Corporate Tax Rate

§11(b) The BBB made no change to the TCJA reduction of the corporate tax rate to a flat 21% rate. 

 

Bonus (or Additional First-year) Depreciation

§168(k) Business taxpayers are allowed to recover the cost of capital expenditures over time according to a depreciation schedule (§168). However, at various times, Congress has allowed such taxpayers to take an additional (or bonus) depreciation deduction allowance equal to either 50% or 100% of the cost of qualified depreciable property. 

Taxpayers could take additional depreciation in the year in which they placed “qualified property” in service through 2019 (with an additional year for certain qualified property with a longer production period). The amount of this additional depreciation was 50% of the cost of such property placed in service dur ing 2017 and phases down to 40% in 2018 and 30% in 2019. Under the TCJA, the additional first-year depreciation deduction was extended through 2026 (through 2027 for longer production period property and certain aircraft) and modified. The 50% allowance was increased to 100% for property placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after September 27, 2017, and before January 1, 2023. Thus, the TCJA repealed the phase-down of the 50% allowance for property placed in service after December 31, 2017, and for specified plants planted or grafted after such date. However, the 100% allowance was phased down by 20% per calendar year for property placed in service, and specified plants planted or grafted, in taxable years beginning after 2022 (after 2023 for longer production period property and certain aircraft). As a result, the bonus depreciation percentage rates were as follows: The TCJA maintained the §280F increase amount of $8,000 for passenger auto mobiles placed in service after December 31, 2017. 

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How Does BBB Impact This?

The BBB permanently extends and modifies the additional first-year depreciation deduction. The allowance is increased to 100 percent for property ac quired and placed in service on or after January 19, 2025, as well as for specified plants planted or grafted on or after January 19, 2025.  

 

Expensing

§179 Before the TCJA, businesses could immediately expense up to $500,000 of the cost of any “section 179 property” placed in service each taxable year. If the business places in service more than $2 million of §179 property in a taxable year, then the amount available for immediate expensing was reduced by the amount by which the cost of such property exceeded $2 million. Further limitations on the ability to immediately expense this amount applied based on the business’s taxable income for the year.  

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The TCJA increased the maximum amount a taxpayer could expense under §179 to $1,000,000, and the phase-out threshold amount is increased to $2,500,000. Thus, the TCJA made the maximum amount a taxpayer may expense, for taxable years beginning after 2017, $1,000,000 of the cost of qualifying property placed in service for the taxable year. The $1,000,000 amount was reduced (but not be low zero) by the amount by which the cost of qualifying property placed in ser vice during the taxable year exceeded $2,500,000. The $1,000,000 and $2,500,000 amounts, as well as the $25,000 sports utility vehicle limitation, were indexed for inflation for taxable years beginning after 2018. The definition of §179 property was expanded to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. The TCJA also expanded the definition of qualified real property eligible for §179 expensing to include any of the following improvements to nonresidential real property placed in service after the date such property was first placed in ser vice: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems. 

 

How Does BBB Impact This?

The BBB increases the maximum amount a taxpayer may expense under IRC section 179 to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. The $2.5 million and $4 million amounts are adjusted for inflation for taxable years beginning after 2025.  The provision applies to property placed in service in taxable years beginning after December 31, 2024.  

 

Limitation on Non-corporate Losses

§461(l) The passive loss rules limit deductions and credits from passive trade or business activities (§469). Deductions attributable to passive activities, to the extent they exceed income from passive activities, generally may not be deducted against other income. Deductions and credits that are suspended under these rules are carried forward and treated as deductions and credits from passive activities in the next year. The suspended losses from a passive activity are allowed in full when a taxpayer makes a taxable disposition of his entire interest in the passive activity to an unrelated person. A limitation on excess farm losses applies to taxpayers other than C corporations (§461). If a taxpayer other than a C corporation receives an applicable subsidy for the taxable year, the amount of the excess farm loss is not allowed for the taxable year and is carried forward and treated as a deduction attributable to farming businesses in the next taxable year. Under the TCJA, excess business losses of a taxpayer (other than a corporation) are not allowed for the taxable year. Such losses are carried forward and treated as part of the taxpayer’s net operating loss (“NOL”) carryforward in subsequent taxable years. NOL carryovers generally are allowed for a taxable year up to the lesser of the carryover amount or 80% (since 2018) of taxable income deter mined without regard to the deduction for NOLs. An "excess business loss” is the amount by which the deductions (excluding net operating losses and qualified business income deductions) attributable to trades or businesses of the taxpayer exceed the income from such trades or businesses plus $313,000 for tax years beginning in 2025 ($626,000 for a tax payer filing jointly with a spouse) and is adjusted for inflation. In the case of a partnership or S corporation, the provision applies at the partner or shareholder level. 

 

How Does BBB Impact This?

The limitation on excess business losses is set to expire for taxable years be ginning after December 31, 2028. However, the BBB makes the limitation on excess business losses by noncorporate taxpayers permanent. The provision also provides that excess business losses disallowed in taxable years beginning after December 31, 2024, are taken into account in determining a tax payer’s excess business losses in subsequent taxable years. In addition, the income threshold for determining an excess business loss is now adjusted for inflation. New rules are introduced to govern the treatment of excess business losses upon the termination of an estate or trust. The BBB also subjects excess business loss carryovers to the tax attribute reduction rules applicable to cancellation of debt income under §108 and carryover of tax attributes in §1398.

 

Floor on Corporate Charitable Deductions

§170 Total deductions for charitable contributions by corporate taxpayers for any taxable year are generally limited to 10 percent of the taxpayer’s taxable income. Charitable contributions over the percentage limitation in any taxable year can be carried forward to the next five taxable years. 

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How Does BBB Impact This?

The BBB allows a deduction for corporate charitable contributions only to the extent that the aggregate of corporate charitable contributions exceeds one percent of a taxpayer’s taxable income (the “one percent floor”) and does not exceed 10 percent of the taxpayer’s taxable income (the “10-percent limit”). This limitation would apply for taxable years beginning after December 31, 2025. Contributions in excess of the 10-percent limit may be carried forward to the subsequent five taxable years and are treated as allowed on a first-in, first out basis. The amount of charitable contributions disallowed under the one percent floor may be carried forward only from years in which the taxpayer’s charitable contributions exceed the 10-percent limit. Any carryforward is applied after contributions made in the current taxable year for the purposes of the one-percent floor and 10-percent limit. Business Interest Limited - §163(j) & §448(c) Prior to the TCJA, business interest generally was allowed as a deduction in the taxable year in which the interest is paid or accrued, subject to a number of limi tations. For example, limitations on interest expense existed for certain amounts paid in connection with insurance and annuity contracts, while other disallowances existed with respect to interest payments between related taxpayers. Other limitations on the deductibility of interest expense, in general, existed to disallow certain amounts of interest paid in connection with tax-exempt interest, passive interest, investment interest, and qualified residence interest. Section 163(j) limits the ability of a corporation to deduct disqualified interest (generally, interest paid or accrued to a related party when no Federal income tax is imposed with respect to the interest) paid or accrued in a taxable year if two threshold tests are satisfied: 

1. The payor’s debt-to-equity ratio exceeds 1.5 to 1.0 (the safe harbor ratio

2. The payor’s net interest expense exceeds 50% of its adjusted taxable in come.

 

Generally, adjusted taxable income was the corporation’s taxable income computed without regard to deductions for net interest expense, net operating losses, domestic production activities under §199, depreciation, amortization, and depletion. Interest amounts disallowed under these rules could be carried for ward indefinitely. In addition, any excess limitation (i.e., the excess, if any, of 50% of the adjusted taxable income of the payor over the payor’s net interest expense) could be carried forward for three years. Under the TCJA, in the case of any taxpayer for any taxable year, the deduction for business interest is limited to the sum of: 

1. Business interest income

2. 30% of the adjusted taxable income of the taxpayer for the taxable year

3. The floor plan financing interest of the taxpayer for the taxable year. Definitions: Business interest means any interest paid or accrued on indebt edness properly allocable to a trade or business.

Business interest income means the amount of interest includible in the gross income of the taxpayer for the taxable year that is properly allocable to a trade or business. Adjusted taxable income is a business’s taxable income computed without regard to business interest expense, business interest income, net operating losses, and depreciation, amortization, and depletion. Floor plan financing interest means interest paid or accrued on floor plan financing indebtedness. Floor plan financing indebtedness means indebtedness used to finance the acquisition of motor vehicles held for sale to retail customers and secured by the inventory so acquired. 

 

A motor vehicle means a motor vehicle that is:

1. Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road

2. A boat

3. Farm machinery or equipment

The amount of any business interest not allowed as a deduction for any taxable year may be carried forward may be carried forward indefinitely, treating business interest as allowed as a deduction on a first-in, first-out basis.  

 

Note: A taxpayer that meets the $31 million (in 2025) gross-receipts test is exempt from the interest deduction limitation. In addition, the limitation does not apply to any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business. Farming businesses are allowed to elect out of the limitation. The limitation generally applies at the taxpayer level. However, in the case of any partnership, the limitation is applied at the partnership level. The TCJA change is effective for tax years beginning after 2017. 

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How Does BBB Impact This?

The BBB increases the cap on the deductibility of business interest expense for taxable years beginning after December 31, 2024. Specifically, it provides that “adjusted taxable income” is computed without taking into account de ductions for depreciation, amortization, or depletion. As a result, “adjusted taxable income” corresponds with the financial accounting concept of earnings before interest, taxes, depreciation, and amortization (EBITDA). It also permanently modifies the definition of “motor vehicle” to include certain trailers and campers designed to be towed by or affixed to a motor vehicle. This change allows interest on floor plan financing for such trailers and campers to be deducted.