Overview
After multiple versions and last-minute changes to secure a majority of votes, President Trump signed the One Big, Beautiful, Bill Act (OBBB) into law at a White House signing ceremony on the 4th of July. On July 2, the Senate passed the legislation on a 51-50 vote with Vice President Vance breaking the tie after Senator Rand Paul (R-KY), Senator Susan Collins (R-ME), and Senator Thom Tillis (R-NC) voted, along with all Senate Democrats, to oppose the legislation. The next day, the House of Representatives passed the amended Senate version of the legislation on a 218-214 vote with Rep. Thomas Massie (R-KY) and Rep. Brian Fitzpatrick (R-PA) joining all House Democrats to oppose the legislation.
The OBBB makes permanent both individual and corporate provisions that were enacted by the Tax Cuts and Jobs Act (TCJA) in President Trump’s first term and provides new temporary tax provisions to fulfill President Trump’s campaign promises, such as new deductions for tipped wages, overtime pay, and auto loan interest.
Negotiations between House and Senate Republicans broke through to address the state and local tax (SALT) deduction and the Senate adopted the House approach to raise the SALT cap from $10,000 to $40,000 for taxpayers earning less than $500,000 for five years before returning to the $10,000 cap. This had been a major sticking point for moderate House Republicans from New York and New Jersey. Further, the OBBB does not include limits on the corporate SALT (C-SALT) deduction and does not include limitations on the SALT pass-through entity tax (PTET) workarounds.
In light of the shared understanding between G-7 countries that the Pillar 2 undertaxed profits rule and income inclusion rule should not apply to US-parented groups, the OBBB does not include the proposed section 899 retaliatory tax provision that would have imposed higher US taxes on certain foreign persons resident in countries with extraterritorial or discriminatory taxes. However, the OBBB makes several other modifications to the international tax rules. In addition to making permanent a 40% GILTI deduction and a 33.34% FDII deduction, the OBBB modifies the rules for calculating GILTI and FDII, including eliminating the deemed tangible income return concept in both calculations. Additionally, under the OBBB, the BEAT rate will increase from 10% to 10.5%, while the favorable treatment of research and certain other credits in calculating BEAT liability will be permanently retained. The OBBB also makes several technical changes to the foreign tax credit limitation rules, makes permanent the “CFC look-through rule,” modifies the rules for determining a US shareholder’s pro rata share of CFC income, and reinstates the limitation on downward attribution of stock ownership in former section 958(b)(4). It also imposes a new 1% excise tax on remittance transfers to certain recipients outside of the United States.
The OBBB also makes significant modifications to the Inflation Reduction Act's (IRA) clean energy tax credits enacted in 2022 under President Biden. The OBBB phases out many of the credits early, including the section 45Y production tax credit and section 48E investment tax credit for wind and solar projects, the section 45V hydrogen credit, the section 45X advanced manufacturing production tax credit for wind and solar components and for critical minerals, the clean vehicle credits, and the residential energy credits. However, last-minute negotiations in the Senate resulted in adding a provision that allows wind and solar projects that begin construction within one year of the OBBB’s enactment to fully qualify for the credits and eliminating the proposed excise tax on wind and solar projects that receive material assistance from a prohibited foreign entity. On the other hand, the OBBB expanded and/or extended the section 45Z clean fuels credit, the section 40A small agri-biodiesel producer credit, and the section 45Q carbon sequestration credit, and basically left intact the section 45U nuclear credit. Detailed new foreign entity of concern (FEOC) restrictions will also apply to the IRA’s clean energy credits to prevent any entity that is deemed to be controlled or influenced by a covered nation (including China) from claiming the credits and are expected to cause significant changes to the clean energy supply chain. Finally, the OBBB retains the IRA’s transferability provisions to allow taxpayers to continue to monetize these credits but prohibits the transfer of credits to a prohibited foreign entity.
On July 7, President Trump issued an executive order instructing the Department of Treasury, within 45 days, to take action to “strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code for wind and solar facilities,” including by adopting policies to ensure that the “beginning of construction” requirement is not circumvented, and to implement the FEOC restrictions.
Now that the OBBB is signed into law, the focus will turn to the Department of Treasury and the IRS to issue guidance and regulations to implement the legislation.
Please click here for a chart summarizing the OBBB’s key provisions and a comparison against the pre-OBBB law.
