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In July, Congress passed the One Big Beautiful Bill Act (OBBBA). The name sounds like it was a placeholder until they came up with something better… then just forgot to rename it before launch, but that’s neither here nor there — if you own or operate a small or mid-sized business, it has some major changes in store for you. From tax treatment of new equipment to the way ownership transitions are structured, the bill changes rules that directly shape how you invest, grow, and eventually exit your business.
For private market investors like us, those same rules matter too because they influence the kinds of companies we can partner with, how we structure deals, and the long-term outcomes for communities built around these businesses. OBBBA touches on everything from depreciation schedules to Opportunity Zones, and while some provisions are clear wins, others carry trade-offs every owner should understand.
1. Depreciation Changes
The biggest headline for deal makers: permanent bonus depreciation. Bonus depreciation (or “100% expensing”) allows businesses to fully write off qualified property in the first year. That means reduced taxable income, more cash flow early on, and generally stronger internal rates of return when purchasing depreciable assets.
It’s not new. Bonus depreciation first showed up in 2002, and the Tax Cuts and Jobs Act of 2017 set a phase-down schedule. What’s new here is permanence. Eligible property acquired after January 19, 2025 qualifies for 100% expensing (with no sunset).
We model cash flows conservatively, but in a world where you can expense 100% of qualified purchases in year one, that conservatism gets a boost — for asset-heavy sectors (think manufacturing, transportation, logistics, energy, utilities), that permanence makes these businesses more attractive from an after-tax return perspective.
As Whiteman, Osterman & Hanna LLP put it: “the permanence of 100% bonus depreciation provides a powerful, predictable incentive for businesses to invest in essential assets, fostering modernization and efficiency.”
2. Qualified Small Business Stock (QSBS)
OBBBA also makes QSBS more compelling. Previously, Section 1202 of the IRS Code allowed noncorporate taxpayers to exclude capital gains on QSBS sales, provided they held the stock for five years and the company met size limits.
>> In plain English, in certain instances, a taxpayer can avoid paying capital gains from the sale of a small business if the business falls into the “qualified small business category.”
The new changes:
- Timeline: holding period drops from 5 years to 3.
- Company size: eligible businesses now up to $75M in gross assets (up from $50M), adjusted annually for inflation.
- Capital gains cap: exclusion limit raised from $10M to $15M.
The (likely) net effect? More incentive for independent sponsors and private equity investors to pursue businesses structured as C corporations (as compared to pass-through entities).
3. Opportunity Zones
Originally created in 2017 and set to expire in 2026, Opportunity Zones are now permanent. These federal tax incentives encourage investment in distressed communities through deferral, reduction, or elimination of capital gains taxes when gains are reinvested into qualified funds.
OBBBA not only removes the expiration date but also tweaks rules on deferral & basis step-up, and creates new categories like Qualified Rural Opportunity Funds. The details are dense, but the simple takeaway is this: permanence plus stronger incentives means more capital will flow into these zones.
4. Reporting Simplification
Two provisions likely to help SMB operators day-to-day:
- 1099-K reporting: the de minimis threshold was raised to $20,000 or 200 transactions, up from just $600. That’s a big win for consumer-facing companies using third-party payment processors (folks like freelancers, online sellers, rideshare drivers, etc.).
- Low-dollar exemptions: transactions under $1,000 are exempt from certain federal reporting and disclosure requirements.
Both reduce administrative burden and simplify reporting for small operators.
5. Interest Deduction
Two changes here make leverage more attractive in SMB transactions:
- The pre-TCJA rule is restored, allowing deduction of interest expense up to 30% of EBITDA (instead of EBIT, which is often a much lower threshold).
- Businesses under $50M in receipts are now exempt from the limitation entirely.
Together, these provisions make it more tax-efficient to use debt in small business deals and operations.
The Long-Term Implications
Many of these changes create clear tailwinds for small businesses and SMB investors… but there’s no free lunch. One projection shows OBBBA will add $4.1 trillion to the national debt by 2034, and $19 trillion over 30 years (pushing the deficit to 8.6% of GDP).
The CBO also notes that these projections don’t incorporate the potential positive and/or negative effects of the new (and ever-changing) tariff policy.
The bill does create some near-term wins, but it also introduces risks for SMBs:
- Massive cuts to Medicaid and SNAP
- Repeal of Clean Energy Initiatives
- Fewer Federal Subsidies for Small Businesses and Cities
- Increased Compliance Burdens on States
- Immigration Fee Hikes and Enforcement Emphasis
- Greater Inequality in Benefits
Why this matters now
The real effects of OBBBA depend on your time horizon, your objectives, and the industry you’re in. At City Different, we’re not chasing financial engineering… we’re after something more durable — partnering with great people, preserving legacies, and creating long-term value.
We’re finding and investing in great businesses that we believe have the potential to perform in this tax environment and under this administration (in addition to those of the next… and the next).
Whether you’re preparing for a sale or just starting to think about your eventual transition, we’re here to support you. If you’re a business owner weighing your next move or an investor curious about your capital strategy, we’d love to talk.
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