Act 45 of 2025 was signed into law on November 12, 2025, by Pennsylvania Governor Josh Shapiro. The Act only affects businesses that are taxed as C-Corporations in Pennsylvania, as it separates Pennsylvania Corporate Income Tax Law from several provisions of the One Big Beautiful Bill Act (OBBBA).
While the OBBBA, a federal law, is geared to be more beneficial towards businesses, Act 45, a Pennsylvania law, is more beneficial to the state as it disallows certain OBBBA provisions. The changes are estimated to preserve more than $1 billion in state revenue.
The major differences created by Act 45 include the treatment of research and experimental (R&E) expenses, qualified production property, and the interest deduction limitations.
Research & Experimental Expenses:
Prior to the OBBBA, corporations that incurred R&E expenses were required to capitalize and amortize the expenses over a 5-year period. However, post-OBBBA, allows the immediate expense for domestic R&E expenditures incurred by corporations for federal tax purposes. The Bill also allows businesses with domestic R&E costs capitalized between 2022 and 2024 to elect to deduct the remaining unamortized balance either fully in the 2025 tax year or ratably over the 2025 and 2026 tax years.
Act 45 will continue to enforce the treatment of R&E expenditures as if OBBBA did not exist. Corporations with R&E expenses will be required to add back to Pennsylvania taxable income any amounts deducted federally related to domestic R&E costs. The amounts added back are then amortized over a 5-year period for Pennsylvania tax purposes. Corporations that elect to take the federal deduction for expenses capitalized between 2022 and 2024 will also be required to capitalize and amortize the deduction over 5 years for Pennsylvania tax purposes
Qualified Production Property:
Qualified production property (QPP) is a portion of nonresidential real property used by a taxpayer that plays an essential role in a qualified production activity, such as manufacturing, producing, or refining activities. Following OBBBA, corporations can elect to immediately expense the cost of QPP on their federal return, rather than depreciating the cost, typically over 39 years. This provides an incentive for businesses to increase domestic investment in manufacturing, production, and refining facilities.
Under Act 45, corporations that elect to fully deduct the expense for QPP must add the deduction back to Pennsylvania taxable income. For Pennsylvania tax purposes, the cost must continue to be depreciated over the 39-year period and calculated as it would have been prior to the enactment of the OBBBA.
Interest Deduction Limitation:
Under the Tax Cuts and Jobs Act of 2017 (TCJA), Section 163(j) was amended to limit the deduction for business interest expense to the total of a taxpayer’s business interest income, floor-plan financing interest, and 30% of its adjusted taxable income (ATI) for the year. For tax years beginning after January 1, 2022, taxpayers had to compute ATI to include depreciation and amortization deductions, which resulted in a smaller deductible interest expense amount. The enactment of the OBBBA allows ATI to be computed without including depreciation and amortization deductions for tax years beginning after December 31, 2024, for federal tax purposes. This change can benefit corporations with depreciation and/or amortization as it increases the allowable deductible amount of interest.
Act 45 requires corporations to continue to calculate their ATI following TCJA principles for state tax purposes. Therefore, corporations must continue to include depreciation and amortization expense in their ATI calculation, which can result in a lower interest deduction for Pennsylvania taxes compared to the federal deduction.
