TEMPORARY PROVISIONS
Business tax provisions for 2025 include one TEMPORARY modification of the 2017 TCJA that applies to businesses for tax years 2025 and later.
100% Depreciation for Qualified Production Property
This TEMPORARY modified provision allows businesses to claim a special 100% depreciation allowance for qualified production property. The election applies to original-use, nonresidential real property located in the United States and used in a qualified production activity.
The provision excludes areas used for office space, sales space, lodging, research and development activities, engineering activities, or other functions unrelated to manufacturing, production, or refining a qualified product. Taxpayers must complete construction between January 20, 2025, and December 30, 2028. They must place the property in service between July 5, 2025, and December 31, 2030.
Acquisition and Recapture Rules
A special acquisition rule provides an exception when neither an individual nor any related party previously used the nonresidential real property in a qualified production activity.
To qualify, taxpayers must use the property in a qualified production activity and acquire it between January 20, 2025, and December 30, 2028. The property must not have been used in a qualified production activity between January 1, 2021, and May 12, 2025.
Recapture rules apply if the taxpayer changes the property’s use within ten years after placing it in service.
PERMANENT PROVISIONS
Business tax provisions 2025 – the legislation made PERMANENT most provisions of the TCJA for businesses for tax years 2025 and later. The following are effective for 2025:
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100% bonus depreciation made permanent
The legislation makes full expensing of certain property permanent. Transitional rules apply to qualifying property and specified plants acquired after January 19, 2025. Property acquired before that date remains subject to the prior phase-down rules.
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Domestic R&E expenditures
Beginning in 2025, businesses may currently deduct domestic R&E expenditures paid or incurred during the taxable year. Alternatively, a business may irrevocably elect to capitalize those expenses for the current and all future years and amortize the amount over a period of at least 60 months. Transitional rules allow eligible small businesses to retroactively deduct remaining unamortized R&E costs that they capitalized in 2022–2024.
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Business Interest Expense Limitation
The legislation modifies the calculation of adjusted taxable income and restores the EBITDA basis, replacing the temporary EBIT basis. It also expands floor plan financing so businesses may fully deduct interest on certain trailers and campers.
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Section 179 expensing limits
The legislation increases the Section 179 expensing limit from $1 million to $2.5 million. It also raises the phase-out threshold from $2.5 million to $4 million.
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Form 1099-K Reporting Threshold
This threshold restores the de minimus rules to transactions exceeding payments of $20,000 and more than 200 transactions in a year effective January 1, 2025.
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Percentage of Completion Method Exception
The legislation expands the exception to the percentage of completion method of accounting to include all residential construction contracts. By replacing “home” construction with “residential” construction, the law allows multi-family dwellings to use the completed contract method. It also extends the timing to three years for residential contracts other than single-family homes. This change applies to taxable years beginning after July 4, 2025.
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Repeal of Green Energy Provisions
The legislation repeals several PERMANENT green energy provisions with effective dates ranging from January 1, 2025, through December 31, 2027. For 2025:
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- Accelerated depreciation for energy property is disallowed beginning January 1, 2025.
- Qualified commercial clean vehicle credit is disallowed for vehicles acquired after September 30, 2025.
- Terminated also are the clean electricity production and clean electricity investment credits as well as the clean hydrogen production credit after December 31, 2025.
- Restrictions were added for disqualifying certain entities with foreign ownership or foreign influence for clean energy credits and credit transfers after July 4, 2025.
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