Estimated reading time: 4 minutes

The Article in Brief:

• U.S. income tax domestic provisions such as the expansion of business interest deductions, pass-through deductions, R&D expenses, and bonus depreciation provisions may increase after-tax cashflows and reduce effective tax rates, which could enhance near-term valuations.
• New international tax rules for foreign tax credits, remittances, GILTI (now Net CFC Tested Income (NCTI)), FDII (now Foreign-Derived Deduction Eligible Income (FDDEI)), the base erosion and anti-abuse tax (BEAT), and controlled foreign corporation (CFC) income realign U.S. taxation of multinational profits, often triggering reorganizations that may require tax valuation analyses.
• While some tax incentives are permanent, others such as real property bonus depreciation, are temporary. Differing treatment of domestic and foreign R&D requires careful modeling and scenario analysis to capture long-term valuation implications.

Introduction

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA), which represents the most significant overhaul of the U.S. Internal Revenue Code since the Tax Cuts and Jobs Act of 2017 (TCJA). Many provisions directly impact tax valuations. This article highlights certain significant federal, international, gift and estate tax changes, along with their potential impact on valuations.

Pass-Through Entities

The OBBBA makes the 20% qualified business income (QBI) deduction under Internal Revenue Code (IRC) Section 199A permanent and expands phase-out ranges. This deduction may provide significant tax benefits to partnerships and S corporations and could enhance after-tax valuations.

The act also expands qualified small business stock (QSBS) benefits under IRC Section 1202. The lifetime gain exclusion increases from $10 million to $15 million, and a tiered exclusion structure now applies for shorter holding periods. By increasing capital gain exclusions, the OBBBA increased potential exit values for investors.

Together, these provisions enhance the competitiveness of pass-through entities and small businesses, particularly in growth-oriented industries.

Bonus Depreciation

The OBBBA significantly expanded bonus depreciation provisions.

• Qualified Property: In addition to qualified personal property, eligibility for bonus depreciation now extends to certain nonresidential real property used in qualified production activities. However, the “original use” requirement limits the practical scope of the expansion for real property.
• Permanence and Sunset: For qualified personal property, bonus depreciation is now permanent, eliminating prior phase-down uncertainty. For real property, the measure is temporary, applying to projects initiated between 2025 and 2029 and placed in service before 2031.
• Valuation Effect: These provisions front-load tax benefits, potentially lowering cash tax rates paid in early years and increasing after-tax valuations. Because real estate provisions expire, sensitivity testing around expiration dates remains essential for valuation models.

Research and Development Expenses

The OBBBA reinstates immediate expensing of domestic research and development (R&D) expenses, creating a permanent deduction for expenditures incurred after 2024. This change may accelerate tax shields and improve after-tax valuations for innovation-driven businesses.

Beginning in 2025, organizations can elect to amortize over two years R&D costs that were capitalized between 2024 and 2024, providing additional near-term benefits.

By contrast, foreign R&D expenses must still be capitalized and amortized over 15 years without exception, imposing long-term cash flow drag on multinationals with significant offshore innovation activities. The divergence between U.S. and foreign treatment may influence global R&D center locations and related valuation needs.

Business Interest Deductions

The OBBBA revises the calculation of adjusted taxable income (ATI), which determines business interest deduction limitations under IRC Section 163(j). The act reinstates the pre-2021 depreciation, depletion, and amortization (DDA) add-back provisions.

For post-2024 tax years, ATI will again be based on earnings before interest, taxes, depreciation, and amortization (EBITDA) instead of earnings before interest and taxes (EBIT).

This reinstated calculation may increase allowable business interest deductions, especially in certain asset-heavy industries (with high depreciation) or companies with recent acquisitions (with high amortization), potentially improving after-tax cash flows.

International Tax Provisions

The OBBBA fundamentally realigns U.S. taxation of foreign profits:

• NCTI, FDDEI, and BEAT Reforms: Simplified regimes may prompt structural reorganizations to optimize intangible ownership and intercompany flows, which can trigger valuation requirements for intercompany transfers and restructurings.
• CFC Refinements: Updates to attribution, look-through, and taxable year rules may accelerate income recognition and increase effective tax rates (ETR).
• Foreign Tax Credit Rules: More income is now U.S. sourced for property sold through foreign branches, reducing available credits for exporters and constraining after-tax cash flows.
• Remittance Tax: A new levy on foreign subsidiary distributions, raising the cost of repatriation and potentially altering financing strategies.

The repeal of IRC Section 899 and the withdrawl of the G7 global minimum tax framework reduce policy uncertainty, which could lower perceived risk premiums. However, geopolitical volatility and ongoing trade actions may increase them. Multinational companies should model after-tax cash flows and capital structures carefully to avoid unanticipated ETR increases.

Estate and Gift Tax Provisions

The OBBBA sets the permanent estate and gift unified credit exclusion (lifetime exemption) and generation-skipping tax exemption at $15 million per individual ($30 million for married couples) in 2026, with no sunset provision. Both will adjust annually for inflation.

The increased exemption allows individuals to transfer more assets tax-free and supports strategic gift and estate planning. The permanence of these provisions offers clarity for long-term gifting strategies and may influence estate and trust valuations.

Discount Rates and Risk Premiums

Reduced tax uncertainty may contribute to lower equity risk premiums. At the same time, temporary incentives, tariff policies, and geopolitical factors may offset those effects.

Given the increased complexity of the new rules, valuation professionals may be required to perform additional scenario analyses and sensitivity testing.

Implications for Valuation Professionals

In summary, the OBBBA reshapes tax valuations by:

• Enhancing near-term domestic after-tax cash flows through permanent domestic deductions and expensing.
• Introducing international complexities that may necessitate entity reorganizations for global organizations.
• Driving the need for careful modeling of temporary incentives and their expiration
• Creating valuation requirements in reorganizations, R&D relocations, and intercompany transactions.
• Lowering discount rates in certain sectors due to reduced tax uncertainty, offset by tariff policy and geopolitical risk factors.

Conclusion

The OBBBA is a dual-edged reform—providing domestic stimulus and certainty while tightening rules abroad. For valuation professionals, it underscores the importance of scenario analysis, structural planning, and cross-border tax modeling to capture the act’s business valuation impacts fully.

VRC’s Tax, Compliance & Planning team closely monitors legislative developments and their valuation implications. We can help assess how the OBBBA’s changes may affect your next tax reporting, planning or valuation engagement. We welcome you to contact the article authors or a VRC professional nearest you.