Legal Bulletins

The One Big Beautiful Bill Act (the “Act”) was signed into law on July 4, 2025, by President Trump. Below is a summary of selected provisions affecting the Internal Revenue Code (“Code”) under the Act. As noted below, the Act extends or makes permanent certain provisions of the Tax Cuts and Jobs Act of 2017 (“TCJA”).

Solar and Wind Investment Tax Credit Under Code Section 48E

On June 16, 2025, the U.S. Senate Finance Committee released its tax bill (the “Senate Bill”). The Senate Bill takes a different approach with respect to eliminating the Credit by providing for a phaseout of the Credit based upon when construction begins. For projects on which construction begins in 2025, such projects are entitled to the full amount of the Credit. For projects on which construction begins in 2026, such projects are limited to 60% of the Credit. For projects on which construction begins in 2027, such projects are limited to 20% of the Credit. Finally, the Credit is eliminated for projects on which construction begins after 2027.

Code Section 48E provides for an investment tax credit with respect to certain costs of solar and wind facilities (the “Solar and Wind Credit”). Prior to the Act, this credit was scheduled to begin phasing out after 2032. As a result of the Act, the Solar and Wind Credit is terminated for facilities that are placed in service after December 31, 2027, subject to an exception for facilities in which construction begins within twelve (12) months of the date of enactment of the Act, presumably July 4, 2026. Thus, under this exception, facilities that begin construction within such twelve (12) month period do not have to be placed in service by December 31, 2027. 

The Act doesn’t address what it means to start construction for purposes of the Solar and Wind Credit.  There is existing guidance from the Internal Revenue Service (the “IRS”) to determine when construction is deemed to commence for purposes of the Solar and Wind Credit.  Through various notices issued by the IRS, the IRS has prescribed two methods for a taxpayer to establish that construction has begun for purposes of the Solar and Wind Credit.  Both methods require that a taxpayer make continuous progress toward completion once construction has begun.

Under the first method, the Physical Work Test, construction is deemed to begin when physical work of a significant nature begins. This test focuses on the nature of work performed, and not the amount of the work or the cost of the work. Both on-site and off-site work may be taken into account for purposes of this test.  Preliminary activities, such as planning, designing, exploring, and site clearing, are not taken into account, even if properly includable in the depreciable basis of the energy property. Whether or not a taxpayer satisfies this test will be based upon the relevant facts and circumstances.

Under the second method, the Five Percent Safe Harbor, construction is deemed to begin if a taxpayer pays or incurs costs of five percent or more of the total costs of the project and, thereafter, the taxpayer makes continuous efforts to advance towards completion of the project. 

President Trump, however, issued an Executive Order on July 7, 2025 directing the Secretary of the Treasury to issue new and revised guidance, within forty-five (45) days of the enactment of the Act, to “ensure that policies concerning the “beginning of construction” are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.”

Thus, it appears that the use of the Five Percent Safe Harbor may be restricted in the near future. 

SALT Deduction

Prior to the Act, and as a result of the TCJA, the maximum amount that taxpayers could deduct for state and local taxes (the “SALT Amount”) was $10,000. As a result of the Act, the SALT Amount is $40,000 for 2025 and $40,400 for 2026. Thereafter, but before 2030, the SALT Amount will be increased annually for inflation. In 2030, the SALT Amount will revert back to $10,000.

The increase in the SALT Amount under the Act, however, is phased down for taxpayers whose modified adjusted gross income is in excess of $500,000, which such amount is increased annually (the “SALT Threshold Amount”). As a result, the SALT Amount is reduced by thirty percent (30%) of the excess of a taxpayer’s modified adjusted gross income over the SALT Threshold Amount.

It is interesting to note that the House version of the Act would have limited or eliminated the ability of pass-through entities to pay the state income taxes of their members to “workaround” the SALT Amount.  The Act, however, does not limit SALT Amount workarounds.

Code Section 199A Deduction  

Prior to the Act, and as a result of the TCJA, Code Section 199A allows owners of sole proprietorships, S corporations and partnerships to deduct up to twenty percent (20%) of the income earned by the business, subject to various limitations and exceptions. Pursuant to the TCJA, the 20% deduction under Code Section 199A was set to expire on December 31, 2025. The House version of the Act would have permanently extended the deduction and increased the deduction to twenty-three percent (23%). The final version of the Act permanently extended the deduction at the current twenty percent (20%).

Qualified Small Business Stock

Prior to the Act, the sale of qualified small business stock that was acquired after September 27, 2010, was eligible for a 100% gain exclusion, subject to certain limitations. The Act now provides for a “tiered” gain exclusion for stock that is acquired after July 4, 2025 based on how long the stock is held. If the stock is held for at least three years but less than four years, the gain exclusion is fifty percent (50%). If the stock is held for at least four years but less than five years, the gain exclusion is seventy-five percent (75%). If the stock is held for at least five years, the gain exclusion is one hundred percent (100%).

Qualified Opportunity Zones

The opportunity zone tax program, enacted by the TJCA, provides tax benefits to taxpayers that reinvest capital gain proceeds into low-income designated areas, with the tax deferral benefit to expire on December 31, 2026. The act makes the program permanent and establishes a recurring 10-year cycle in which new qualified opportunity zones are designated every 10 years. Taxpayers who make investments and hold the investments for at least five years would obtain a ten percent (10%) basis step-up, except for investments in qualified opportunity funds located in a “rural area,” for which a thirty percent (30%) basis step-up can be obtained. A “rural area” is defined as any area other than a city or town that has a population of greater than 50,000 inhabitants, and any urbanized area contiguous and adjacent to such a city or town.

The Act’s provisions become effective on January 1, 2027 and do not change the treatment of capital gains deferred under the current program. Thus, any capital gains currently deferred must be recognized by December 31, 2026. 

Tax Rates

The individual income tax rates enacted by the TCJA were set to expire beginning in 2026.  The Act makes the TCJA tax rates permanent. Thus, the highest individual income tax remains at 37%.

Standard Deduction

The standard deductions enacted by the TCJA were set to expire beginning in 2026.  The Act makes the TCJA standard deductions permanent.

Personal Exemption and Senior Deduction

The TCJA reduced the personal exemption to zero ($0). The Act permanently sets the personal exemption at zero ($0). The Act creates a new deduction for the tax years 2025 through 2028, in the amount of $6,000 for taxpayers who are at least 65 years old (the “Senior Deduction”). The Senior Deduction is phased down for taxpayers whose modified adjusted gross income exceeds $150,000 in the case of a joint return, or $75,000 for a single return. 

Bonus Depreciation

The TCJA provided for initial 100% bonus depreciation for certain assets, with the percentage being phased down. Under the TCJA, the bonus depreciation for 2025 is 40% and would be 20% for 2026.

The Act eliminates the phase down under the TCJA and restores the 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.

Deduction for Tips and Overtime Compensation

The Act provides for a deduction, for tax years 2025 through 2028, of up to $25,000 for cash tips received by a taxpayer who works in an occupation that customarily receives tips. The deduction is phased down for taxpayers whose modified adjusted gross income exceeds $300,000 in the case of a joint return, or $150,000 for a single return.

The Act also provides for a deduction, for tax years 2025 through 2028, of up to $12,500 for a single return (and $25,000 for a joint return) for “qualified overtime compensation” a received by a taxpayer. The deduction is phased down for taxpayers whose modified adjusted gross income exceeds $300,000 in the case of a joint return, or $150,000 for a single return. Qualified overtime compensation is defined as overtime compensation paid to an individual required under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate at which such individual is employed.  

Douglas T. Coats
410-576-4002 • dcoats@gfrlaw.com