Entity Setup
Entity Setup: Choosing a Business Structure Post-OBBB for Optimal Deduction Leverage
With the One, Big, Beautiful Bill reshaping depreciation, interest expense and production activity rules, selecting the right entity type can make big impacts—especially for businesses eyeing clean energy or manufacturing sectors.
By NomadicTax Research Team • 5-8 min read • March 11, 2026
## Entity Types Under Consideration
First, understand the main business entity options in the U.S.: sole proprietorship, LLC (pass-through), S Corporation, Partnership, and C Corporation. Each has different tax characteristics—especially important now with OBBB changes to depreciation, interest deduction, and credits for energy or production facilities.
## Key OBBB Provisions Affecting Entity Setup
### Special Depreciation for Qualified Production Property (QPP)
- Under Notice 2026-16, businesses placing qualified production property in service **after July 4, 2025** and before January 1, 2031, may elect a **100% special depreciation deduction** of unadjusted basis for QPP. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-special-depreciation-allowance-for-qualified-production-property-announce-upcoming-proposed-regulations-under-the-one-big-beautiful-bill?utm_source=openai))
- QPP includes nonresidential real property used in manufacturing, agricultural or refining with substantial transformation. Requires clear documentation of qualified production activity. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-special-depreciation-allowance-for-qualified-production-property-announce-upcoming-proposed-regulations-under-the-one-big-beautiful-bill?utm_source=openai))
### Corporate Alternative Minimum Tax (CAMT)
- Notice 2026-11 offers interim guidance on adjustments to **AFSI (adjusted financial statement income)**, special rules for financially troubled companies, and anti-abuse rules. Large corporations must understand how AFSI adjustment thresholds and property basis attributes will affect their tax base. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
### Business Interest Expense Limitations (§ 163(j))
- OBBB amended § 163(j) for tax years after December 31, 2024: depreciation, amortization, depletion deductions are added back when calculating ATI (Adjusted Taxable Income), which **may increase allowable business interest**. ([irs.gov](https://www.irs.gov/newsroom/basic-questions-and-answers-about-the-limitation-on-the-deduction-for-business-interest-expense?utm_source=openai))
- Floor plan financing interest now includes certain trailers/campers designed for seasonal use. Exclusions and inclusions must be carefully mapped per business type. ([irs.gov](https://www.irs.gov/newsroom/basic-questions-and-answers-about-the-limitation-on-the-deduction-for-business-interest-expense?utm_source=openai))
## Choosing the Right Structure: Comparison
| Feature | LLC / S Corporation / Partnership | C Corporation |
|---------|-------------------------------------|----------------|
| Ability to use 100% QPP depreciation deduction | Yes—deductions flow through to owners; beneficial for high-basis property § 168(k) | Yes—direct deduction; but AMT/CAMT may limit benefit under AFSI adjustments. |
| Treatment of interest expense limits under § 163(j) | Pass-throughs may benefit more, since their ATI includes fewer types of income | Corporate ATI changes tougher; need modeling under CAMT rules. |
| Eligibility for clean energy or production tax credits | Pass-through election possible; but entity’s ownership structure controls eligibility | Corporations may find scaling easier; but PFE rules may limit access. |
## Practical Example
> A company, GreenTech Farms LLC, builds a nonresidential facility for agricultural processing. It spends $5 million on production equipment in November 2025.
- As a pass-through entity, GreenTech LLC elects under Notice 2026-16 to deduct the full cost (100%) in 2025 rather than capitalizing over decades. Saves immediate taxes.
- Because business interest deduction rules add back depreciation when calculating ATI, LLC’s ability to deduct interest is increased.
- If GreenTech were structured as a C-Corp, it must assess whether its AFSI (for CAMT) will be adjusted, possibly reducing net benefit.
## Action Steps for New & Existing Entities
- Evaluate whether your current entity allows for best use of 100% special depreciation under OBBB.
- Model impact of business interest limits under both pass-through and corporate models.
- If planning activities in clean energy, production, or storage, check PFE (Prohibited Foreign Entity) rules—Notice 2026-15 provides interim safe harbors. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-certain-energy-tax-credits-regarding-material-assistance-provided-by-prohibited-foreign-entities-under-the-one-big-beautiful-bill?utm_source=openai))
- Consult with tax counsel for likely exposure to CAMT or future regulatory changes.
Choosing the right entity structure in the OBBB era isn’t one-size-fits-all—understanding new depreciation, interest expense rules, and credit access can lead to substantial tax savings.