depreciate them over 39 or 15 years offers a significant 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 174 Research Expensing 

The bill permanently restores the expensing of domestic research costs for tax years beginning after December 31, 2024. The permanent expensing rules are created under new Section 174A, while Section 174 is retained and amended to provide for the continued 15-year amortization of foreign research costs. Software development is statutorily included in the definition of research for purposes of Section 174A. Taxpayers retain the option of electing to capitalize domestic research costs and amortize such amounts over either 10 years or the useful life of the research (with a 60-month minimum).  

The bill will generally require taxpayers to implement the new treatment with an automatic accounting method change on a cut-off basis, but it offers two alternative transition rules. Taxpayers can elect to claim any unamortized amounts incurred in calendar years 2022, 2023, and 2024 in either the first tax year beginning after 2024 or ratably over the first two tax years beginning after 2024. Separate transition rules are available for eligible small business taxpayers meeting the gross receipts test under Section 448 ($31 million in 2025) for the first tax year beginning after 2024, allowing those taxpayers to file amended returns to claim expensing for tax years before 2025. Retroactivity is not available to small business taxpayers that are tax shelters, such as pass-throughs that allocate more than 35% of their losses to limited partners or limited entrepreneurs. 

The bill also amends Section 280C to again require taxpayers to reduce their deduction for research costs under Section 174A by the amount of any research credit (or reduce their credit by an equivalent amount), effective for tax years beginning after 2024. Under changes made by the TCJA, taxpayers were generally required to reduce their Section 174 capital account only to the extent the research credit exceeded their current-year amortization deduction. For most taxpayers, that meant that the amortization deductions and research credits were both allowed in full.  

Takeaway 

The restoration of domestic research expensing is somewhat retroactive, and taxpayers will have several options for recognizing unused research amortization and for recovering future research costs. Businesses should consider modeling their options to identify beneficial strategies because the timing of deductions can affect other calculations, including those for Section 163(j), net operating losses, FDII, and GILTI. 

Section 163(j) Interest Deduction Limit  

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

The bill also makes two unfavorable changes effective for tax years beginning after 2025:  

• Excluding income from Subpart F and GILTI inclusions and excluding Section 78 gross-up from ATI; and 

• Including interest capitalized to other assets in the limit under Section 163(j), except interest capitalized to straddles under Section 263(g) or to specified production property under Section 263A(f).  

The business interest allowed as a deduction up to the Section 163(j) limit will come first from any capitalized interest. Any disallowed capitalized interest exceeding the cap will be incorporated into the Section 163(j) carryforward and will not be treated as capitalized in future years.   

Takeaway

The ability to again exclude amortization and depreciation from ATI will provide welcome relief for many taxpayers, but others will be negatively affected by the changes. The JCT score indicates that the revenue raised from shutting down capitalization planning and excluding new categories of income will save more than one-third of the $60 billion cost of reinstating the exclusion of depreciation and amortization. Taxpayers should model the impact and consider tax attribute and accounting method planning. Although the bill essentially shuts down interest capitalization planning for years beginning in 2026 or later, those strategies remain viable for the 2024 and 2025 tax years. The legislation does not claw back any interest capitalized to other assets in tax years beginning before 2026, even if the capitalized interest has not been fully recovered with the asset.  

Section 199A 

The bill makes permanent the deduction for pass-through 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 trade or business.” The legislation also creates a minimum deduction of $400 for taxpayers with at least $1,000 of qualifying income.  

Opportunity Zones 

The bill makes permanent the qualified opportunity zone (QOZ) program and updates the rules for investments made after 2026. As in the current program, taxpayers can defer capital gain by investing in a qualified opportunity fund. For investments made after 2026, taxpayers will be required to recognize the deferred gain five years after the date of the investment but will get a 10% increase in basis. Taxpayers can still receive a full basis step up to fair market value (FMV) for property held 10 years, but the bill adds a rule freezing the basis step up at the FMV 30 years after the date of the investment.  

Current QOZ designations will expire early at the end of 2026. New zones will be designated in rolling 10-year designation periods under new criteria that are expected to shrink the number of qualifying zones. A new category of rural opportunity zones is created. The 10% basis increase is tripled to 30% for investments in rural opportunity zones and the threshold for establishing the substantial improvement of qualifying property would be lowered to 50%. 

Both qualified opportunity funds (QOFs) and qualified opportunity zone businesses (QOZBs) will be required to comply with substantial new reporting requirements. 

Takeaway

The bill does not extend the mandatory recognition date of December 31, 2026, for investment made before 2027, as many taxpayers had hoped. But the program’s extension preserves one of the most powerful tax incentives ever offered by lawmakers. The timing of capital gains transactions may be particularly important. Delaying a capital gain transaction could allow taxpayers to make a deferral election in 2027 and defer recognizing the gain until well after the current 2026 recognition date. On the other hand, QOZ designations are likely to change in 2027. Taxpayers planning investments in geographic areas that are unlikely to be redesignated may need to make the investments before the end of 2026. Existing QOFs and QOZBs should consider their long-term capital needs because it is not clear whether any “grandfathering” relief will allow additional qualified investments into funds operating in QOZs that are not redesignated. The new reporting rules will apply to both new and existing QOZs and QOZBs for tax years beginning after the date of enactment, and those entities will need to collect and report substantial new information that has never before been required. 

Qualified Small Business Stock 

The bill enhances the exclusion of gain for qualified small business (QSB) stock under Section 1202 issued after the date of enactment in the following ways: 

• In addition to the existing 100% exclusion for qualified stock held for five years, taxpayers can qualify for a 50% exclusion after three years and a 75% exclusion after four years;  

• The current limit on the exclusion (the greater of $10 million or 10 times basis) is increased to $15 million, indexed to inflation beginning in 2027; and 

• The limit on gross assets at the time stock is issued is increased from $50 million to $75 million, indexed to inflation beginning in 2027. 

Takeaway

QSB stock is a powerful tax planning tool that can essentially erase gain of up to 10 times the initial basis. The changes make the structure more accessible and increase the size of potential investments. The bill does not change the expansive qualification requirements under Section 1202, and taxpayers should understand the rules clearly and document compliance throughout the holding period. 

Section 162(m) 

The bill amends the aggregation rules for applying the $1 million limit on deducting the compensation of a public company’s covered employees under Section 162(m). The current rules identify covered employees separately for each public entity but calculate compensation subject to the limitation on a controlled group basis. The number of covered employees is set to expand by five for tax years beginning in 2027 or later, and there has been some question whether such employees can come from the entire controlled group or only the public entity. 

The bill creates a new aggregation rule for tax years beginning after 2025 for identifying who is a covered employee and the amount of compensation subject to the limit. The aggregation rules are based on a controlled group as defined under the qualified plan rules in Section 414. The proposal also provides rules for allocating the $1 million deduction among members of a controlled group.   

Takeaway

The provision will have unfavorable consequences for many companies, including requiring the full amount of compensation from a related partnership in the calculation (rather than a pro-rata amount based on ownership percentage). It is estimated to raise almost $16 billion.  

Form 1099 Reporting 

The bill amends Section 6050W to reinstate the 200 transaction and $20,000 threshold for reporting third-party payment network transactions on Form 1099-K. The American Rescue Plan Act of 2021 repealed that threshold and required reporting when aggregate payments exceeded $600, regardless of the number of transactions. The IRS offered transition relief delaying the implementation of the change for two years and then provided a $5,000 threshold for payments made in 2024 and a $2,500 threshold for payments made in 2025. The bill restores the old threshold retroactively so that reporting is required only if aggregate transactions exceeded 200 and aggregate payments exceeded $20,000.  

The bill also increases the threshold for reporting payments under Sections 6041 and 6041A on the respective Forms 1099-MISC and 1099-NEC from $600 to $2,000 in 2026, indexing that figure to inflation in future years. 

Remittance Tax 

The bill imposes a new 1% excise tax on remittances of cash, money orders, cashier’s checks, or other similar physical instruments, with an exception for transfers from most financial institution accounts or debit cards. 

Takeaway

The tax in the final version affects a much narrower set of payments than the original 5% tax proposed in the House and the 3.5% tax in earlier House and Senate drafts.  

Exception for Percentage of Completion Method 

The bill expands exceptions to the percentage of completion method under the long-term contract rules under Section 460. The exception for home builders is expanded to include all residential construction. Further, the exception from the uniform capitalization rules for home builders meeting the gross receipts threshold under Section 448(c) ($31 million in 2025) is expanded to include all residential construction, and the allowable construction period is extended from two years to three. 

Employee Retention Credit 

The legislation 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 – potentially 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. 

International Provisions 

Foreign-Derived Intangible Income 

The bill makes significant reforms to FDII, including raising the effective rate while making the calculation of income more generous. 

The bill permanently lowers the Section 250 deduction from 37.5% to 33.34%, still well above the 21.875% deduction rate that would take effect without legislation. The change will increase the FDII effective rate from 13.125% to 14% (compared to 16.4% absent legislation).  

The bill also repeals the reduction in FDII for the deemed return on qualified business asset investment (QBAI) and provides that interest and research and experimental (R&E) costs are not allocated eligible income. The final version modifies a change from an earlier draft that would have narrowed the allocation of deductions only to those “directly related” to such income. The final bill provides that the calculation includes “properly allocable” deductions. 

The changes are effective for tax years beginning after 2025, aside from a new exclusion from FDII-eligible income that would take effect after June 16, 2025. The bill would exclude income or gain from the Section 367(d) disposition of intangible property or property subject to depreciation, amortization, or depletion. The final bill omits a provision from an earlier draft that would have also excluded specified passive income subject to the high-tax kickout. 

Takeaway

The changes could expand the value of the deduction for many taxpayers despite the effective rate increase, particularly for industries with significant fixed assets and R&E costs. Taxpayers should assess the changes for potential planning and arbitrage opportunities, given the change in rates and rules. There may be accounting methods opportunities that could increase the benefit in current and future years. 

Global Intangible Low-Taxed Income 

The bill increases the GILTI effective rate while making both favorable and unfavorable changes to the underlying calculation effective for tax years beginning after 2025.   

The Section 250 deduction for GILTI decreases from 50% to 40%, still higher than the 37.5% deduction rate that would take effect without legislation. The effective rate before the FTC haircut will increase from 10.5% to 12.6% (compared to 13.125% absent legislation). The bill will also reduce the FTC haircut under GILTI from 20% to 10%, resulting in an equivalent top effective rate of 14% (up from the current 13.125% rate and the 16.4% rate that would take effect without legislation). It also provides that 10% of taxes (compared to 20% absent legislation) previously associated with Section 951A taxed earning and profits are not treated as deemed paid for purposes of Section 78. 

The deemed return for QBAI is repealed, increasing the amount of income subject to the tax. The provision also changes the allocation of expenses to GILTI for FTC purposes so that it includes only the Section 250 deduction, taxes, and deductions “directly allocable” to tested income. It also specifically excludes interest and R&E costs.  

Takeaway

The changes are significant and could affect GILTI calculations in both favorable and unfavorable ways. The legislation does not provide a definition of “directly allocable,” and guidance may be important in this area. Taxpayers should assess the impact and consider FTC and other planning strategies.  

Base Erosion and Anti-Abuse Tax 

The bill increases the BEAT rate from 10% to 10.5% for tax years beginning after 2025, lower than both the 14% rate in the previous Senate draft and the 12.5% rate that would take effect without legislation. The legislation also repeals an unfavorable change to the BEAT scheduled to take effect in 2026 that would effectively require taxpayers to increase their liability by the sum of all income tax credits. The final bill omits several provisions from an earlier draft that would have changed the base erosion percentage, created a high-tax exclusion, and shut down interest capitalization planning.  

Takeaway 

The final version removed several favorable changes from an earlier draft but potentially still allows for planning that capitalizes interest to other assets. 

Reciprocal Tax for ‘Unfair Foreign Taxes’ 

The final bill omits proposed Section 899, which would have imposed retaliatory taxes on residents of that impose “unfair foreign taxes.” The provision was removed from the legislation after the Trump administration announced an agreement with the G-7 countries to “exempt” the U.S. from Pillar Two taxes. The G-7 released a statement saying that the countries are committed to working toward an agreement that would create a side-by-side system to fully exclude U.S.-parented groups from the undertaxed profits rule and income inclusion rule while ensuring that risks related to base erosion and a level playing field are addressed. The group also agreed to work toward compliance simplification and consider treating nonrefundable tax credits similarly to refundable tax credits. 

Takeaway

The ability of G-7 countries to drive broader agreements — and the details emerging from any such agreements — will be critical for U.S. multinationals. The current announcements are largely just statements of intent on a common goal. No countries outside the G-7 were party to the commitments, and there may be resistance from some OECD and EU countries.  

Other International Provisions 

The bill includes several other international provisions effective for tax years beginning after December 31, 2025, including: 

• Making permanent the controlled foreign corporation (CFC) look-through under Section 954(c)(6); 

• Restoring the exception from downward attribution rules under Section 958(b)(4) that was repealed under the TCJA while adding a narrower rule under Section 951B that is more closely aligned with the TCJA’s intent; 

• Amending the FTC rules to treat inventory produced in the U.S. and sold through foreign branches as foreign-source income, capped at 50%, likely only for branch category purposes; and 

• Amending the pro-rata rules under GILTI and Subpart F. 

Takeaway

The changes are generally favorable. The permanent extension of the CFC look-through rule under Section 954(c)(6) preserves an important exception for Subpart F income that is scheduled to sunset at the end of 2025. The restoration of Section 958(b)(4) could simplify reporting obligations for some taxpayers. However, Section 951B gives Treasury the authority to provide guidance on reporting for foreign-controlled U.S. shareholders. The inventory sourcing rule could result in additional foreign-source income for FTC purposes when compared to the current rule, which sources based on production activities. Finally, the pro-rata share rules will require a U.S. shareholder of a CFC to include its pro-rata share of Subpart F or GILTI income if it owned stock in the CFC at any time during the foreign corporation’s tax year in which it was a CFC. That provision removes the requirement that the U.S. shareholder own the CFC’s stock on the last day the foreign corporation was a CFC. The proposal provides Treasury with the authority to issue regulations allowing taxpayers to make a closing of the tax year election if there is a disposition of a CFC.  

Energy Provisions 

Consumer and Vehicle Credits 

The bill repeals the following credits with varying effective dates: 

• Previously owned clean vehicle credit under Section 25E repealed for vehicles acquired after September 30, 2025; 

• Clean vehicle credit under Section 30D repealed for vehicles acquired after September 30, 2025; 

• Commercial clean vehicle credit under Section 45W repealed for vehicles acquired after September 30, 2025; 

• Alternative fuel refueling property credit under Section 30C repealed for property placed in service after June 30, 2026; 

• Energy-efficient home improvement credit under Section 25C repealed for property placed in service after December 31, 2025; 

• Residential clean energy credit under Section 25D repealed for expenditures made after December 31, 2025; and 

• New energy-efficient home credit under Section 45L repealed for property acquired after June 30, 2026. 

Depreciation 

The bill repeals the five-year depreciable life of qualified energy property. The Section 179D deduction is repealed for construction beginning after June 30, 2026.  

Sections 48E and 45Y 

The bill will generally begin to phase out the production tax credit under Section 45Y and the investment tax credit under Section 48E for projects beginning construction after 2033 except for solar and wind projects. Wind and solar projects beginning more than 12 months after the date of enactment must be placed in service by the end of 2027. 

The bill also creates restrictions related to prohibited foreign entities, most significantly adding limits on receiving material assistance from a prohibited entity for facilities that begin construction after December 31, 2025. Material assistance is based on a cost ratio for sourcing eligible components. The bill also tightens domestic sourcing requirements under Section 48E.   

Takeaway 

The final language was softened with a last-minute amendment that allows some continued runway for wind and solar projects. The change angered some House conservatives, who blocked a final vote in the House for hours before reportedly extracting a promise from the administration that it would vigorously enforce the beginning of construction rules. Treasury may have limited ability to change the guidance in this area because the statute itself provides that the beginning of construction for some credit purposes shall be determined under rules similar to existing IRS notices. 

Section 45X 

The advanced manufacturing credit under Section 45X is repealed for wind energy components sold after 2027 but will otherwise be extended to allow a 75% credit for components sold in 2031, 50% for 2032, 25% for 2033, and fully repealed for 2034 or later. The credit is expanded to cover metallurgical coal. Material assistance rules for prohibited foreign entities apply. 

Section 45Z 

The bill extends the Section 45Z clean fuel production credit through 2031 while reinstating a stackable small agri-biodiesel credit under Section 40A. A new restriction under Section 45Z disallows a credit unless the feedstock is produced or grown in the U.S., Mexico, or Canada. The calculation of greenhouse gas emissions is amended to exclude indirect land use changes and new prohibited foreign entity rules are imposed. 

Other Energy Provisions  

The bill makes several other changes, including: 

• Repealing the clean hydrogen production credit under Section 45V for construction beginning after 2027, two years later than earlier versions of the bill would have provided; 

• Increasing the rates for carbon capture under Section 45Q for carbon sequestered as a tertiary injectant or for productive use to provide parity with the rates for permanent geologic storage (also adding foreign entity of concern restrictions); 

• Expanding the publicly traded partnership rules to allow income from carbon capture facilities nuclear energy, hydropower, geothermal energy, and the transportation or storage of sustainable aviation fuel or hydrogen; and 

• Adding new restrictions for foreign entities of concern for the nuclear production credit under Section 45U. 

Tax-Exempt Entities 

The bill replaces the 1.4% endowment tax rate with graduated brackets based on the size of the endowment per student up to a top rate of 8%. The tax applies only to universities with at least 3,000 students, up from 500.   

The bill also expands the excise tax on executive compensation exceeding $1 million to include all current employees, as well as former employees employed in tax years beginning after 2016. 

Takeaway 

The final version of the bill removed provisions that would have increased the excise tax on private foundations and resurrected the “parking tax,” which included the value of transportation in fringe benefits in unrelated business taxable income.  

Individual Provisions 

Deduction for Tip Income 

The bill creates an annual deduction of up to $25,000 for qualified tips reported on Forms W-2, 1099-K, 1099-NEC, or 4317 for tax years 2025 through 2028. The deduction is available without regard to whether a taxpayer itemized deductions but begins to phase out once modified adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers. 

For tips to be deductible, they must be paid voluntarily in an occupation that “traditionally and customarily” received tips before 2025, as provided by the Secretary. The business in which the tips are earned cannot be a specified trade or business under Section 199A, and self-employed taxpayers, independent contractors, and business owners face additional limitations.  

Employers will be required to report qualifying tips to employees on Form W-2. The provision applies only to income taxes and generally does not affect the employer’s FICA tip credit except to extend it to specified beauty services businesses.   

The bill gives Treasury several explicit grants of authority to provide regulations on specific issues. The IRS is required to adjust withholding tables and provide guidance within 90 days to define which occupations “traditionally and customarily” received tips in the past. The IRS will also need to provide rules for determining when a tip is voluntary.   

Takeaway 

The provision will affect employers in important ways. Hospitality companies will face new reporting requirements that depend on how the business and worker occupations are characterized. Further, an employee’s ability to deduct tips could also depend on employer policies, such as mandatory tips, service charges, or other amounts that are not determined solely by customers.  

Deduction for Overtime Pay 

The bill creates a permanent deduction of up to $12,500 (single) and $25,000 (joint) of qualified overtime compensation for tax years 2025 through 2028. The deduction is available without regard to whether a taxpayer itemized deductions but begins to phase out once modified adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers. 

Qualified overtime compensation is defined as compensation paid to an individual required under Section 7 of the Fair Labor Standards Act (FLSA). Employers must perform new information reporting to separately report overtime pay. 

Takeaway 

Determining whether compensation is qualified overtime pay will not be made using tax rules but will instead depend on the employer’s characterization of the pay under the FLSA. 

Auto Loan Interest Deduction 

The bill will create a permanent deduction of up to $10,000 of interest on a qualified passenger vehicle loan for tax years 2025 through 2028. The deduction begins to phase out once modified adjusted gross income exceeds $100,000 for single filers and $200,000 for joint filers.  

The vehicle must be manufactured primarily for use on public streets, roads, and highways, and its final assembly must occur in the U.S. The deduction does not apply to lease financing and the loan cannot be to finance fleet sales, purchase a commercial vehicle, purchase a salvage title, purchase a vehicle for scrap or parts, or be a personal cash loan secured by a vehicle previously purchased by the taxpayer. 

Takeaway

Auto loan financing companies will face additional reporting requirements and be required to furnish a return with specific information on loans. 

Personal Exemption for Seniors 

The bill provides a new $6,000 personal exemption for individuals aged 65 and above for tax years 2025 through 2028. The deduction phases out for taxpayers with modified adjusted gross income exceeding $150,000 for joint filers and $75,000 for all other taxpayers.  

Takeaway

The personal exemption is meant to fulfill Trump’s pledge to remove tax on Social Security payments, which is not allowable under reconciliation rules. The legislation does not affect payroll taxes on Social Security payments. 

Individual TCJA Extensions 

The bill largely makes the individual TCJA provisions permanent, although with some important modifications. The individual rate cuts and bracket adjustments are made permanent while providing an extra year of inflation adjustment for the lower brackets. The bill also makes permanent: 

• The repeal of general personal exemptions;  

• The limits on the deductions for mortgage interest (while adding mortgage insurance premiums as qualified interest), personal casualty losses, and moving expenses; 

• The repeal of miscellaneous itemized deduction (with an exception for some educator expenses); and 

• The exclusion for bicycle commuting reimbursements. 

The bill restores an itemized deduction for up to 90% wagering losses, capped at the amount of wagering income.  

The bill makes permanent the increased alternative minimum tax exemption and phaseout thresholds but would claw back inflation adjustments to the phaseout thresholds by resetting them to 2018 levels. The actual phaseout of the exemptions based on the amount of income exceeding the thresholds is slowed by half.  

The bill permanently repeals the Pease limitation on itemized deductions that the TCJA suspended through 2025, but it would create a new limit. The new provision would essentially cap the value of itemized deductions so that the maximum benefit achievable for the deductions is equivalent to offsetting income taxed at a top rate of 35% rather than offsetting income taxed at the higher individual marginal rate of 37%.  

The bill creates a 0.5% haircut on individual itemized charitable deductions but also adds a permanent charitable deduction for non-itemizers of up to $2,000 for joint filers and $1,000 for other taxpayers. 

SALT Cap 

The bill makes the SALT cap permanent while raising the threshold for five years and then reverting it to $10,000 in 2030. The cap is set at $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.  

Takeaway

Earlier drafts of the bill would have shut down taxpayers’ ability to use pass-through entity tax regimes to circumvent the SALT cap; the final version eliminated those provisions.  

Transfer Taxes 

The bill permanently sets the lifetime exemptions for the gift, estate, and generation-skipping transfer taxes at $15 million for 2026 and indexes them for inflation thereafter. The change represents a modest increase from the exemptions under the TCJA, which were initially set at $10 million but reached $13.99 million in 2025 with inflation adjustments. 

Active Business Losses 

The legislation makes the active loss limit under Section 461(l) permanent but reverses recent inflation adjustments in the $250,000 threshold.  

Takeaway

The final bill struck an unfavorable provision in earlier drafts that would have required disallowed losses to remain in the Section 461(l) calculation in future years. Under the final bill, disallowed losses still become net operating losses in subsequent years and can offset other source of income.  

Other Provisions 

The bill contains a number of other meaningful tax changes, including: 

• Creating a 1% floor for charitable deductions for corporations by providing that a deduction is allowed only to the extent it exceeds 1% of taxable income (up to the current 10% cap) for tax years beginning after 2025; 

• Changing the explicit regulatory mandate for disguised sale rules under Section 707(a)(2) to clarify that the rules are self-executing without regulations, effective after the date of enactment; 

• Raising the percentage of allowable assets a real estate investment trust (REIT) may have in a qualified REIT subsidiary from 20% to 25% effective for tax years beginning after 2025; 

• Making permanent the increases to the low-income housing tax credit;  

• Increasing the Section 48D credit for semiconductor manufacturing facilities from 25% to 35% for property placed in service after 2025; 

• Making permanent the new markets tax credit; 

• Treating spaceports like airports for the private activity bond rules, effective for obligations issued after the date of enactment; 

• Increasing the limit on the “cover over” to Puerto Rico and the U.S. Virgin Islands for excise taxes on distilled spirits effective for imports after 2025; 

• Allowing the liability from gain on the sale of qualified farmland property to be paid in 10-year installments for sales after the date of enactment; and 

• Creating tax-preferred accounts for children, with a pilot program offering a $1,000 contributory credit for qualifying children for tax years beginning after 2025. 

Takeaway

The inclusion of the new markets tax credit and the CFC look-through rule, which are both scheduled to expire at the end of 2025, indicates that Republicans do not have much hope for another tax bill this year. House Ways and Means Committee Chair Jason Smith, R-Mo., originally left those provisions off the House bill, saying he hoped to address them in a bipartisan extenders bill. Republicans have also discussed moving a second reconciliation bill, although that may have been a negotiating ploy to appease members whose priorities are not addressed in this bill. 

Next Steps 

Taxpayers should assess the potential impact of major provisions when considering the tax efficiency of transactions and investments. There may be planning opportunities that should be considered now, such as accelerating or abandoning energy credit projects or investments and modeling the impact of changes to the limit on the interest deduction under Section 163(j), bonus depreciation, and research expensing under Section 174. Changes to opportunity zone rules could affect the timing for triggering capital gains and making investments. International changes may present arbitrage opportunities to capitalize on favorable changes or mitigate the impact of unfavorable changes. 

Written by Dustin Stamper. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

Navigating What’s Next: Industry-Specific Tax Strategies 

This reconciliation bill marks one of the most consequential shifts in tax policy in recent years —impacting businesses across nearly every sector. At MGO, we’re helping clients in manufacturing, real estate, financial services, energy, and emerging technology interpret the changes and respond with purpose.

From bonus depreciation and research expensing under Section 174 to the evolving rules around Section 163(j), Opportunity Zones, and global tax alignment, our professionals bring deep technical insight and practical industry knowledge to every engagement. Whether you’re modeling tax scenarios, rethinking compliance, or reevaluating deal timing, MGO’s team is ready to help. Contact us to learn more.  

The post Republicans Complete Sweeping Reconciliation Bill  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• OBBBA tax changes signed July 2025 affect Q2 ASC 740 tax provision and valuation allowance disclosures for calendar-year companies. 

• GILTI and FDII rule changes may increase tax rates and impact deferred tax assets and international tax strategies in 2025. 

• New bonus depreciation rules and state nonconformity create challenges in 2025 tax modeling and ASC 740 reporting. 

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President Donald Trump signed the reconciliation tax bill, commonly known as the “One Big Beautiful Bill Act” (OBBBA) into law July 4, 2025, which is considered the enactment date under U.S. Generally Accepted Accounting Principles (GAAP). The legislative changes will affect income tax accounting in accordance with Accounting Standards Codification (ASC) 740, Income Taxes. Notable corporate provisions include the restoration of 100% bonus depreciation; the creation of Section 174A, which reinstates expensing for domestic research and experimental (R&E) expenditures; modifications to Section 163(j) interest limitations; updates to the rules for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII); amendments to the rules for energy credits; and the expansion of Section 162(m) aggregation requirements. Refer to BDO’s tax legislative alert for additional analysis. 

Those provisions could have important implications for the calculation of current and deferred taxes, including the assessment of valuation allowances. However, because the bill was signed after the June 30 period-end and its provisions have varying effective dates, only some changes – such as those affecting valuation allowance assessments – might affect the current year’s financial statements. For calendar-year filers, there are specific disclosure considerations for their Q2 10-Q filings, as discussed below. 

Changes in Tax Laws 

Under ASC 740, the impact of tax law changes on taxes payable or receivable for the current year is reflected in the estimated annual effective tax rate (AETR) in the period that includes the enactment date. Adjustments to prior years’ income taxes resulting from new legislation are recognized as discrete items in income tax expense from continuing operations in the period of enactment. 

For deferred taxes, the effects of tax law changes on temporary differences and related deferred taxes existing as of the enactment date are recognized as discrete items in the period of enactment as a component of income tax expense from continuing operations. Companies must make a reasonable effort to estimate temporary differences and related deferred tax amounts, including related valuation allowances, as of the enactment date. For temporary differences arising after the enactment date within the current year, the impact of the tax law change is incorporated into the AETR beginning in the first period that includes the enactment date.  

Insights: Accounting for Tax Law Changes in an Interim Period 

We are aware of an alternative policy that allows companies to use beginning-of-year temporary differences and related deferred tax balances when evaluating the impact of tax law changes during an interim period. Companies should discuss the approach with their auditors and tax advisors. 

For companies that have elected to recognize deferred taxes on GILTI, any changes in the tax law that affect GILTI deferred tax accounting must be reflected in the interim period that includes the enactment date, as discussed below. Also, companies may need to assess the impact of the expanded Section 162(m) aggregation rules on the recognition of deferred tax assets (DTAs) related to share-based compensation for covered employees. 

Insights: Accounting for Retroactive Changes in Tax Laws 

If a tax law change is retroactive, the accounting treatment depends on whether the impact relates to prior periods or the current year. For prior-period deferred taxes and taxes payable or receivable, the effect is recognized discretely in the period of enactment. However, if the retroactive change affects current-year taxes payable or receivable – when the effective date is before the enactment date but still within the current year – the impact is recognized through an adjustment to the AETR. The updated AETR is then applied to year-to-date ordinary income, resulting in a catch-up adjustment for taxes payable or receivable in earlier interim periods.  

Companies should consider that rule when assessing the financial reporting implications of some provisions enacted in July 2025 that are retroactive to the beginning of 2025. That includes provisions such as R&E expensing, Section 163(j) limitation on interest deductions, and 100% bonus depreciation (for property acquired and placed in service after January 19, 2025). 

Valuation Allowance Considerations 

Adjustments to valuation allowances for DTAs existing as of the enactment date are recorded as discrete items and allocated to income tax expense from continuing operations. Conversely, the expected adjustment to the valuation allowance at year-end for deductible temporary differences originating after the enactment date and related to current-year ordinary income must be incorporated into the estimated AETR.  

The corporate provisions – such as the permanent restoration of 100% bonus depreciation, R&E expensing, changes to the GILTI and FDII rules, and the more favorable calculation of the interest limit under Section 163(j) – could have important effects on the determination of valuation allowances for many companies. Specifically, the updates could affect projections of future taxable income, including adjusted taxable income under Section 163(j), potentially triggering a change in judgment about the realizability of DTAs. 

If tax law changes are enacted after the period ends but before financial statements are issued, changes to the valuation allowance are not recognized until the period that includes the enactment date. However, disclosure may be required, as discussed below. 

Insights: Reassess the Realizability of Deferred Tax Assets 

Before, companies might have recorded a full valuation allowance on their Section 163(j) DTA as a result of the interest deduction limitation being based on 30% of adjusted taxable income, which included amortization, depreciation, and depletion (that is, the earnings before income and taxes limitation). The reinstatement of the earnings before income, taxes, depreciation, and amortization limitation under Section 163(j) for tax years beginning after December 31, 2024, might require a reassessment of the realizability of the current-year disallowed interest deduction and Section 163(j) carryforward DTAs from prior years that were previously subject to a full valuation allowance. 

International Provisions 

The OBBBA includes several major changes to international tax provisions. Further, it renames the FDII and GILTI provisions to “foreign-derived deduction-eligible income” (FDDEI) and net controlled foreign corporation tested income (NCTI), respectively. In this Alert, we use the terms “FDII” and “GILTI.”  

The OBBBA introduces major changes to the FDII regime by increasing the effective tax rate from 13.125% to 14% through a permanent reduction of the Section 250 deduction from 37.5% to 33.34% – a rate still higher than what would have applied without the legislation. It also makes the FDII calculation more favorable by eliminating the reduction for qualified business asset investment (QBAI) and specifying that interest and R&E costs are not allocated to eligible income. Most FDII changes in the OBBBA are effective for tax years beginning after 2025. 

The act raises the effective tax rate on GILTI by reducing the Section 250 deduction from 50% to 40%, resulting in a pre-foreign tax credit (FTC) effective rate increase from 10.5% to 12.6%. That is still lower than the rate that would apply without the act. The FTC haircut under GILTI is reduced from 20% to 10%. The OBBBA also repeals the QBAI deemed return, increasing the amount of income subject to GILTI, and narrows expense allocations for FTC purposes. Those changes are effective for tax years beginning after 2025. 

The OBBBA raises the base erosion and anti-abuse tax (BEAT) rate from 10% to 10.5% for tax years beginning after 2025, which is lower than the 12.5% rate that would have applied absent the legislation. It also repeals a scheduled 2026 change that would have increased BEAT liability by the sum of all income tax credits. 

For tax accounting purposes, FDII and BEAT are treated as period costs, and most companies also account for GILTI as a period cost. Because most of the OBBBA international provisions do not take effect until tax years beginning after December 31, 2025, companies will likely see an immediate accounting impact at enactment only if the law change affects their valuation allowance assessments – for example, if the changes affect future income projections used in the valuation allowance analysis.  

However, companies that recognize deferred taxes for GILTI-related basis differences must remeasure those deferred tax balances at enactment if they are expected to reverse after the new law becomes effective. Further, if a company factors BEAT into its assessment of deferred tax asset realizability, it must evaluate how changes to the BEAT calculation affect its valuation allowance and recognize any impacts in the period of enactment. 

Energy Credit Provisions 

The OBBBA significantly curtails and modifies a broad range of Inflation Reduction Act (IRA) energy tax incentives, imposes new domestic content and foreign entity restrictions, and phases out or repeals many credits in the coming years. The changes effective in 2025 could affect financial statements if companies had anticipated the impact of IRA credits in their 2025 AETR calculations for interim periods.  

Accounting Considerations for Uncertainty in Income Taxes 

Companies must assess the act’s impact, particularly in areas where the interpretation of new rules is uncertain. If a tax position expected to be taken on a tax return is not more likely than not to be sustained upon examination based on its technical merits, it must be evaluated under the recognition and measurement requirements of ASC 740 to determine the appropriate amount of tax benefit to recognize. 

State Income Tax Considerations 

Companies must assess the state and local tax effects of the OBBBA; the impact will depend on whether and how states conform to the federal tax code. State tax implications may be significant for bonus depreciation, R&E expensing, FDII, GILTI, and interest deductibility. Companies must review state conformity rules to determine the appropriate state tax effect and related tax accounting and may need to adjust state current and deferred tax balances in addition to federal balances. 

Financial Statement Disclosures 

Companies need to consider disclosing the expected effects of new tax laws in the notes to the financial statements, management’s discussion and analysis, and risk factors. 

If a law is enacted after the interim balance sheet date but before financial statements are issued, the tax law change would be considered a Type II nonrecognized subsequent event under ASC 855, Subsequent Events. In that case, companies must disclose the nature of the event and either estimate its effect (if material) or state that an estimate cannot be made. If a law is enacted during an interim period, major variations in the relationship between income tax expense and pretax income must be explained.  

For annual financial statement reporting, ASC 740-10-50-9(g) requires companies to disclose the tax effects of adjustments to deferred tax liabilities or assets resulting from enacted changes in tax laws or rates in their annual financial statements. Public business entities in the U.S. need to separately disclose the effect of tax law changes in the annual effective tax rate reconciliation.  

Next Steps 

Companies must assess the impact of the tax legislation on their income tax provision calculations, including current and deferred tax balances, the AETR, valuation allowances, and related financial statement disclosures. The analysis will likely require extensive modeling and planning because the provisions are highly interconnected. While this Alert highlights selected areas of income tax accounting that might be affected by the OBBBA, it is important to consider how the changes apply to specific facts and circumstances.  

Written by Daniel Newton and Bella Verdiyan. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Helps You Navigate the New Tax Landscape 

The OBBBA brings a wave of corporate tax changes that present both risk and opportunity, especially around deferred tax assets, valuation allowances, and interim reporting under ASC 740. MGO’s Tax team works with tax and finance leaders to adapt provision models to reflect the latest federal and international updates. We support companies in life sciences, manufacturing, and technology by turning legislative changes into practical, forward-looking strategies. From addressing Q2 financial statement impacts to modeling future effects of GILTI, interest limits, and bonus depreciation, we serve as a resource for navigating complex tax reporting with accuracy and speed. Contact us to learn more.  

The post One Big Beautiful Bill Act: Implications for Accounting for Income Taxes  appeared first on MGO CPA | Tax, Audit, and Consulting Services.