The U.S House of Representatives Budget Committee introduced a new tax bill that is working its way through the House, and while it has a long road ahead before becoming law, the scope of proposed changes warrants close attention.
Here’s a breakdown of the most significant provisions under consideration from the thousand plus page bill called the “One Big Beautiful Bill Act”.
Key Proposed Tax Changes
1. Tax Rates
The bill would make the Tax Cuts and Jobs Act (TCJA’s) rates permanent. It would also modify the yearly inflation adjustment mechanism.
2. Standard Deduction
The bill would make the increased standard deduction permanent. The deduction would also be further increased for tax years 2025 through 2028.
3. Overtime and Tip Income
The bill would create a deduction equal to the amount of qualified tips and overtime income a taxpayer receives during the year. Highly compensated employees would not qualify for the deduction.
4. Child Tax Credit
The bill would make permanent the TCJA’s increased child tax credit. For 2025 through 2028, the child tax credit would increase to $2,500 and thereafter be set at $2,000. The amount would then be adjusted for inflation.
5. 100% Bonus Depreciation
The return of 100% bonus depreciation would allow businesses to fully expense qualifying capital assets placed in service after January 19, 2025, and before January 1, 2030. This is significant for companies investing in machinery, equipment, or technology, as it leads to significant tax savings thus allowing companies to improve their after-tax ROI and cash flow timing.
6. Increase Sec 179. Expensing Limitation
The proposal increases the maximum amount a taxpayer may expense under Sec. 179 to $2.5 million and increases the phaseout threshold amount to $4 million.
7. Section 199A Deduction Increase
The proposal allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income (QBI), as well as 20% of qualified REIT dividends and PTP income. This deduction is taken at the individual level and is set to expire after December 31, 2025. The 2025 Tax bill proposal is looking to increase this deduction rate from 20% to 23%, while also making the deduction permanent, reducing the effective tax rate on qualifying business income.
8. Section 163(j) Deductions
The bill would reinstate the EBITDA limitation under Sec. 163(j) for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030. Therefore, for purposes of the Sec. 163(j) interest deduction limitation for these years, adjusted taxable income would be computed without regard to the deduction for depreciation, amortization, or depletion.
9. Form 1099 Reporting Threshold
The bill would increase the information reporting threshold for certain payments to persons engaged in a trade or business, or for services, to $2,000 in a calendar year (from $600), with the threshold amount to be indexed annually for inflation in calendar years after 2026.
10. Estate and Gift Tax Exemption
The basic estate and gift tax exemption amount and the generation-skipping transfer tax exemption would be permanently increased to $15 million (for single filers). The $15 million exemption amount would be indexed for inflation after 2025.
11. Expansion of Qualified Opportunity Zones (QOZ)
A new version of QOZ or “QOZ 2.0” is being proposed which:
- Includes an extended deadline for investing in Opportunity Funds to December 31, 2033, and eliminates the 15% basis increase for investments held for at least seven years.
- Allows ordinary income investments in Opportunity Funds, with no tax on gains for investments held at least 10 years, but the $10,000 lifetime cap per taxpayer likely limits the investment’s attractiveness to investors.
- Includes new reporting requirements Including:
- The North American Industry Classification System (NAICS) code that applies to the trade or business
- The approximate number of residential units for any real property
- The approximate average monthly number of full-time equivalent employees
12. Partial Repeal of Section 174 Amortization Rules
The TCJA introduced a requirement that specified research-and-development (R&D) expenditures be capitalized and amortized ratably over a five-year period for tax years after 2021. The proposed bill would suspend that requirement for domestic research or experimental expenditures paid or incurred in tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030 and provide partial relief for foreign expenditures.
13. Changes to SALT (State and Local Tax) Deduction Rules
The increase of the SALT deduction cap to $30,000 for those making $400,000 or less. For those earning over $400,000, the deduction would phase down, but not below the current $10,000 cap. This provision would also be made permanent.
14. Section 179D Commercial Building Deduction Continues
The 179D deduction survives under the bill. This deduction has been adjusted for inflation, resulting not only in an increased credit amount, but a greater incentive for building owners and designers to invest in energy-efficient commercial buildings.
15. Rollback of Certain Clean Energy Credits
Credits for clean energy initiatives introduced in recent years are set to either terminate or sunset early. These include:
- Termination of the Sec. 25E previously owned clean vehicle credit for any vehicle acquired after 2025 (instead of 2032)
- Termination of the Sec. 30D clean vehicle credit for any vehicle acquired after 2026 (instead of 2032)
- Termination of the Sec. 45W qualified commercial clean vehicles credit for any vehicle acquired after 2025 (instead of 2032) (except for those placed in service before 2033 under a written binding contract entered into before May 12, 2025)
- Termination of the Sec. 30C alternative fuel vehicle refueling property credit for property placed in service after 2025 (instead of 2032)
- Termination of the Sec. 25C energy-efficient home improvement credit for property placed in service after 2025
- Termination of the Sec. 25D residential clean-energy credit for property placed in service after 2025 (instead of 2034)
- Termination of the Sec. 45L new energy-efficient home credit for any qualified new energy-efficient home acquired after 2025
- Phaseout and restrictions on the Sec. 45Y clean electricity production credit for tax years beginning after the date of enactment
- Phaseout and restrictions on the Sec. 48E clean electricity investment credit
- Repeal of the transferability of the clean fuel production credit
- Restrictions on the Sec. 45Q carbon oxide sequestration credit
- Phaseout and restrictions on the Sec. 45U zero-emission nuclear power production credit
- Termination of the clean hydrogen production credit under Sec. 45V
- Phaseout and restrictions on the Sec. 45X advanced manufacturing production credit
- Phaseout of the credit for certain energy property under Sec. 48
Final Thought
Legislation often shifts during the negotiation process, but early awareness is the key to staying agile. Whether or not these changes take effect and become law in its current form, it provides a valuable window into where federal tax policy is headed and allow for planning now.
