Understanding the One Big Beautiful Bill Act Key Tax Considerations

The One Big Beautiful Bill Act (the “OBBBA” or the “Act”), signed into law on July 4, 2025, introduced sweeping tax changes that will have wide-ranging implications for deal structuring in the middle market. This article provides a high-level breakdown of key tax provisions in the OBBBA that buyers and sellers should consider as they navigate the dealmaking process.

Bonus Depreciation

The OBBBA allows businesses to immediately deduct the full cost of qualifying property acquired after January 19, 2025, reversing a gradual phaseout of the bonus depreciation in 2027 under prior law.

These changes are expected to benefit buyers of fixed-asset-heavy businesses. In deals where buyers get a step up in the bases of their assets, buyers can now fully expense the stepped-up costs of eligible property, which should reduce the tax liabilities and increase the cash flow of the acquired businesses. At the same time, sellers who have taken advantage of these bonus depreciation benefits prior to a sale may find a portion of their gain is recharacterized as ordinary income, depending on the structure of the sale.

Qualified Small Business Stock (“QSB Stock”)

Under Section 1202, non-corporate shareholders can realize a substantial tax benefit by excluding all or a portion of capital gain when they sell QSB Stock. The OBBBA introduces three favorable changes to Section 1202 that expand the benefits of QSB Stock issued after July 4, 2025.

First, the Act increased the gain exclusion cap from $10 million to $15 million. The new $15 million cap is also adjusted for inflation starting in 2027.

The OBBBA also shortened the period noncorporate investors must hold QSB Stock to partially qualify for the capital gain exclusion under Section 1202. Under the Act, qualifying shareholders can now exclude 1.) 50% of the capital gain on the sale of QSB Stock held for at least three years, 2.) 75% of gain for QSB Stock held for at least four years and 3.) 100% of the gain for QSB stock held for 5 years or more. This new tiered holding period is a welcome departure from the rigid pre-OBBBA rule of requiring investors to hold the QSB stock for more than five years to obtain the gain exclusion. We anticipate that this new rule will meaningfully change the thinking around the timing of exits, as investors can now sell an investment earlier in the cycle while still obtaining a partial gain exclusion under Section 1202.

Finally, the OBBBA increases the aggregate gross assets of corporations eligible to issue QSB Stock from $50 million to $75 million (indexed for inflation). This change should increase the universe of businesses eligible to issue QSB Stock to include later-stage companies.

Taken together, we expect that the expansion of QSB Stock benefits under the Act will increase investor interest in structuring their acquisitions to take advantage of the gain exclusion under Section 1202, including the use of C corporations to acquire and hold investments.

Interest Expense Deduction Limitations

Under current law, the annual business interest deduction is limited to 30% of adjusted taxable income (“ATI”). Prior to the Act, depreciation and amortizations deductions were only excluded from the calculation of ATI from 2018 through the end of 2021 and were included starting in 2022. The OBBBA permanently reinstates the exclusion of depreciation and amortization deductions from the ATI calculation that businesses enjoyed from 2018 through 2021.

This expansion of the business interest deduction will potentially lower the financing costs for acquisitions, which should be particularly beneficial for leveraged buyout transactions. Additionally, for both acquired businesses and companies looking to sell down the road with substantial business interest expenses, the increased deductions should lower tax liabilities and therefore increase cash flow.

Immediate R&D Expensing

The OBBBA allows businesses to immediately expense domestic research and development (R&D) costs, reversing the required capitalization and amortization of such expenses over a five-year period which had been in place since 2022. The immediate expensing only applies to domestic R&D costs – foreign R&D expenses are still required to be capitalized and amortized over a fifteen-year period.

Additionally, businesses with average annual gross receipts of $31,000,000 or less may retroactively expense any capitalized R&D costs beginning in 2022 by amending their prior year returns. All other taxpayers can immediately expense capitalized R&D costs incurred after December 31, 2021, through December 31, 2024, over a one- or two-year period.

How Citrin Cooperman Can Help

As the tax landscape evolves under this new legislation, navigating deal structures and understanding the full impact on both buyers and sellers is critical. Citrin Cooperman’s dedicated Mergers and Acquisitions Tax Practice brings deep technical knowledge and practical experience to help clients optimize transactions, mitigate tax risk, and unlock value at every stage of the deal life cycle. Whether you’re evaluating the tax implications of a potential acquisition, considering restructuring options, or planning for post-close integration, our advisors are ready to provide strategic, tailored guidance to support your growth.

For more information, contact Nichol Chiarella, Steven Ching, or your Citrin Cooperman advisor today to learn more about we can help.