When the Tax Cuts and Jobs Act (TCJA) was signed into law in 2017, it substantially altered the U.S. income tax landscape that had existed since 1986. Many of these changes, however, were temporary and will automatically be reversed for tax years beginning on or after January 1, 2026, unless Congress acts. Although the Republicans have gained control of the presidency and both houses of Congress, the Republican majority is narrow in the House of Representatives, and some Republican members of Congress are very concerned about the growing national debt. As such, there continues to be a risk that Congress will fail to take action to prevent the reversal of at least some of the temporary TCJA changes. Therefore, you should prepare for the possibility that temporary TCJA changes will be reversed and plan accordingly. This Client Alert highlights some of the temporary TCJA provisions impacting income tax for business entities that are scheduled to be reversed for tax years beginning on or after January 1, 2026.

Qualified Opportunity Zones

The TCJA provides special tax benefits for those who invest capital gains in qualified opportunity zones.  Qualified opportunity zones are designated distressed communities. 

Those who invest their capital gains in these communities are allowed to elect to defer their capital gain recognition until they either dispose of their investment or December 31, 2026, whichever occurs earlier.  Additionally, those who made investments before 2020 and hold these investments for at least seven years may exclude up to 15% of the original deferred gain.  If the investment is held for at least 10 years, the non-deferred portion of the gain may be permanently excluded.

If you deferred capital gain by investing in a qualified opportunity zone that has not been recognized yet, it is important to be prepared for the income recognition that will be required on your 2026 return.  It may be beneficial to dispose of some loss assets to offset the recognition of the deferred gain.  To the extent the gain can’t be offset with capital losses, estimated tax payments may need to be adjusted to avoid penalties.

Continued Phase Down of Bonus Depreciation

The TCJA incentivized investment in certain income producing assets (qualified property) by temporarily raising the bonus depreciation rate to 100%, allowing taxpayers to immediately deduct the full cost of these assets upon being placed in service.

The 100% bonus depreciation rate applied to qualified property acquired and placed in service after September 27, 2017, but before January 1, 2023 (January 1, 2024, for long production period property and specified aircraft).

The bonus depreciation percentage has been phased down by 20% per year since the 2023 tax year (2024 for long production period property and specified aircraft) and, for the current tax year (2025), sits at 40% for qualified property other than long production period property and specified aircraft. Bonus depreciation will be fully phased out and, therefore, no longer available after the 2026 tax year (after the 2027 tax year for long production period property and specified aircraft).

Given that bonus depreciation is going to continue to be phased down each year, it may be in your business’ best financial interest to not delay the acquisition of and/or placing in service qualified property.

Disallowance of Employer Deductions of Certain Food and Beverage Expenses

In an effort to offset the cost of the TCJA’s tax favorable provisions, certain deductions were either immediately eliminated or were scheduled to be eliminated in the future.  Among the deductions scheduled to be eliminated for tax years beginning on or after January 1, 2026 are the following deductions related to food and beverage expenses:

• Any expense for the operation of an employer-operated eating facility;
• Any expense for food or beverages associated with an employer-operated eating facility; and
• Any expense for meals furnished on the employer’s business premises for the convenience of the employer

Among those employers impacted would be those that provide meals and beverages to employees holding medical services-related positions who must be available for emergencies during meal periods.  These employers may currently deduct 50% of these meal and beverage expenses.

Work Opportunity Credit

The Work Opportunity Credit is an income tax credit that employers may receive for hiring members of certain targeted groups.  Among others, targeted groups include certain veterans, ex-felons, long-term unemployment recipients, and those receiving certain public assistance.  The credit is a percentage of first-year wages (and second-year wages in some cases) that are paid to these employees. This credit is scheduled to be eliminated for tax years beginning on or after January 1, 2026. 

Other Expiring TCJA Provisions Impacting Businesses

There are other expiring TCJA provisions impacting business entities that were not described above.  These provisions are included in the attached table summarizing expiring TCJA provisions impacting business entities.

Act Now

Additional tax-planning strategies are available to help you leverage favorable TCJA provisions while they last.  Do not delay your planning, though – CPAs, attorneys, and other experts will have their calendars full as the expiration date draws near and more taxpayers scramble to adjust to the potentially changed landscape.

TABLE: Expiring TCJA Provisions Impacting Business Entities

For more information, please contact Michael Loesevitz at [email protected] or your ORBA advisor at 312.670.7444. Sign up here to receive our blogs, newsletters and Client Alerts.