Key Takeaways
- The Tax Cuts and Jobs Act of 2017 temporarily reduced individual income tax rates. These rate reductions, originally set to expire at the end of the 2025 tax year, are now permanent.
- Qualified assets are again eligible for 100% bonus depreciation, and research and development expenditures can now be fully expensed. Additionally, the business interest expense limitation rules have been adjusted to allow businesses to deduct business interest without accounting for depreciation and amortization.
- Many of the energy credits introduced as part of the Inflation Reduction Act will be phased out and eliminated by this new legislation.
President Trump signed into law major tax legislation on July 4, 2025. The initial version of this legislation, passed by the House of Representatives on May 22, was modified by the Senate on July 1, and this modified version was adopted by the House of Representatives on July 3 and then sent to the President for his signature.
This new tax legislation will materially affect both individuals and businesses. Here's what you need to know about key legislative provisions in the new tax bill.
Extension of Current Tax Rates and Other Individual Tax Items
The Tax Cuts and Jobs Act of 2017 (TCJA) temporarily reduced individual income tax rates, decreasing, for example, the top individual rate from 39% to 37%. These rate reductions, originally set to expire at the end of the 2025 tax year, are now permanent.
There are also now temporary deductions and exemptions for overtime pay, tips, and auto loan interest (all subject to certain limitations).
The “Big 3” Business Tax Provisions
Qualified assets are again eligible for 100% bonus depreciation (since 2022, bonus depreciation has been subject to a phase-down, with 60% allowed for the 2024 tax year).
Additionally, research and development expenditures (R&D Expenditures), required to be amortized over 5 years since 2022, can now be fully expensed. And the business interest expense limitation rules will allow a business to deduct business interest without accounting for depreciation and amortization, meaning, for example, businesses with heavy amounts of depreciation and amortization may now be able fully deduct their business interest (subject to certain limitations).
Qualified Business Income Deduction
A 20% deduction for Qualified Business Income (QBI), introduced by the TCJA, can lower the effective rate paid by owners of pass-through businesses (partnerships, S corporations, and sole proprietors) from 37% to 29.6%. This 20% QBI deduction, originally set to expire at the end of the 2025 tax year, is now made permanent.
SALT CAP
Perhaps the most contentious issue debated by the House and Senate is the treatment of State and Local Tax (SALT) deductions. A $10,000 SALT deduction cap was introduced by the TCJA, and since then House members from states with higher income taxes have advocated for a larger cap.
Ultimately, a new $40,000 SALT deduction cap now applies, subject to certain taxable income phaseouts (for example, a married couple with taxable income above $500k could have their SALT deduction cap reduced from $40,000 to $10,000). This new $40K SALT deduction is not permanent, though, and expires after the 2029 tax year.
And so-called pass-through entity taxes, where certain states allow partnerships and S corporations to elect to pay income taxes at the entity level, allowing for a full entity level deduction, are not subject to this $40k SALT limitation.
Energy Credits
Many of the energy credits introduced as part of the Inflation Reduction Act of 2022 will be phased out and eliminated by this new legislation. The transferability of energy credits, though, is retained until these credits are phased out.
International
An often debated “retaliatory tax”, aimed at certain foreign governments and businesses, is not included in this legislation, but there are other changes to the international tax regime, including an increase in the tax on global intangible low-taxed income (GILTI) and a reduction in the deduction for foreign-derived intangible income (FDII).
Opportunity Zones
The TCJA incentivized investments into economically distressed areas (known as Opportunity Zones) by allowing for certain gain deferrals and gain exclusions for qualifying investments. Originally proposed to expire in 2026, the Opportunity Zone investment program is now permanent, with new incentives.
Estate and Gift Tax
The new estate and lifetime gift tax exemption is set to $15 million per individual, indexed for inflation.
Qualified Small Business Stock Gain Exclusion
The gain exclusion for the sale of section 1202 qualified small business stock is enhanced, and the definition of a qualifying business has been increased as well.
Next Steps for New Tax Legislation
The Treasury Department (and the Internal Revenue Service) will now be tasked with implementing this legislation by issuing new forms and instructions and updating regulatory guidance.
This process will extend into the 2026 tax year (and beyond) meaning there will likely be debates and unanswered questions concerning the nuances of these various provisions for years to come.
Our National Tax team will continue to review the implications of this tax legislation and help you make sense of what it means for your organization and situation.
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