PA Treatment for Tax Cuts and Jobs Act, One Big Beautiful Bill Act

Federal Treatment

Pennsylvania Treatment

Personal Income Tax

Corporate Net Income Tax

Research and Experimental (R & E) Expenditures

IRC § 174
IRC § 174A

Section 174 was amended to prohibit the immediate deduction for R & E expenditures in the tax year that such costs are incurred.  For R & E expenditures paid or incurred in tax years beginning after Dec. 31, 2021, the taxpayer is required to charge its specified R & E expenditures to its capital account and is allowed to amortize the expenditures.

Pennsylvania does not incorporate the provisions of IRC § 174 in its personal income tax law.  In calculating net profits, Pennsylvania allows a current deduction for ordinary, necessary, and reasonable business expenses currently paid or incurred during the taxable year which are directly related to and necessary for the production and marketing of the taxpayer’s products, goods, and services.  Costs associated with property with a useful life employed in a trade or business must be depreciated.  R & E expenditures are currently expensed or depreciated depending upon the nature of the expenditure.

Follows federal law.

Code Sec. 179

IRC §179(b)

Increase Section 179 expensing to $1 million with a phaseout beginning at $2.5 million and expand definition of qualified property.

For tax years beginning prior to 1/1/2023, the changes to Section 179 have no effect. The expensing limitation remains at $25,000 with a phaseout beginning at $200,000.

For tax years beginning 1/1/2023 and after, Act 53 of 2022 changed PA PIT law to incorporate the federal expense limitations.

Follows federal law.

Bonus Depreciation

IRC §168(k)

Extension, expansion, and phase down of bonus depreciation (sunset 12/31/26).

N/A - Bonus depreciation is not allowed in calculating taxable income.

Act 72-2018 requires companies to calculate depreciation under the modified accelerated cost recovery system. See Corporation Tax Bulletin 2018-03 [PDF].

Limitation of Net Interest Deduction to 30% of Adjusted Income

IRC §163(j)

Disallows a deduction for net business interest expense in excess of 30% of a business’s adjusted taxable income plus floor plan financing interest.

No effect – the limitation does not apply to Personal Income Tax. Valid business interest will be fully deductible in calculating taxable income.

 Follows federal law. See Corporate Tax Bulletin 2019-03 [PDF] for more details.

Small Business Accounting and Modification
Accounting Methods

IRC §448(c)
IRC §471(c)
IRC §263A(i)
IRC §460(e)
IRC §451(b)

Cash method of accounting/inventories/inventory cost/long-term contracts.

The inclusion rules cause an acceleration in the recognition of income for many taxpayers.

Generally will follow. Taxpayers may use the cash or accrual method of accounting so long as the method is acceptable by standards of the accounting profession, is not inconsistent with the regulations of the department, and clearly reflects income.

Follows federal law.

Repeal like-kind exchanges except for real property

IRC §1031

Code section 1031 allows like-kind exchanges only of real property.

For tax years beginning prior to 1/1/2023, the changes to Section 1031 have no effect. Gain from sales of property involved in a federal Like-Kind exchange must be recognized for PA PIT.

For tax years beginning 1/1/2023 and after, Act 53 of 2022 changed PA PIT law to allow deferral of the gain if the requirements of IRC Section 1031 are met. 

See PA PIT Bulletin 2006-07 [PDF] (Revised September 27, 2022) for additional details.

Follows federal law.

Applicable recovery period for real property

IRC §168(e)
IRC §168(g)

Replaces the separate definitions of “qualified leasehold improvement property,” “qualified restaurant property,” and “qualified retail improvement property” with “qualified improvement property.” Recovery life of “qualified improvement property" is 15 years.

Generally will follow. PA Personal Income Tax does not have specific rules regarding asset lives.

Follows federal law.

Repeal deduction for income attributable to domestic production activities

IRC §199

Deduction under Section 199 is repealed for tax years beginning in 2018 and after.

No effect - PA Personal Income Tax does not allow a Section 199 deduction in calculating taxable income.

Follows federal law.

Limitation on deduction by employers of expenses for fringe benefits

IRC §274

Repeals deductions for entertainment, amusement, and recreation if directly related to the operation of a taxpayer’s trade or business; generally would retain the 50% deduction for food and beverage expenses. Disallows deduction for employee transportation fringe benefits.

No effect – PA Personal Income Tax rules with regard to business expenses has not changed. Expenses, including entertainment, etc., are 100% deductible as long as they meet the PA definition of a valid business expense.

Follows federal law.

Repeal of advance refunding bonds

IRC §149(d)

Would subject to tax the interest on bonds used to pay principal, interest, or redemption price on a prior bond issue.

No effect – Interest income is taxable for PA Personal Income Tax unless it is from direct obligations of the U.S. government, or the Commonwealth of Pennsylvania and/or its municipalities. See REV-1643, Tax Exempt Obligations for Pennsylvania Personal Income Tax Purposes.

Follows federal law.

Creation of Qualified Opportunity Zones (QOZ)

IRC §1016(b)(38)
IRC §1400Z-1
IRC §1400Z-2

Temporary deferral of capital gains reinvested in a QOZ until the date the investment is  exchanged/sold or 12/31/2026, whichever is earlier. It also provides for the permanent exclusion of capital gains from the sale or exchange of an investment held for 10 years or more in a QOF.

Under Act 13-2019 net gains or income, net losses, and dividends which are excluded from federal income in a Federal Opportunity Zone are also excluded from PA personal income tax for tax years beginning after December 31, 2019. This income is taxable for years beginning prior to January 1, 2020.

Follows federal law.

Repatriation Transition Tax

IRC §965

One-time tax to be imposed on U.S. shareholders that own 10 percent or more of the shares of foreign corporations.

See Corporation and Personal Income Tax Informational Notice 2018-01 [PDF].

See Corporation and Personal Income Tax Informational Notice 2018-01 [PDF].

Global Intangible Low-Taxed Income (GILTI)

IRC §951A
IRC §250

Code section 951A would require a U.S. shareholder of a CFC to include GILTI in its income.

See Corporation Tax Bulletin 2019-02 [PDF].

See Corporation Tax Bulletin 2019-02 [PDF].

Foreign Derived Intangible Income

IRC §250

Allows deduction equal to a percentage of its “foreign-derived intangible income” (“FDII”). Percentage varies by tax year.

See Corporation Tax Bulletin 2019-02 [PDF].

See Corporation Tax Bulletin 2019-02 [PDF].

Qualified Business Income Deduction

IRC §199A

Deduction of up to 20% of qualified business income under Section 199A for sole proprietors, self-employed individuals, partners in partnerships, beneficiaries of trusts, and shareholders in S corporations.

PA Personal Income Tax does not allow for a Section 199A deduction.

Partnership Technical Termination

IRC §708(b)(1)

Eliminates the requirement for a technical termination of the partnership when there is a transfer of 50% or more of interests in capital and profits within a 12-month period.

PA Personal Income Tax does not allow for a Section 199A deduction.

Excess Business Losses

IRC §461(l)

Disallows a current year deduction for business losses in excess of $500,000 for Married Filing Joint taxpayers and $250,000 for all other filing statuses.

PA Personal Income Tax has no limit on a business loss that can be claimed. A business loss, however, can only offset other business income (cannot offset any other class of income).

Moving Expenses

IRC §132(g)
IRC §217(k)

Restricts deduction for moving expenses to only members of the armed forces on active duty (and their spouses and dependents) who move due to a military order that is a permanent change of station.

Expenses for moving 35 miles or more from your current location to start or keep a job are still deductible as Unreimbursed Business Expenses as long as they are not reimbursed.

Section 529 Plans Qualified Expenses

IRC §529(c)(7)

Section 529 plans can now be used to pay up to $10,000 of costs for elementary or secondary public, private or religious schools.

PA Personal Income Tax will also consider such costs as qualified expenses.

State and Local Tax Deduction

IRC §164(b)(6)

Deduction for state and local taxes is limited to a total of $10,000 per year.

N/A. PA Personal Income Tax does not allow for itemized deductions. Please refer to Answer ID 3618 at https://revenue-pa.custhelp.com/app/answers/detail/a_id/3618.

Personal Exemption Deduction

IRC §151(d)

Deduction for personal exemptions is eliminated.

PA Personal Income Tax does not allow for personal exemptions. Note: dependency must still be determined if you are claiming tax forgiveness on Schedule SP.

Federal Treatment

Pennsylvania Treatment

Personal Income Tax

Corporate Net Income Tax

Research and Experimental (R & E) Expenditures

IRC § 174
IRC § 174A

Section 174A was added to address the treatment of domestic R&E expenditures. Domestic R&E expenditures paid or incurred in tax years beginning after December 31, 2024, can be deducted or taxpayers may elect to capitalize and amortize such expenditures over a period of not less than 60 months.

Pennsylvania does not incorporate the provisions of IRC § 174 or § 174A in its personal income tax law.  In calculating net profits, Pennsylvania allows a current deduction for ordinary, necessary, and reasonable business expenses currently paid or incurred during the taxable year which are directly related to and necessary for the production and marketing of the taxpayer’s products, goods, and services.  Costs associated with property with a useful life employed in a trade or business must be depreciated.  R & E expenditures are currently expensed or depreciated depending upon the nature of the expenditure.

Act 45 of 2025 requires corporations to add back any federal deductions of R&E under §174, §174A, §59 (e), or §481 and then recover those costs over a period of 5 years. See Act 45 of 2025 page on Revenue website for details.

Code Sec. 179

IRC §179(b)

Increase Section 179 expensing to $1 million with a phaseout beginning at $2.5 million and expand definition of qualified property.

For tax years beginning 1/1/2023 and after, Act 53 of 2022 changed PA PIT law to incorporate the federal expense limitations.

Follows federal law.

Bonus Depreciation

IRC §168(k)

100% expensing for qualified property made permantent for property placed in service after January 19, 2025.

N/A - Bonus depreciation is not allowed in calculating taxable income.

Act 72-2018 requires companies to calculate depreciation under the modified accelerated cost recovery system. See Corporation Tax Bulletin 2018-03 [PDF].

Limitation of Net Interest Deduction to 30% of Adjusted Income

IRC §163(j)

For tax years beginning after December 31, 2024, adjusted taxable income (ATI) is calculated without regard to deductions for depreciation, amortization, or depletion. (EBITDA).

No effect – the limitation does not apply to Personal Income Tax. Valid business interest will be fully deductible in calculating taxable income. 

Act 45 of 2025 requires corporations to calculate their federal taxable income using §163(j) as it was in effect on December 31, 2024. (EBIT). See Act 45 of 2025 page on Revenue website for details. 

Small Business Accounting and Modification
Accounting Methods

IRC §448(c)
IRC §471(c)
IRC §263A(i)
IRC §460(e)
IRC §451(b)

Section 460(e) was amended to change the general exception from percentage of completion method of accounting from a general exception for "home construction contracts" to an exception for "residential construction contracts." (Effective for contracts entered into in taxable years beginning after July 4, 2025).

Generally will follow. Taxpayers may use the cash or accrual method of accounting so long as the method is acceptable by standards of the accounting profession, is not inconsistent with the regulations of the department, and clearly reflects income.

Follows federal law.

Repeal like-kind exchanges except for real property

IRC §1031

No change

No change

No change

Applicable recovery period for real property

IRC §168(e)
IRC §168(g)

Removes solar or wind energy property from the definition of five-year property (applies to property beginning construction after December 31, 2024).

Generally will follow. PA Personal Income Tax does not have specific rules regarding asset lives.

Follows federal law.

Repeal deduction for income attributable to domestic production activities

IRC §199

N/A

N/A

N/A

Limitation on deduction by employers of expenses for fringe benefits

IRC §274

Allows expenses of employer-operated eating facilities for meals provided at employer's convenience; expenses for goods or services sold by taxpayer in bona fide transaction for adequate and full consideration. Also excludes meals provided on certain fishing boats and certain fish processing facilities from the 50% limitation.

No effect - PA Personal Income Tax rules with regard to business expenses has not changed. Expenses, including entertainment, etc., are 100% deductible as long as they meet the PA definition of a valid business expense.

Follows federal law.

Repeal of advance refunding bonds

IRC §149(d)

No Change

No Change

No Change

Creation of Qualified Opportunity Zones (QOZ)

IRC §1016(b)(38)
IRC §1400Z-1
IRC §1400Z-2

Creates new Opportunity Zone investment opportunities for capital gains invested after December 31, 2027. Requires certain disclosures from specified QOZ businesses. Imposes penalty for failures to comply with new reporting requirements.

Under Act 13-2019 net gains or income, net losses, and dividends which are excluded from federal income in a Federal Opportunity Zone are also excluded from PA personal income tax for tax years beginning after December 31, 2019. 

Follows federal law.

Repatriation Transition Tax

IRC §965

N/A

N/A

N/A

Global Intangible Low-Taxed Income (GILTI)

IRC §951A
IRC §250

Renames GILTI as "Net CFC Tested Income." Reduces the deduction percentage for net CFC tested income to 40%.

See Corporation Tax Bulletin 2019-02 (Revised) [PDF].

See Corporation Tax Bulletin 2019-02 (Revised) [PDF].

Foreign Derived Intangible Income
IRC §250

Renames FDII to FDDEI (Foreign-Derived Deduction Eligible Income). Modifies the calculation of the deduction.

See Corporation Tax Bulletin 2019-02 (Revised) [PDF].

See Corporation Tax Bulletin 2019-02 (Revised) [PDF].

Qualified Production Property

IRC §168(n)

Global Intangible Low-Taxed Income (GILTI)

IRC §951B

See Corporation Tax Bulletin 2019-02 (Revised) [PDF].

See Corporation Tax Bulletin 2019-02 (Revised) [PDF].

Qualified Business Income Deduction

IRC §199A

Permanently extends the 20% deduction for qualified business income.

PA Personal Income Tax does not allow for a Section 199A deduction.

Partnership Technical Termination

IRC §708(b)(1)

N/A

N/A

Excess Business Losses

IRC §461(l)

Permanently extends the disallowance of a deduction for excess business losses (was set to sunset in 2029).

PA Personal Income Tax has no limit on a business loss that can be claimed. A business loss, however, can only offset other business income (cannot offset any other class of income).

Moving Expenses

IRC §132(g)
IRC §217(k)

Permanently extends the moving expense deduction limitation and employer-reimbursed moving expense exclusion.

Expenses for moving 35 miles or more from your current location to start or keep a job are still deductible as Unreimbursed Business Expenses as long as they are not reimbursed.

Section 529 Plans Qualified Expenses

IRC §529(c)(7)

For tax years beginning after December 31, 2025, the limit on costs increases from $10,000 to $20,000.

PA Personal Income Tax will also consider such costs as qualified expenses.

State and Local Tax Deduction

IRC §164(b)(6)

The limit for deduction for state and local taxes was increased to $40,000 per year for 2025 and increases through 2029. The limit returns to $10,000 for 2030.

N/A. PA Personal Income Tax does not allow for itemized deductions. Please refer to Answer ID 3618 at https://revenue-pa.custhelp.com/app/answers/detail/a_id/3618.

Personal Exemption Deduction

IRC §151(d)

Makes elimination of personal exemption permanent.

PA Personal Income Tax does not allow for personal exemptions. Note: dependency must still be determined if you are claiming tax forgiveness on Schedule SP.

Child & Dependent Care Credit

IRC §21(a)(2)

Section 529 Plans Qualified Expenses

IRC §529(e)(3)(C) 

Deduction for seniors

IRC §63(f)

Deduction for auto loans

IRC §163(h)(4)
IRC §62(a)(22)

Deduction for tip income

IRC §224

Deduction for overtime pay

IRC §225