Tax implications of One Big Beautiful Bill Act (OBBBA) on business exits

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA)‡ was enacted. And here are many different aspects of the bill that affect individuals and businesses. Discover how a few changes will impact business owners below.

Gift and estate tax provisions

When planning a business exit, estate taxes are normally considered. In the planning stage, it is prudent to consider not only the federal and state income taxes that will be incurred on the transaction, but also explore any estate and/or gift tax implications. It is never too early to create a plan that minimizes a family’s exposure to estate taxes. In fact, advisors will often recommend estate tax planning strategies early in the business life cycle if it appears that the business will be going through a rapid growth phase that would lead to increasing the taxable estate. In 2024, the previous maximum amount of estate assets and gifts allowed to be exempted from tax over a lifetime was $13.61M. Prior to the OBBBA, this exemption amount was to be reduced to $5M (indexed) after 2025. The OBBBA reversed this reduction, however – under the new law, the estate and gift tax exemption will be $15M (indexed from 2026) and will be permanent. When planning for a business exit, it is important to understand when the transaction can create estate and gift tax obligations and begin planning early to legally avoid as much of those taxes as possible.

Research and development expenses

There are some changes in research and development expenses that deserve noting in business exit planning as well. Since 2022, domestic research and development expenses required amortization over five years. Under the OBBBA, businesses can now fully expense domestic research and development expenses retroactively beginning on Jan. 1, 2025. Small businesses can elect to fully expense them retroactively back to Jan. 1, 2022, and file amended tax returns to claim tax refunds. The impact of research and development expenses is an important consideration that should be noted on financial statements and considered in business valuation calculations. Business owners should discuss this topic with their CPA firms to be sure they fully understand the accounting involved with research and development expenses and ensure that the financial statements correctly record the transactions. This could mitigate any financial reporting problems in the due diligence phase of a business exit.

Bonus depreciation

Bonus depreciation and depreciation in general (i.e. Sec. 179) should also be considered in business exits. Bonus depreciation essentially allows the business to expense fully when purchasing many business asset classes, which is a great advantage for tax purposes. Under previous laws, bonus depreciation was being phased out – however, rules about them are now different with the passage of the OBBBA.

Given this change, it’s all the more important that financial statements correctly record the asset purchase and depreciation under Generally Accepted Accounting Principles, which would allow for slower cost recovery (straight line usually) and correctly match the assets’ use in multiple accounting years with a corresponding depreciation expense entry. This difference between tax and financial statement accounting causes deferred tax liabilities. If a business exit occurs as an “asset sale” then depreciation recapture would require a portion of the liquidation proceeds to be taxed at higher ordinary income tax rates. A “stock sale” would avoid this tax implication. It is important to consider this when calculating the after-tax cash flow the business exit owner will receive. It is really the after-tax cash flow that is important to the overall financial wealth of the business owner and the amount that we would recommend being used in the financial planning process.

Qualified small business stock gain exclusion

In terms of asset vs. stock sales in business exits, many business owners would prefer to sell their business using a stock sale structure. The reason for this is because a stock sale will result in the sale transaction to be taxed a lower capital gains rates versus the higher ordinary income tax rates applied to an asset sale. There is a special provision in the Internal Revenue Code under section 1202 that can make a stock sale even more advantageous and tax free up to the greater of $10M per shareholder or 10X the taxpayer’s basis in the stock if certain conditions are met. Yes, tax free. Under IRC Sec. 1202 you can sell QSBS tax free if you meet basic holding and capitalization requirements of the stock. Readers should take caution to note that many service type businesses do not qualify as a QSB and therefore do not qualify for the gain exclusion. Under the old tax law, you had to hold the C-Corporation stock for a period of 5 years to benefit from this tax-free transaction. The OBBBA added a phase-in allowing for 50% gain exclusion if the taxpayer holds the stock for 3 years, 75% exclusion if they hold the stock for 4 years and 100% exclusion if the stock is held for 5 years. Also, note that the gain exclusion per shareholder has been increased from $10M to $15M and will be indexed for inflation starting in 2027. The 10X taxpayer basis limit remains unchanged. These changes present tremendous tax reduction/elimination strategies for business owners who are able and willing to plan ahead.

Opportunity zones

There is a provision in the Internal Revenue Code (IRC) that allows for investing in Opportunity Zones (OZs). Investing in an OZ allows investors to defer and potentially exclude capital gains by investing Qualified Opportunity Funds to support development in low-income communities. The OZs were to remain in effect through 2028, but the OBBBA establishes a permanent OZ policy and creates a rolling 10-year OZ designation beginning in 2027. There are some great opportunities to be gained by investing in OZs as part of the overall diversified wealth portfolio and real estate holding allocation.

Energy credit provisions

Most energy tax credit provisions will be terminated by the end of 2025 or 2026. Taxpayers who are seeking to make energy improvements should be motivated to move quickly on those plans to benefit from the energy tax credit provisions before they expire. Energy tax credits could be beneficial to a business exit owner if the business owner’s sale of the business would result in a taxable transaction – so it’s critical to be mindful of these elements of the tax law.

In summary, the OBBBA has several positive provisions directly impacting business exits and this article is intended to highlight some areas that taxpayers should consider as part of their business exit planning. Now is the time to talk with a trusted financial team to understand how the changes in the legislation impact your business.

Interested in learning more about Private Wealth Management Business Exit? With UMB, you have a guiding partner from financial advising and investment portfolio management, to wealth-building strategies and retirement and legacy preservation plans.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

Financial planning services are offered by UMB Private Wealth Management, a division within UMB Bank, n.a. that manages active portfolios for individuals, fiduciary accounts, employee benefit plans, endowments and foundations. UMB Bank, n.a., is a subsidiary of UMB Financial Corporation.

This material is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities or engage in any specific investment strategy. Statements in the presentation are based on the opinions of the author and are subject to change at any time without notice. You should not use this presentation as a substitute for your own judgment, and you should consult the appropriate financial professional before making any tax, legal, financial planning or investment decisions.