On June 16, 2025, the Senate Finance Committee released its draft FY 2025 budget bill, which generally incorporates most of the House’s tax proposals, which we previously summarized here, but also differs in various aspects. The Senate and House will need to resolve these discrepancies soon in order to meet their desired July 4, 2025 deadline to deliver a budget bill to President Trump.
The Senate budget bill’s major business, individual, international, and exempt organization tax proposals, as well as some of the more relevant deviations from the House bill, are summarized below.
Business Tax Proposals
- Permanently increasing the total interest that businesses may deduct starting in 2025 by (i) modifying the Section 163(j) business interest expense limitation from 30% EBIT to 30% EBITDA, and (ii) expanding the scope of floor plan financing to include certain trailer financing. The House’s bill would only increase the Section 163(j) limit through 2029.
- Limiting deductions for certain state taxes paid by pass-through entities to the greater of $40,000 or half of the taxpayer’s allocation of taxes paid by the pass-through entity, as discussed further here[1]. The House’s bill would disallow these deductions entirely if the pass-through entity is engaged in a specified services trade or business (e.g., health, law, consulting, financial services, etc.).
- Reducing or terminating various clean energy tax credits introduced by the 2022 Inflation Reduction Act, as discussed further here[2], here, here, here, and here.
- Reinstating the TCJA’s 100% bonus depreciation for certain property acquired and placed in service after January 19, 2025. The House’s bill would allow 100% bonus depreciation through 2029 only.
- Providing 100% bonus depreciation for nonresidential real property connected to certain agricultural or chemical manufacturing and production activities, provided that (i) construction begins after January 19, 2025, and through 2029, and (ii) the property is put into service before 2031.
- Immediate expensing of domestic R&D expenditures incurred from 2025 onward. For R&D expenditures incurred during 2022 through 2024, certain small business taxpayers could retroactively claim a deduction for the full R&D expenditures in the expense year, and all taxpayers could elect to immediately expense any remaining amortization. The House’s bill would allow immediate expensing through 2029 only and would not apply before 2025.
- Permanently extending the TCJA’s Section 199A pass-through entity tax deduction on 20% of qualified business income.
- Clarifying that the partnership rules applicable to disguised sales and disguised payments for services are self-executing in the absence of regulations, as discussed further here[3].
- Allowing banks to exclude from their gross income 25% of interest on certain loans secured by rural or agricultural property and incurred after the enactment date.
- Permanently increasing the low-income housing credit by allowing states to issue more tax credits, and increasing credits for properties financed by tax-exempt bonds.
- Extending the Clean Fuel Production Credit through 2031, as discussed further here[4].
- Permanently extending the New Markets Tax Credit.
- Expanding the tax credits for employer-provided child care and family and medical leave.
- Permanently increasing the Section 179 dollar limitation for expensing certain depreciable business assets from $2.5 million to an inflation-adjusted $4 million. The House’s bill would increase the Section 179 dollar limitation through 2029 only.
Individual Tax Proposals
- Permanently extending the TCJA’s tax rates, including the 37% top marginal tax rate.
- Permanently capping the state and local tax deduction at $10,000 ($5,000 for single filers). The House’s bill would increase the cap to $40,000 ($20,000 for single filers), phased down to $10,000 ($5,000 for single filers) depending upon the taxpayer’s income.
- Eliminating the personal exemption and various itemized deductions, including miscellaneous itemized deductions (other than educator expenses), and deductions for casualty losses (other than from federally or state declared disasters), and moving expenses.
- Capping wagering loss deductions at 90% of such losses but only allowing them to offset wagering income.
- Reinstating a modified version of the “Pease Limitation,” effectively limiting the after-tax benefits of itemized deductions that certain high-earning taxpayers may claim.
- Permanently limiting a non-corporate taxpayer’s ability to deduct excess business losses.
- Permanently increasing the estate and gift tax exemption to an inflation-adjusted $15 million.
- Permanently limiting mortgage interest deductions to only the first $750,000 of mortgage indebtedness, and eliminating interest deductions on home equity indebtedness (e.g., non-acquisition indebtedness).
- Permanently extending the limitations on the Alternative Minimum Tax (“AMT”) provisions, including the increased exemption from, and the increased income threshold for phasing out the exemption to, the AMT.
- Providing up to $5000 in tax credits to individuals making charitable contributions to scholarship-granting organizations for elementary and secondary schools.
- Creating a new tax-deferred investment account for children and allowing up to an inflation-adjusted $5,000 in annual contributions, including a one-time $1000 payment by the Treasury for children born during 2025 through 2028.
- Expanding Section 529 plans to cover additional expenses related to credentialing and elementary and secondary schooling.
- Permanently extending and inflation adjusting the TCJA’s increased standard deduction, and allowing certain taxpayers 65 or older to claim an additional $6000 deduction from 2025 through 2028.
- Allowing certain taxpayers, subject to an income phaseout, to deduct interest on car loans for cars produced in the United States.
- Permanently increasing the Child Tax Credit to an inflation-adjusted $2200 as of 2025.
- Enhancing the adoption credit, including making a portion refundable.
- Limiting taxes on tips and overtime pay from 2025 through 2028, by allowing specific individuals who are not high-earning employees to deduct (in addition to their standard deduction) up to $25,000 of their tip income and/or overtime compensation.
- Allowing itemizing individuals to claim charitable contribution deductions only for the portion of their annual contributions exceeding .5% of the taxpayer’s contribution base (generally the taxpayer’s adjusted gross income). The House’s bill did not include this limitation.
- Allowing non-itemizing taxpayers to deduct (in addition to their standard deduction) up to $2000 ($1000 for single filers) in charitable contributions from 2025 through 2028. The House’s bill would allow up to $300 ($150 for single filers) of deductions.
- Permanently excluding certain student loan interest paid by an employer from an employee’s income, subject to an inflation-adjusted annual cap.
International Tax Proposals
- Taxing countries, and persons from such countries, that implement “unfair foreign taxes” on U.S. persons (specifically digital service taxes, undertaxed profits rules, and diverted profits taxes) by subjecting such countries, and persons therefrom, to up to a 20 percentage point increase on their U.S. net income, withholding, and gross-basis tax rates. The proposal and distinctions between the House’s and Senate’s bills are discussed further here[5].
- Increasing the effective rates on Global Intangible Low-Taxed Income (“GILTI”) from 10.5% to 14%, Foreign Derived Intangible Income (“FDII”) from 13.125% to 14%, and the Base Erosion and Anti-Abuse Tax (“BEAT”) from 10% to 14%. The House’s bill contained significantly lower increases to GILTI, FDII, and BEAT rates.
- Modifying the controlled foreign corporation (“CFC”) rules by (i) permanently extending the CFC look-through rule, (ii) restoring the limitation for applying downward attribution from a foreign person to a U.S. person when determining CFC status, and (iii) revising the calculation of a U.S. shareholder’s pro rata share of subpart F income. The House’s bill did not include these proposals.
Exempt Organization Tax Proposals
- Increasing the 1.4% excise tax on certain private universities’ net investment income (e.g., an 8% rate for universities with endowments per student equal to or exceeding $2,000,000, a 4% rate for universities with endowments per student between $750,000 and $1,999,999, and a 1.4% rate for universities with endowments per student between $500,000 and $749,999). The House’s bill would further increase the excise tax on many endowments’ net investment income by applying higher rates at different thresholds (e.g., a 21% rate for universities with endowments per student equal to or exceeding $2,000,000, a 14% rate for universities with endowments per student between $1,250,000 and $1,999,999, a 7% rate for universities with endowments per student between $750,000 and $1,249,999, and a 1.4% rate for universities with endowments per student between $500,000 and $749,999).
- Expanding the scope of highly-compensated non-profit employees whose compensation is subject to a 21% excise tax.
- Limiting a corporation’s charitable deductions by disallowing deductions that are less than or equal to 1%, or more than 10%, of the corporation’s adjusted gross income.
[1] NTD: Please link to Adam’s June 2025 BT article on SALT.
[2] NTD: Please link to Maggie’s June 2025 BT article on energy tax credits.
[3] NTD: Link to current month’s BT article entitled Congress Targets Partnership Disguised Sales and Payments for Services.
[4] NTD: Please link to Maggie’s June 2025 BT article on energy tax credits.
[5] NTD: Link to current month’s article on Section 899.
