OBBBA Boosts Franchises

Accelerated Expensing for Franchise Assets

For franchisees, the permanent reinstatement of 100% bonus depreciation and the significant increase in Section 179 expensing are game-changers. This means that for qualified property acquired and placed in service on or after January 19, 2025, a franchise can immediately deduct the full cost of eligible assets. This includes everything from kitchen equipment for a restaurant franchise to point-of-sale systems, signage, vehicles, and qualified leasehold improvements for retail or service franchises. The OBBBA also notably increases the maximum Section 179 deduction to $2.5 million, with a phase-out threshold of $4 million (both indexed for inflation), allowing for immediate write-offs of a much broader range of assets. These provisions provide substantial upfront tax savings, boosting cash flow crucial for startup costs, remodels, or multi-unit expansion.

Permanent Qualified Business Income (QBI) Deduction

A cornerstone of the OBBBA’s impact on franchising is the permanent extension of the Qualified Business Income (QBI) deduction. Many franchise owners operate as pass-through entities such as sole proprietorships, partnerships, or S-corporations, making them eligible for this deduction. The QBI deduction generally allows qualified business owners to deduct up to 20% of their qualified business income, effectively reducing their taxable income. Prior to the OBBBA, this deduction was set to expire, creating future tax uncertainty. Its permanent status now provides long-term stability and a significant ongoing tax benefit for a vast majority of franchisees, reinforcing the attractiveness of this business model. The OBBBA also introduces a new $400 minimum deduction for small business owners with at least $1,000 of QBI, further benefiting smaller operators.

Favorable Business Interest Deduction Limitation

Franchise businesses, especially those undergoing expansion or significant capital investments, often rely on debt financing. The OBBBA provides a more favorable environment for managing interest expenses by modifying the business interest deduction limitation. For tax years beginning after December 31, 2024, the law reverts to an EBITDA-based calculation (Earnings Before Interest, Taxes, Depreciation, and Amortization) for the 30% business interest deduction cap. This change means that depreciation and amortization are added back into the adjusted taxable income (ATI) calculation. For capital-intensive franchises, this will result in a higher ATI, allowing for a greater deduction of business interest expense and improving the overall economics of debt-financed growth and operations.

Opportunities from Expanded Opportunity Zones

While not a direct tax deduction for existing franchises, the OBBBA’s renewal and expansion of Opportunity Zones can indirectly benefit the franchising sector by stimulating new development. The program, now permanent with a new decennial redesignation cycle starting July 1, 2026, encourages long-term capital investments in designated low-income communities. As capital flows into these areas for various development projects, it can create fertile ground for new franchise locations. Increased foot traffic, improving infrastructure, and a growing local economy in Opportunity Zones can make these areas attractive for franchisees looking to establish new units, potentially leading to a synergistic growth for both the community and the franchise brand.

Immediate Expensing of Domestic R&E Expenditures

Finally, the OBBBA permanently restores the immediate expensing of domestic Research & Experimental (R&E) expenditures. While perhaps more directly relevant to franchisors than individual franchisees, this provision can significantly benefit companies investing in new product development, service innovations, operational efficiencies, or technological advancements within their franchise systems. Prior law had required R&E costs to be amortized over several years. Now, for tax years beginning after December 31, 2024, these costs can be fully deducted in the year incurred. This encourages franchisors to innovate and improve their offerings, ultimately strengthening the value proposition for their franchisees and the entire network.

Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.