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The new One Big Beautiful Bill Act, or OBBB Act, includes a broad range of tax provisions that extend and/or modify key elements of the Tax Cuts & Jobs Act (TCJA) passed in 2017 as well as new tax provisions intended to advance policy goals set by President Trump and Congressional Republicans.
Here’s a look at what companies performing valuations for financial reporting (e.g., impairment testing, purchase price allocations, etc.), tax planning and reporting (e.g., restructurings, incentive awards, etc.) or strategic decision-making purposes need to know about some of the OBBB Act’s key provisions.
1. Permanent US R&D expensing
What’s changed?
Starting with tax years that begin after December 31, 2024, every dollar spent on qualified research performed inside the United States can be deducted in the same year the costs are incurred. Alternatively, elections can be made to capitalize and amortize domestic research expenditures over (1) a period of not less than 60 months (beginning with the month in which the taxpayer first realizes benefits from those expenditures) or (2) a 10-year period. Modeling should be undertaken to understand how these section 174A alternatives, as well as other optional methods noted in this article, may impact other tax provisions (e.g., the corporate alternative minimum tax and other tax provisions discussed below). Research performed abroad still must be capitalized and amortized over a 15-year period.
2. 100% bonus depreciation for qualified equipment & certain real property
What’s changed?
The OBBB Act reinstates 100% bonus depreciation for qualified property that is acquired after January 19, 2025. Under prior law, bonus depreciation had been reduced to 40% in 2025 and would have been completely phased out after 2026. Now, companies can fully expense the cost of most machinery and equipment assets located in the US provided the assets were acquired and placed in service after January 19, 2025. Alternatively, the OBBB Act allows a taxpayer to elect a 40% bonus rate for 2025, and other depreciation elections allow a taxpayer to slow even further the rate of depreciation (e.g., electing out of bonus depreciation altogether or electing to use straight-line depreciation). Again, modeling should be undertaken to understand how these alternative depreciation methods may impact other tax provisions. The OBBB Act also introduces a brand new election to fully expense certain real property used in qualifying manufacturing, production, or refining activities the construction of which begins after January 19, 2025 and before January 1, 2029, and that is placed in service before January 1, 2031.
3. Enhanced interest expense deductibility
What’s changed?
Another notable feature of the law is the return to earnings before interest, taxes, depreciation and amortization (EBITDA)-based limits for deducting business interest expense. Under prior tax law, interest deductions were limited to 30% of EBIT (i.e., after depreciation and amortization), which significantly constrained companies in capital-intensive sectors like manufacturing, energy production and retail. The EBIT limitation also limited the tax benefit of “step-up” transactions as the tax step-up amortization reduced the interest limitation.
The new law reverts to 30% of EBITDA on a permanent basis, allowing greater interest deductions and increasing the attractiveness of debt-financed investments. Although this change to the interest deduction is favorable for many taxpayers, other changes may adversely impact many taxpayers’ limitation on business interest expense deduction. Specifically, income inclusions and other items from controlled foreign corporations (CFCs) no longer count toward the 30% limitation, meaning US-parented multinational companies with debt in the US and significant offshore profits may suffer from a decreased or even eliminated ability to benefit from the US interest expense. Other more detailed changes could be unfavorable to taxpayers that had capitalized significant interest expense into inventory/cost of goods sold, a strategy that generally improved interest deductibility in certain fact patterns but is no longer beneficial from 2026.
4. Lower tax on foreign-derived deduction eligible income (FDDEI), formerly known as foreign-derived intangible income
What has changed?
For tax years beginning after December 31, 2025, the OBBB Act provides a 33.34% deduction on certain export income, yielding an effective US tax rate of approximately 14% on such income (previously scheduled to increase to 16.4%). The OBBB Act simplifies the deduction calculation by eliminating a routine return for a corporation’s qualified business asset investment and removing certain expenses previously allocated against the income. However, the OBBB Act also modifies the limitation on FDDEI to exclude from the calculation’s denominator gain or other income from dispositions of intangible property and any other property of a type that is subject to depreciation, amortization, or depletion by the seller (e.g., machinery that had been used in the seller’s business) occurring after June 16, 2025.
5. Favorable changes to global intangible low-taxed income (GILTI) and the base erosion and anti-abuse tax (BEAT)
What has changed?
The GILTI rules (now renamed net CFC tested income or NCTI), is an anti-deferral regime that taxes, on a current basis, certain foreign earnings of US shareholders of a CFC. For tax years beginning after December 31, 2025, the OBBB Act adjusts the deduction associated with NCTI to 40% (previously scheduled to decrease to 37.5%) resulting in a tax rate of 12.6% (up from the current 10.5%) and an effective minimum tax rate of 14% after an updated foreign tax credit (FTC) for 90% of relevant foreign income taxes. The effective minimum tax rate of 14% is higher than the current 13.125% rate but is below the 16.406% rate that was scheduled to apply in 2026 under prior law. Additionally, the OBBB Act eliminates an exemption for the net deemed tangible income return currently utilized in determining a US shareholder’s GILTI inclusions. It also limits the deductions of certain US shareholder expenses to the NCTI category of foreign-source income for the purpose of determining the FTC limitation. Effectively, as a result of these changes, taxpayers are likely to have more NCTI FTCs and more FTC limitation needed to credit those FTCs. Taxpayers may find themselves with an excess FTC limitation in the NCTI category, whereas they may have had excess GILTI FTCs under prior law. Thus, the enhanced ability to credit foreign income taxes is an important benefit, especially if the effective tax rate on CFC earnings increases as a result of foreign jurisdictions adopting a qualified domestic minimum top-up tax as part of the Pillar Two process.
The BEAT is a minimum tax on US corporations that make significant “base erosion payments” to foreign affiliates (e.g., intercompany interest, royalties or service fees). Instead of the TCJA-scheduled BEAT rate increase to 12.5% starting in 2026, the OBBB Act increases the current BEAT rate to 10.5% and retains the favorable treatment under current law for the R&D credit and a portion of applicable section 38 credits in the base erosion minimum tax amount (BEMTA) determination on a permanent basis.
The bottom line
The OBBB Act reinforces the government’s push for domestication of investment while offering clarity and permanence in key areas of corporate taxation. For companies performing valuations of assets or entities, these reforms require a reassessment of assumptions around go-forward effective tax rates, capital spending, capital structure, R&D and cross-border tax strategy. Understanding and properly accounting for these reforms is important to delivering credible, decision-useful valuations in the post-OBBB landscape. A trusted adviser with the correct tax experience and expertise, like PwC, can help you navigate the complex process of a valuation.
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