The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, provides a variety of new provisions and extends or makes permanent several Tax Cuts and Jobs Act (TCJA) provisions from 2017. While there are many provisions that affect various business entities and individuals, this article will highlight provisions that could have the greatest impact on retailers.
1. 100% Bonus Depreciation Deduction
Previously set to phase out completely, taxpayers can now deduct 100% of the basis of eligible tangible personal property in the year they place it in service for property acquired after January 19, 2025. These provisions allow retailers to fully expense capital investments immediately—such as certain leasehold improvements, warehouse equipment, and other equipment—rather than depreciating them over time. There is also a new 100% depreciation for nonresidential real property meeting certain requirements used in the manufacturing, production, or refining of tangible personal property. This applies to property if construction is started after January 19, 2025 and before January 1, 2029, provided it is placed in service before January 1, 2031.
This accelerated depreciation deduction will allow retailers to reduce their taxable income for capital investments made into their business, thus reducing their cash-tax impact. Retailers should consider reviewing fixed assets and capital investments for bonus depreciation eligibility and consider a cost segregation study for new retail and warehouse locations to identify assets eligible for accelerated bonus depreciation.
2. IRC Section 163(j) Interest Limitation
The OBBBA permanently increases the interest expense limitation to 30% of tax basis earnings before interest, taxes, depreciation, and amortization (EBITDA) versus the current limit of 30% of tax basis EBIT, for tax years beginning after December 31, 2024, a favorable change for retailers with debt on their balance sheets.
The increase in the interest expense limitation allows retailers to deduct additional interest expenses in the year the expense is incurred. This may help retailers better manage investment and inventory financing due to the ability to deduct additional interest expenses. As retailers navigate the change and consider the next steps, they should be modeling the impact of the increased interest deduction limitation. Modeling these impacts can help with investment decisions, inventory management, and forecasting earnings.
3. Immediate Expensing for Domestic R&D Expenditures
The OBBBA has also provided immediate expensing for domestic research and development (R&D) expenditures starting in 2025 with accelerated catch-up deductions for previously capitalized R&D expenditures under §174. This is especially beneficial for retailers that spend R&D dollars on product development, automation, and software development to enhance online shopping.
Retailers should model the impact of catch-up deductions of previously amortized §174 costs by considering the interactions with other tax implications, i.e., bonus depreciation, interest limitation, and state and international tax implications, to determine the optimal time to recognize the catch-up §174 amortization deductions.
4. International Tax Changes
The final provision that may have an impact on retailers is international tax changes made to rates for the Base Erosion and Anti-Abuse Tax (BEAT), Foreign-Derived Deduction-Eligible Income (FDDEI), and Net CFC Tested Income (NCTI), formerly named Global Intangible Low-Taxed Income (GILTI), as well as changes to expense allocations and foreign tax credit calculations for taxable years beginning after December 31, 2025.
This particularly applies to multinational retailers sourcing from related parties overseas. Retailers transacting with foreign parent companies and/or subsidiaries will have increased emphasis on transfer pricing strategies to optimize their tax position as it relates to foreign transactions. Reviewing foreign transactions and transfer pricing strategies to ensure compliance and optimization with international components such as BEAT, FDDEI, and NCTI will continue to be important for retailers moving forward.
How Forvis Mazars Can Help
The Retail Practice at Forvis Mazars has knowledgeable tax professionals who understand the challenges and opportunities that lie ahead for retailers and can help you determine the next steps that fit your organization. If you are considering how the OBBBA will affect your business and want to learn more about strategies you could take moving forward, such as modeling, cost segregation studies, and more, please reach out to a professional at Forvis Mazars.