Key 2025 Tax Law Changes Affecting Pass-Through Entities

The One Big Beautiful Bill Act, signed into law on July 4, 2025, made several significant changes that impact 2025 tax returns. Here are three major provisions business owners should understand.

1. 100% First-Year Depreciation Restored

The law restores 100% bonus depreciation for eligible assets acquired after January 19, 2025. Section 179 expensing is now limited to $2.5 million, with a phaseout threshold of $4 million in qualifying purchases. Certain factory buildings also qualify for full first-year depreciation. These updates offer new planning options for 2025 capital investments.

2. Immediate Deduction for Domestic R&E Expenses

Beginning with the 2025 tax year, eligible domestic R&E expenses can be fully deducted immediately, rather than being amortized over five years as previously required. Small businesses are also permitted to retroactively apply this immediate deduction to expenses incurred between 2022 and 2024. For taxpayers who still have unamortized R&E costs from those years, the remaining amount may be deducted over one or two years starting in 2025. These adjustments could affect taxable income and may lead to amended returns.

3. More Favorable Business Interest Deduction Rules

The law permanently adopted more favorable rules for determining deductible business interest expense. While many small and midsize businesses are already exempt from the limitation rules, the updated provisions may expand deductibility for some pass-through entities.

A review of your specific situation is essential to determine eligibility and planning opportunities.

Time to Take Action

The March 16 filing deadline for most pass-through entities is here. Even if you plan to extend, action must be taken by the due date.

With new depreciation rules, R&E deductions and interest expense changes now in play, 2025 tax returns may present significant tax planning opportunities or compliance risks if overlooked. If you operate a partnership, LLC or S corporation, now is the time to get organized and finalize your filing strategy.

Contact us today so we can help you file accurately, minimize surprises and position your business strategically for 2026.