Monthly US Tax Bulletin - October 2025

Key highlights:

Federal taxes

• Withdrawal of Disregarded Payment Loss (DPL) rules: The IRS notice 2025-44 withdraws the DPL rules and extends Dual Consolidated Loss (DCL) transition relief without regard to the GloBE Model Rules for the losses incurred in taxable years beginning before 1 January 2028.
• Interest capitalisation rules: The IRS issued final regulations revising the interest capitalisation rules for improvements classified as designated property, removing the associated property rule, effective from 2 October 2025.
• IRS Identity protection PINs: The IRS urges taxpayers and professionals to use IP PINs, secure online accounts, and multi-factor authentication to guard against identity theft and scam.
• Expiration of Work Opportunity Tax Credits (WOTC): The WOTC, which encourages hiring from targeted groups, is set to expire on 31 December 2025.
• Affordable Care Act (ACA) enforcement: The ACA enforcement for large employers remains active despite the recent layoffs and resignation at the IRS, with steep penalties for non-compliance making timely and accurate reporting of the appropriate IRS forms.

State taxes

• New Jersey: Governor Murphy enacted a USD 500 million tax credit programme to incentivise manufacturing investment and job creation.
• California: California’s FTB finalised updated market-based sourcing rules effective 1 January 2026, introducing new default methods and definitions for service and securities income.
• Alabama: Effective 1 October 2025, state decouples from federal Section 174 rules, allowing immediate deduction or pre-TCJA treatment of research and experimental (R&E) expenses for state tax purposes beginning tax year 2024.
• New Hampshire: The state has enacted a tax amnesty programme, offering penalty and partial interest relief on eligible unpaid liabilities due before 30 June 2025, available from 1 December 2025 to 15 February 2026.
• Philadelphia: A phased reduction in Business Income and Receipts Tax rates begins in 2025,  with the removal of the small-business filing exemption and clarification of the sourcing rules for software companies.
• Illinois: Key tax reforms in income and sales tax, includes new apportionment rules, stringent addback rules, capped GILTI deductions, new sourcing for capital gains, and expanded tax obligations for remote sellers and service providers.

Monthly US Tax Bulletin - October 2025

The October 2025 edition of the Grant Thornton Bharat Monthly US Tax Bulletin provides a concise summary of recent key developments in federal and state taxes in the US.

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