Pass-Through Entity Tax Reforms in the “One Big Beautiful Bill”
Introduction
The “One Big Beautiful Bill” (H.R. 1) is a broad reconciliation package that extends and refines numerous tax provisions impacting both individuals and businesses. This article focuses exclusively on the changes affecting pass-through entities—partnerships, S corporations, and sole proprietorships—without taking sides in the political debate.
Key Pass-Through Entity Provisions
- Qualified Business Income (QBI) Deduction (sec. 199A)
Under current law, eligible taxpayers may deduct 20 percent of their qualified business income from a pass-through entity. The House bill permanently increases this deduction to 23 percent, modifies the phase-in of the wage and capital-investment limitations, and broadens the definition of qualifying income to include REIT dividends, cooperative dividends, and publicly traded partnership income, with threshold amounts now indexed to inflation . - Limitation on Excess Business Losses (sec. 461(l))
Presently, noncorporate taxpayers cannot deduct business losses exceeding $500,000 (joint filers) or $250,000 (other filers), but may carry them forward as net operating losses through 2028. The legislation makes this limitation permanent and increases the value of allowable loss carryovers and carrybacks . - Business Interest Expense Limitation (sec. 163(j))
Currently, business interest deductions are capped at 30 percent of adjusted taxable income. The House proposal reinstates the EBITDA-based limitation for tax years 2025 through 2029 (rather than 2021–24), refines the definition of motor-vehicle floor-plan financing, and extends transitional relief for small businesses .
Conclusion
These pass-through entity provisions, now approved by the House, are poised to offer expanded deductions and certainty for small businesses and their owners. The bill will next advance to the Senate, where committee review and floor debate may further modify these rules. Gemini Accounting Services is monitoring the legislation closely and will provide updates as new developments occur.