The One Big Beautiful Bill Act, commonly called the OBBBA, changed the tax-planning landscape for New Jersey small-business owners.
Signed into law on July 4, 2025, the law made several major federal tax provisions permanent, including the 20% qualified business income deduction and 100% bonus depreciation. It also increased the federal Section 179 deduction, temporarily raised the SALT deduction cap, expanded the qualified small business stock rules, and permanently extended the excess business loss limitation.
But for a New Jersey business owner, the federal rules are only half of the story.
New Jersey does not follow every federal depreciation rule. The state has its own treatment of bonus depreciation and Section 179. At the same time, New Jersey introduced an important new tax benefit for certain qualified small business stock gains beginning in 2026.
That means a strategy that looks excellent on a federal return may produce a very different result on your New Jersey return.
Here is what New Jersey small-business owners should know when building a 2026 tax plan under the OBBBA.
What Did the OBBBA Make Permanent?
The OBBBA is Public Law 119-21.
One of its biggest effects was removing the scheduled expiration of several provisions created or changed under the Tax Cuts and Jobs Act.
But “permanent” does not mean every dollar amount stays the same forever.
Some provisions are permanent in the tax code while their thresholds continue to adjust for inflation.
For New Jersey business owners, some of the most important changes involve:
- the Section 199A qualified business income deduction;
- 100% federal bonus depreciation;
- higher Section 179 expensing limits;
- the temporary increase in the SALT deduction cap;
- expanded qualified small business stock rules; and
- the permanent excess business loss limitation.
The important question is not simply, “Did the deduction survive?”
The better question is:
How does each rule affect my federal tax, my New Jersey tax, and the timing of decisions I make during 2026?
Is the 20% QBI Deduction Permanent in 2026?
Yes.
The qualified business income deduction under Section 199A is now permanent.
Eligible owners of sole proprietorships, partnerships, S corporations and certain other pass-through businesses may generally qualify for a deduction of up to 20% of qualified business income, subject to income limits and other restrictions.
That is especially important for New Jersey S-corporation owners and other pass-through business owners who previously faced uncertainty over whether Section 199A would expire after 2025.
What are the 2026 QBI income thresholds?
For tax year 2026, the Section 199A thresholds are:
| Filing Status | 2026 Threshold | Upper End of Phase-In Range |
|---|---|---|
| Married Filing Jointly | $403,500 | $553,500 |
| Married Filing Separately | $201,775 | $276,775 |
| Most Other Returns | $201,750 | $276,750 |
The expanded phase-in range is particularly important for higher-income business owners.
For married couples filing jointly, the range is now $150,000 wide. For most other taxpayers, it is $75,000 wide.
These thresholds matter differently depending on the type of business.
For a non-SSTB business, the W-2 wage and qualified-property limitations become increasingly important through the phase-in range.
For a specified service trade or business, or SSTB, there is another problem: the business itself can lose eligibility for the deduction as taxable income moves through and above the phase-in range.
SSTBs can include businesses in fields such as law, accounting, consulting, health, financial services and certain other professional services.
That makes proactive income planning particularly important for professional firms.
Is there a new minimum QBI deduction?
Yes.
Beginning in 2026, an eligible taxpayer with at least $1,000 of aggregate qualified business income from active qualified trades or businesses in which the taxpayer materially participates can potentially benefit from a minimum $400 QBI deduction, subject to the applicable Section 199A rules.
The $400 and $1,000 amounts are scheduled to receive inflation adjustments after 2026.
For an established New Jersey business earning substantial profit, this minimum deduction may not change much.
The more important planning benefit is that the overall Section 199A deduction is no longer facing a scheduled expiration.
What Changed With 100% Bonus Depreciation?
The OBBBA permanently restored 100% additional first-year bonus depreciation for qualifying property acquired after January 19, 2025.
This reversed the phase-down that had been scheduled under prior law.
Before the OBBBA, bonus depreciation had fallen to 40% for 2025 and was scheduled to fall further.
Now, qualifying property can generally receive a 100% federal first-year deduction when the requirements of Section 168(k) are satisfied.
Qualifying property can include certain:
- machinery;
- equipment;
- computers;
- qualified improvement property;
- new property;
- qualifying used property; and
- business vehicles, subject to applicable vehicle and passenger-automobile limitations.
The word qualifying matters.
Not every purchase automatically receives 100% bonus depreciation, and special limitations can apply to vehicles and other property.
Does New Jersey Allow 100% Bonus Depreciation?
This is where New Jersey business owners need to be especially careful.
New Jersey is decoupled from the current federal Section 168(k) bonus depreciation rules.
As a result, taking a large federal bonus depreciation deduction can create a significant difference between federal taxable income and income calculated under New Jersey’s depreciation rules.
New Jersey requires separate depreciation adjustments, and businesses may need to maintain a different New Jersey depreciation calculation for the same property.
The exact adjustment depends on the type of taxpayer, entity and applicable New Jersey return.
For example, imagine a New Jersey contractor buys a large amount of qualifying equipment.
Federally, the business might receive a substantial first-year deduction under 100% bonus depreciation.
That does not mean the same first-year deduction will automatically appear on the New Jersey return.
This federal-versus-state difference should be modeled before making a large purchase—not discovered after the year ends.
What Is the Section 179 Limit for 2026?
The OBBBA also significantly increased the federal Section 179 deduction.
For tax years beginning in 2026:
Maximum federal Section 179 deduction: $2,560,000
The deduction begins to phase out when the cost of Section 179 property placed in service during the year exceeds:
$4,090,000
For qualifying sport utility vehicles subject to the special Section 179 SUV limitation, the 2026 maximum is:
$32,000
These numbers are much higher than the amounts many business owners remember from prior years.
Section 179 can therefore be extremely valuable for equipment-heavy businesses, including contractors, construction companies, manufacturers, medical practices and other businesses making significant capital purchases.
But again, federal tax treatment and New Jersey treatment can be very different.
What Is the New Jersey Section 179 Limit?
New Jersey does not simply follow the current federal Section 179 limit.
Current New Jersey business tax forms continue to reflect a $25,000 Section 179 limitation for New Jersey purposes.
Compare that with the 2026 federal maximum of:
$2,560,000
That is a major difference.
A New Jersey business could therefore receive a very large federal deduction while receiving a much smaller immediate deduction for New Jersey purposes.
The remaining basis generally has to be handled under the applicable New Jersey depreciation rules rather than simply copying the federal deduction.
For business owners considering a major equipment purchase, this is one of the most important areas to model in advance.
A purchase can still make excellent business and tax sense.
Just do not assume:
“I deducted it federally, so New Jersey will deduct the same amount.”
What Is the SALT Deduction Cap for 2026?
The OBBBA temporarily increased the federal deduction limit for state and local taxes, commonly known as the SALT deduction cap.
The cap increased to $40,000 for 2025.
For 2026, the general SALT deduction cap is:
$40,400
For married taxpayers filing separately, the 2026 limit is generally:
$20,200
The higher limit is scheduled to continue increasing by 1% annually through 2029.
Unless Congress changes the law again, the cap is scheduled to return to $10,000 in 2030.
Unlike QBI and permanent 100% bonus depreciation, the higher SALT cap is therefore a temporary tax provision.
Does the $40,400 SALT deduction apply to everyone?
No.
First, SALT is an itemized deduction.
A taxpayer receives an incremental federal tax benefit only when itemizing deductions makes sense compared with taking the standard deduction.
Second, the larger SALT cap phases down for higher-income taxpayers.
For 2026, the phase-down generally begins when modified adjusted gross income exceeds:
$505,000
For married taxpayers filing separately, the threshold is generally:
$252,500
Above the applicable threshold, the higher SALT limit is reduced by 30 cents for every $1 of excess MAGI.
For most filing statuses, the deduction cannot be reduced below the $10,000 floor.
For 2026, that means the $40,400 cap is effectively reduced back to $10,000 at approximately $606,333 of MAGI.
That creates an important planning zone for New Jersey business owners with income between roughly $505,000 and $606,000.
A bonus, Roth conversion, large capital gain, business sale, increased S-corporation profit or other income event may affect more than just the marginal income tax rate.
It may also reduce the taxpayer’s available SALT deduction.
Does the Higher SALT Cap Make NJ BAIT Less Valuable?
Not necessarily.
New Jersey’s Business Alternative Income Tax, or BAIT, is a pass-through entity tax regime that can allow eligible partnerships and S corporations to pay New Jersey tax at the entity level.
Entity-level state taxes can receive different federal treatment from an individual’s Schedule A SALT deduction.
The OBBBA did not eliminate the federal pass-through entity tax strategy.
That means BAIT can remain valuable.
However, the larger individual SALT deduction means the incremental benefit of a BAIT election may change from one owner to another.
The answer can depend on:
- taxable income;
- MAGI;
- property taxes;
- filing status;
- ownership percentages;
- business income;
- New Jersey sourcing;
- other state taxes;
- available credits; and
- the owner’s overall federal itemized deductions.
The correct question for 2026 is therefore not:
“Should every NJ pass-through business elect BAIT?”
It is:
“How much does the BAIT election save this owner under the 2026 federal and New Jersey rules?”
That calculation should be revisited annually.
How Did the OBBBA Change Qualified Small Business Stock?
The OBBBA significantly expanded Section 1202 qualified small business stock, or QSBS, for stock acquired under the new rules.
For qualifying QSBS acquired after July 4, 2025, the federal exclusion is now graduated based on the holding period.
A taxpayer may potentially exclude:
- 50% of eligible gain after at least 3 years;
- 75% after at least 4 years;
- 100% after at least 5 years.
For qualifying post-enactment stock, the per-issuer dollar limitation also increased to $15 million, with the Section 1202 rules generally providing a limitation based on the greater of the applicable dollar cap or 10 times adjusted basis, subject to the detailed statutory requirements.
The $15 million amount is scheduled for inflation adjustment after 2026.
The gross-asset ceiling used to determine whether an issuing corporation qualifies as a small business also increased from $50 million to $75 million for stock subject to the new issuance rules.
QSBS is not a general deduction for every small-business owner.
Section 1202 generally applies to qualifying stock in a domestic C corporation, and numerous requirements and excluded business categories apply.
A typical S corporation, sole proprietorship or professional service practice should not assume its ownership interest qualifies.
Does New Jersey Recognize the QSBS Exclusion in 2026?
This is one of the biggest New Jersey-specific changes that business owners and founders should know.
Beginning with tax years starting on or after January 1, 2026, New Jersey excludes qualifying gains from the sale, exchange or other disposition of qualified small business stock to the extent the gain is also exempt from federal taxation under Section 1202.
New Jersey enacted this change through P.L. 2025, c.67.
That creates a potentially significant opportunity for qualifying New Jersey founders, investors and business owners.
Historically, focusing only on the federal QSBS exclusion could give an incomplete picture of the state-tax result.
For 2026 and later, qualifying Section 1202 treatment can potentially matter at both the federal and New Jersey levels.
For someone forming, investing in or selling a qualifying C corporation, QSBS eligibility should therefore be examined well before an exit.
What Is the Excess Business Loss Limit for 2026?
The OBBBA also made the Section 461(l) excess business loss limitation permanent.
This rule applies to noncorporate taxpayers, including certain:
- sole proprietors;
- partners;
- LLC members; and
- S-corporation shareholders.
The surprising part is that the threshold went down from 2025 to 2026.
For 2025, the threshold was:
$313,000 for most taxpayers
$626,000 for joint returns
For 2026, the threshold is:
$256,000 for most taxpayers
$512,000 for joint returns
Why did it fall?
The OBBBA changed the inflation-indexing mechanics, creating a lower 2026 threshold even though the amount remains subject to inflation adjustments going forward.
That can matter enormously for an owner expecting a large deductible business loss.
What happens to a loss above the limit?
A disallowed excess business loss does not necessarily disappear.
The disallowed amount is generally treated as a net operating loss carryover for subsequent years under the applicable rules.
It is also important to understand the order of operations.
Basis limitations, at-risk limitations and passive activity loss rules generally apply before the excess business loss limitation is calculated.
That means a taxpayer should not simply take every economic loss from every activity, add them together and compare the result with $256,000 or $512,000.
The tax treatment has to be calculated in the correct sequence.
What Should a New Jersey Small-Business Owner Do Before the End of 2026?
The OBBBA created opportunities, but the biggest tax savings still come from planning before transactions are completed.
If you are buying equipment
Model both the federal deduction and New Jersey depreciation treatment before assuming 100% bonus depreciation or Section 179 will produce the same result on both returns.
If you own an S corporation or another pass-through business
Run your projected taxable income against the 2026 QBI thresholds.
For married couples filing jointly, $403,500 and $553,500 are important numbers to watch.
If your income is around $505,000 or higher
Model the SALT deduction phase-down before intentionally creating additional income.
A large year-end transaction can affect both ordinary tax and the value of your SALT deduction.
If your business can elect NJ BAIT
Do not automatically repeat last year’s election without reviewing the numbers.
The higher individual SALT cap can change the value of the strategy.
If you own stock in a qualifying C corporation
Review Section 1202 QSBS eligibility, especially now that New Jersey provides its own exclusion for qualifying federally exempt gains beginning in 2026.
If your business may generate a large loss
Use the 2026 Section 461(l) thresholds, not the higher numbers from 2025.
For 2026, the limits are $256,000 for most taxpayers and $512,000 for joint filers.
The Bigger Lesson: Federal Tax Savings Are Not Always New Jersey Tax Savings
For New Jersey business owners, one of the biggest mistakes in tax planning is stopping after calculating the federal result.
A business might receive:
- a large federal Section 179 deduction;
- 100% federal bonus depreciation;
- a QBI deduction; or
- favorable federal QSBS treatment.
But the New Jersey result needs to be calculated separately.
Sometimes New Jersey does not follow the federal deduction.
Sometimes, as with QSBS beginning in 2026, New Jersey now provides an additional benefit that makes the federal planning even more valuable.
Good tax planning looks at both returns before the transaction happens.
Frequently Asked Questions About OBBBA and NJ Small-Business Taxes
Is the QBI deduction permanent after 2025?
Yes. The OBBBA made the Section 199A qualified business income deduction permanent. Eligible pass-through business owners can continue to potentially deduct up to 20% of qualified business income, subject to the applicable limitations.
What is the QBI threshold for married couples in 2026?
For married taxpayers filing jointly, the 2026 threshold is $403,500, and the upper end of the expanded phase-in range is $553,500.
What is the 2026 federal Section 179 deduction?
The maximum federal Section 179 deduction for tax years beginning in 2026 is $2,560,000, with the phase-out beginning when qualifying property placed in service exceeds $4,090,000.
Does New Jersey follow federal bonus depreciation?
New Jersey is decoupled from the current federal Section 168(k) bonus depreciation rules. Separate New Jersey depreciation adjustments may therefore be required.
What is New Jersey’s Section 179 limit?
Current New Jersey business tax forms continue to use a $25,000 Section 179 limitation, compared with the much higher federal limit.
What is the SALT deduction cap for 2026?
For most filing statuses, the 2026 SALT deduction cap is $40,400. The higher cap begins phasing down when MAGI exceeds $505,000 and cannot generally fall below $10,000.
Is the $40,400 SALT cap permanent?
No. The higher SALT cap is temporary. It increases by 1% annually through 2029 and is scheduled to return to $10,000 in 2030 unless the law changes.
Does NJ BAIT still work after the OBBBA?
The OBBBA did not eliminate the pass-through entity tax strategy. NJ BAIT may still provide a federal benefit, but the higher personal SALT cap can change the size of that benefit, so the election should be modeled annually.
Does New Jersey allow the QSBS exclusion?
Beginning with tax year 2026, New Jersey excludes qualifying QSBS gains to the extent those gains are exempt federally under Section 1202.
What is the excess business loss limit for 2026?
The 2026 Section 461(l) threshold is $256,000 for most taxpayers and $512,000 for joint returns.
Build Your 2026 New Jersey Small-Business Tax Plan Before Year-End
The OBBBA made several valuable tax provisions permanent, but permanence does not make tax planning automatic.
For New Jersey small-business owners, the real opportunity is understanding where the federal and New Jersey tax rules line up—and where they do not.
If you are considering a major equipment purchase, expecting higher income, deciding whether to make a BAIT election, managing an S corporation, carrying a large business loss or holding qualifying C-corporation stock, the numbers should be modeled before the year closes.
This article is for general educational purposes and does not constitute individualized tax, legal or investment advice. Tax treatment depends on the taxpayer’s facts and circumstances.
