Will America celebrate the Fourth of July with the passage of major tax reform? On May 22, House Republicans passed the “One Big Beautiful Bill Act” under the budget reconciliation process. This marks a significant milestone in the effort to pass tax legislation by the July 4 holiday, a self-prescribed deadline set by the Republicans and White House administration. The tax bill will now move to the Senate, which is back in session on June 2.
The primary goal of the tax bill is to extend or make permanent many of the provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire at the end of this year. Republicans are using the budget reconciliation process to pass the bill, just as with the TCJA in 2017. Under reconciliation, only a simple majority is needed in the Senate for the bill to become law. The Congressional Budget Office estimates that the tax bill as passed by the House would add $3.8 trillion to the national debt over the next decade.
Although it is anticipated that Senate Republicans will make several changes and tweaks to the tax bill in the upcoming weeks, critical provisions in the House version are outlined below:
Businesses and Investors
- Qualified business income deduction (Section 199A) – Increases maximum deduction from 20% to 23% and makes the deduction permanent
- Depreciation/expensing – Provides 100% bonus depreciation for certain property acquired between January 20, 2025, and 2029 and increases Section 179 expensing limitation from $1 million to $2.5 million
- Research and development expenditures – Return to immediate expensing for domestic (but not foreign) R&D expenditures for tax years 2025 through 2029
- Opportunity zones – Renews the opportunity zone program for tax years 2027 through 2033 with modifications to eligibility
- Business interest – Reinstates the use of EBITDA (instead of EBIT) when determining the limitation on deducting interest for tax years 2025 through 2029
- Excess business losses – Makes permanent the limitations for noncorporate taxpayers ($626,000 for joint filers and $313,000 for single filers for 2025) on deducting excess business losses
- Professional sports – Limits the amount eligible for 15-year amortization of the intangible assets of professional sports franchises to 50% of the adjusted tax basis of those assets
Individuals and Estate Planning
- Tax rates – Makes permanent the reduced maximum 37% federal income tax rate on ordinary income for individuals
- SALT cap – Increases the deduction cap from $10,000 to $40,000 ($20,000 for married filing separately) with a phase-out for taxpayers earning more than $500,000 in earnings and curbs the use of state PTE tax elections designed to mitigate the SALT cap
- Estate and gift tax exemption – Increases exemption to inflation-adjusted $15 million starting in 2026
- Standard deduction – Makes permanent the increased standard deduction enacted by the TCJA and temporarily increases the deduction to $26,000 ($13,000 for single filers) for tax years 2025 through 2028
- Tips and overtime – Establishes deductions for tips and overtime for certain taxpayers, effectively excluding tips and overtime from federal income taxation (but not payroll taxation), for tax years 2025 through 2028
- MAGA accounts – Creates “money account for growth and advancement” trust accounts for U.S. citizens under 18 years old where funds can be used for qualified expenses such as higher education
Clean Energy and Renewables Industry
- Electric vehicles – Repeals tax credits related to electric vehicles starting in 2026 but retains a limited tax credit for electric vehicles from certain manufacturers that have produced fewer than 200,000 electric vehicles
- Clean electricity production and investment tax credits – Accelerates phasing out these credits (Section 45Y and Section 48E) starting after 2028 and changes eligibility from when facilities begin construction to when they enter service
- Clean hydrogen – Repeals the clean hydrogen production tax credit (Section 45V) for projects beginning after 2025
- Residential solar – Eliminates production and investment tax credits for many solar facilities that are leased to homeowners
- Selling tax credits – Eliminates the ability to sell many tax credits after 2027
Tax-Exempt Organizations and Higher Education
- Excise tax on investment income and endowment – Increases excise tax on net investment income/total assets of private colleges and universities and private foundations by implementing a tiered, progressive rate structure
- UBTI – Treats additional amounts as unrelated business taxable income such as certain parking expenses paid or incurred by tax-exempt organizations
- Executive compensation – Expands definition of “covered employee” for purposes of the excise tax on compensation over $1 million to include any current or former employees
