Key Takeaways
- 2017 individual rate changes made permanent.
- Research expense deductions, bonus depreciation restored.
- Energy credits scaled back.
- New breaks for tips, overtime, car loan interest.
The House of Representatives has approved the Senate-passed version of the budget reconciliation bill. The President is expected to sign it tomorrow.
Some key provisions of the Senate bill are outlined below.
Individual taxes
- Permanent extension of the individual rate reductions enacted in 2017, including a 37% top stated marginal rate. The pre-2018 rates were scheduled to return in 2026.
- A permanent increase in the standard deduction effective for 2025. The 2025 amounts will be $15,750 for single filers and $31,500 for joint filers, indexed for inflation after 2025.
- Permanent extension of the so-called "pass-through deduction" for business income under Sec. 199A, but at the old 20% rate, rather than the 23% rate in the original House version.
- A permanent increase in the estate and gift tax to $15 million effective in 2026, to be indexed for inflation afterwards.
- A permanent cap of the home mortgage deduction, limiting it to $750,000 in borrowing.
- The cap for itemized deductions for state and local taxes is increased to $40,000 for all filing statuses, with a 1% annual increase in the cap. The maximum allowance phases down 30 cents for each dollar of income over $500,000 of modified adjusted gross income, until it gets back down to $10,000. The increase is scheduled to revert to $10,000 in 2030.
- A limited and temporary above the line deductions is provided for tips. Tips are deductible up to $25,000 per taxpayer for 2025 through 2028, with modified adjusted income phase outs starting at $150,000 adjusted gross income for single filers and $300,000 for joint filers. The deduction is limited to occupations that “customarily and regularly received tips on or before 12-31-2024.” Treasury must publish the definitive occupation list within 90 days of enactment.
- A limited and temporary above the line deductions is provided for overtime pay required by Sec. 7 of the Fair Labor Standards Act. Additional overtime pay required by state law applies if paid for FSLA-covered overtime. The deduction is limited to $12,500 for single taxpayers and $25,000 on joint returns and phases out starting at $150,000 AGI for single filers and $300,000 on joint returns.
- A temporary "senior deduction" is applied to taxpayers who are 65 and older for 2025-2028.
Charitable deductions
- The bill rewrites the charitable-giving rules in three big ways: (1) it makes permanent a “universal” above-the-line deduction of up to $1,000 ($2,000 for joint filers) for cash gifts to qualifying public charities; (2) for those who still itemize, it imposes a new floor so contributions are deductible only to the extent they exceed 1/2% of the donor’s adjusted gross income and caps the value of the deduction at 35 cents per dollar given; and (3) it adds a 1% of taxable-income floor for corporations.
Business taxes
- Full deduction of domestic R&D costs after 2024. Businesses whose gross receipts for 2022-2024 did not exceed $31 million can apply the full deduction retroactively to 2022.
- 100% bonus depreciation for assets placed in service after Jan 19 2025.
- The Senate bill provides a temporary 100% deduction for “qualified production property” used in U.S. manufacturing, through 2030.
- returns the cap on business interest deductions to 50% of taxable income before interest, depreciation and amortization.
Employee retention credit
- The bill bars ERC claims for the third and fourth quarters of 2021 if filed after January 31, 2024. It extends the statute of limitations for ERC claims to six years, with a corresponding change for wage adjustments due to ERC claims.
Energy provisions
- Many credits (EV 30D, alt-fuel refueling 30C, hydrogen 45V, etc.) are repealed or sunset sooner; wind/solar PTC/ITC phased down sharply and subject to strict “foreign-entity-of-concern” rules
Eide Bailly will provide additional coverage and details in the coming weeks.
Other coverage:
Tax Bill Passes in the Senate - Eide Bailly.
GOP tax bill includes a $6,000 ‘senior deduction.’ Here’s who qualifies. - Jeff Stein, Washington Post.
Tax Cuts Now, Benefit Cuts Later: The Timeline in the Republican Megabill - Tony Romm, Andrew Duehren, Margot Sanger-Katz, Brad Plumer and Daniel Wood, New York Times.
What Trump’s Megabill Means for You: How parents, retirees, tipped workers, Medicaid recipients and more will be affected - Jasmine Li, Wall Street Journal.
The Corporate Winners and Losers in Trump’s Big Tax Bill: The Corporate Winners and Losers in Trump’s Big Tax Bill - Wall Street Journal.
Top five tax changes for the wealthy in Trump’s ‘big beautiful bill’ - Robert Frank, CNBC
OB3 Act: No Tax on Tips, Overtime, or Social Security - Thomas Gorczynski, Tom Talks Taxes.
