By Mark E. Battersby

By Mark E. Battersby

he new Budget Reciliation law, the so-called “One Big Beautiful Bill Act (OBBBA),” contains its fair share business-related tax breaks. In fact, the OBBBA prevents an over $4 trillion tax hike from occurring at the end of this year by extending–and making permanent–many of the temporary tax cuts of the 2017 Tax Cuts and Jobs Act (TCJA).

One break of interest to owners, operators, managers, and developers involves the deductible profits of pass-through self-storage businesses.

The OBBBA has made permanent the 20 percent deduction from the income of self-storage businesses operating as pass-through businesses such as sole proprietorships, partnerships, and S corporations. That deduction of 20 percent of the pass-through operation’s qualified business income (plus 20 percent of qualified real estate investment trust [REIT] dividends and qualified publicly traded partnership [PTP] income) is now permanent.

The bill introduced a new minimum deduction for the income of pass-through businesses of $400 for those with at least $1,000 of pass-through income from businesses in which they participate.

Another key element of the 2017 TCJA was a 100 percent bonus depreciation write-off that allowed businesses to immediately deduct the full cost of business equipment. Unfortunately, as that 100 percent deduction was reduced, year after year, its effectiveness sharply declined.

Today, bonus depreciation is back. What’s more, the full 100 percent deduction will apply through 2029 for property acquired after Jan. 19, 2025.

In addition to bonus depreciation, OBBBA doubles the current Section 179 first year expensing deduction. Under the new Section 179 rules, expensing has risen from $1.25 million to $2.5 million, and the limit on the total amount of assets acquired before the Section 179 write-off is reduced, increases from the current $3.13 million to $4 million.

A major item on the tax return of every self-storage business is the amount of interest paid. The tax rules placed a limit on the amount of interest paid by a business that could be claimed as a tax deduction to 30 percent of their adjusted gross income.

Fortunately, most small businesses (defined as businesses whose average annual gross receipts for a three-year period do not exceed $27 million, the inflation-adjusted amount for tax years beginning in 2022) were exempt and could continue deducting the full amount of their business interest.

Since 2022, the limitation has been calculated after allowing deductions for depreciation, amortization, and depletion. That form has reduced adjusted taxable income (ATI), the base upon which the limit is applied, thereby reducing annual business interest expense deductions for many taxpayers. The OBBBA will restore the add-backs for depreciation, amortization, and depletion deductions.

Unless exempt, employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. Individuals who are properly classified as executive, administrative, or professional employees are considered “exempt employees” and aren’t required to be paid for overtime.

After a failed attempt to increase the minimum threshold for the overtime exemption, it has reverted to $35,568 per year ($484 per week). Employees earning below this threshold are generally entitled to overtime pay.

Now, however, the OBBBA has created a new tax deduction for overtime pay. Workers making less than $150,000 can deduct as much as $12,500 for single filers and $25,000 for those filing jointly. Unfortunately, this deduction begins to phase out for single filers earning $150,000 or more and for joint filers earning $300,000 or more; it will expire in 2029.

The self-storage business, the employer, should remember that overtime is still considered as wages for FICA tax purposes, and wages are still subject to Social Security and Medicare tax. What’s more, workers can only deduct overtime that is reported on information returns, such as Form W-2.

For 2025, businesses may use a transition rule that allows them to approximate overtime amounts using a “reasonable method.” Starting in 2026, employers must report qualified overtime separately on Forms W-2 and Form 1099.

There will likely be updated IRS withholding tables and changes to Forms W-2, 109, and W-4, and uncertainty about how employers can distinguish “qualified” vs. “general” overtime given the varying state labor laws.

The owners and operators of self-storage businesses planning to put energy-related properties into service will face new adjustments. Properties that fall under the Internal Revenue Code (IRC), including green energy producing assets, recycling, and storage, will no longer be considered five-year properties for depreciation purposes.

Now, these assets will be subject to depreciation using the general class lifetime rules. While any property placed in service prior to Dec. 31, 2024, can continue the five-year depreciation, others will be required to depreciate assets and properties over longer periods, resulting in smaller depreciation expenses in earlier years.

Tax credits will continue for wind and solar projects that either start construction by June 2026 or go online by December 2027.

The current partnership tax rules govern when a partner and his or her partnership are viewed as engaging in arms-length transactions involving services and property transfers (disguised sales). Under the new OBBBA, the rules for transferring property and other assets between the operation and the partner now include a unique technical clarification.

A simple “except as provided by the Treasury Secretary” that will expand and make them applicable to all partnership transfers unless guidance provides an exception. The clarification applies to services performed and transactions occurring from now on.

The TCJA created a tax credit for compensating employees while they are on family or medical leave as long as the self-storage business had a qualified plan for those payments. The OBBBA permanently extended this credit while expanding it.

First, the credit is expanded to include premiums paid by an employer on an insurance policy covering employee family and medical leaves. Next, the amounts paid under the plan might not qualify for the credit where any leave paid for or by a state or government is considered when determining whether the employer has a plan that meets the requirements.

Finally, when the new rules take effect in 2026, the minimum employee work requirement is lowered from one year to six months.

New rules for the charitable donations of incorporated self-storage businesses might discourage smaller, routine donations and encourage larger, more substantial contributions to qualify for maximum tax benefits.

Incorporated businesses are currently allowed to deduct the amount of charitable contributions they make up to 10 percent of their taxable income. But, beginning in 2026, deductions for charitable giving will have a new 1 percent floor, and they’ll only be able to deduct contribution amounts above that.

The 10 percent ceiling remains, although contributions exceeding the 10 percent limit can be carried forward for up to five years. Unfortunately, contributions below the 1 percent floor can only be carried over if the total contributions for the year exceed the 10 percent ceiling.

In other words, for charitable contributions to be deductible, they must fall within a 9 percent window. They must exceed 1 percent of taxable income but not exceed 10 percent of taxable income.

The tax law’s so-called “unified credit” allows individuals to transfer wealth without incurring federal estate and gift taxes up to a specified limit. Similarly, the gift and generation skipping transfer tax (GSTT) exemption allows transfers to certain future generations without incurring additional tax. The OBBBA permanently increased the estate, gift, and generation skipping transfer tax (GSTT) exemptions.

This so-called “unified credit” allows individuals to transfer wealth without incurring federal estate and gift taxes up to a specified limit. The GSTT exemption permits transfers to future generations without incurring additional tax.

Raising the exemption to $15 million will allow individuals to pass greater amounts to others as either gifts or inheritance without incurring a tax bill, beginning in 2026 when the new exemption limits kick in.

The OBBBA makes significant changes to business taxes, extending, modifying, and in many cases making tax provisions initially enacted as part of the TCJA permanent. Among the many items addressed by the OBBBA are a so-called “trifecta” package of business tax provisions.

The restoration of 100 percent bonus depreciation, the qualified business income deduction under Section 199A, changes to the interest expense limitation and immediate write-offs for research and development costs—all now permanent.

In addition to monitoring further developments, seeking professional assistance can help both with planning and reaping the potential tax savings.