Here’s a look at recent tax-related happenings on the Hill, including the reconciliation package heading to the Senate after its narrow approval in the House.
Lately on the Hill
Tax Bill Passes the House
The reconciliation package continues its trip through the congressional process. After officially squeaking by the House on May 22 with a 215 to 214 vote, it now faces its next hurdle—the Senate. After an all-nighter debating specifics of the One Big Beautiful Bill Act1,2 (the “Bill”, or the “House bill”), there were arguably three topics that tipped the scales for passage: the state and local tax (SALT) cap, clean energy credits, and Medicaid.
The SALT Caucus and House Freedom Caucus both presented obstacles to getting the bill through, both of which were largely appeased with adjustments included in the Manager’s Amendment issued late in the evening of May 21. In the passed version of the Bill, the SALT cap was raised to $40,000 beginning in 2025, but this amount phases out (to $10,000) for those with income of $500,000 or more. Further, the cap and the phase-out threshold increase 1% annually from 2026 until 2033 and then become permanent at 2033 levels.
Previously, House Speaker Mike Johnson (R-LA) was quoted late in 2024 that clean energy credit changes would be made “with a ‘scalpel not a sledgehammer.’”3 However, what came out of the House for certain investment and production credits were major changes for the clean energy industry. The most commonly claimed credits—Sections 45Y and 48E—now end after December 31, 2028. What’s possibly most significant, however, is that projects must begin construction no later than 60 days after the Bill’s enactment. Beginning construction is, however, often out of the hands of clean energy developers and investors who depend on things like permits and utilities to get their projects started. This means that projects that were planned and funded years ago may now be scrapped.
The Top Ten: What’s in the Bill?
While far-reaching in scope, the tax provisions in the Bill affect businesses, individuals, tax-exempt entities, and clean energy investors alike. Here are some highlights of what could be seen as 10 of the Bill’s most high-impact proposals:
1) The “Big Three”
Three separate topics were rolled into one adage: 100% bonus depreciation, allowing immediate expensing (rather than capitalization) of domestic research and development expenses, and reverting the §163(j) calculation to using earnings before interest, taxes, depreciation, and amortization (EBITDA). In the Bill, 100% bonus would be implemented for property acquired after January 19, 2025 and placed in service before January 1, 2030, and research and experimentation (R&E) expensing would also be temporary through 2029 but allowed only for domestic R&E incurred after December 31, 2025 and before December 31, 2029. The §163(j) change will likewise be in effect through 2029.
2) Qualified Business Income (QBI) Deduction Permanence & Increase
The Tax Cuts and Jobs Act of 2017 (TCJA) implemented the §199A deduction to benefit pass-through entities (PTEs) and their owners in the wake of a decreased corporate rate. The Bill proposes not only to make the QBI deduction permanent, but also to increase the deduction from 20% to 23%. The Bill also modifies phase-in limitations and other computational items, while indexing certain amounts for inflation.
3) Pass-Through Entity Taxes
With the TCJA’s introduction of the SALT cap (the limitation of how much an individual can deduct for state taxes they paid), many states implemented PTE “workarounds.” This allowed partnerships and S corporations to pay state income taxes on behalf of their owners and ultimately circumvent the SALT cap’s deduction limitation. The House bill does not fully disallow this dynamic for all entities, but it does for specified service trades or businesses. These entities are service businesses like accounting firms, law firms, or doctor’s offices.
4) Manufacturing Business Topics
100% Depreciation for Nonresidential Real Property Used in Manufacturing
Bonus depreciation is currently only available for assets with lives of 20 years or less. Practically speaking, this carves out real property, aka buildings, and qualifies things like equipment or furniture and fixtures. The House bill would flip the script for those in the business of manufacturing, producing, or refining products (tangible personal property), allowing them to immediately expense not only their equipment but now also their buildings. Much of the administration’s rhetoric (especially with tariffs) has focused on onshoring or growing American manufacturing. This largely aligns with that school of thought—immediate expensing for one of a business’s largest assets could be an incentive to set up shop in the United States.
Gross Receipts Threshold for Small Manufacturing Businesses
Currently, businesses of any type are considered to be “small businesses” if their gross receipts are below $25 million. The Bill would increase this $25 million threshold to $80 million for those considered to be “manufacturing taxpayers”—those businesses that derive substantially all of their gross receipts from the lease, rental, license, sale, exchange, or other disposition of qualified tangible personal property produced or manufactured by the business. The impact of this designation could be huge—it permits the entity to be cash basis, exempt from uniform capitalization rules (UNICAP), exempt from §471 inventory accounting rules, and possibly most importantly not subject to §163(j) interest limitation.
5) Excess Business Loss (EBL) Limitation on Noncorporate Taxpayers
Currently, if a business’s deductions exceed its income (plus a threshold amount), individual business owners can’t fully take the resulting loss on their tax returns. Instead, the disallowed amount is converted to a net operating loss (NOL) carryover to future years without further limitation. The House bill would make this limitation permanent and implement a new cumulative limitation for losses incurred in tax years beginning after December 31, 2024.
6) No Tax on Tips, Overtime, & Social Security
Although three separate provisions are in the bill, they have been largely discussed in one breath since their introduction by President Donald Trump on the campaign trail. The Bill provides deductions for “qualified tips” for those working in specific occupations, and for “qualified overtime” (excluding highly compensated employees) through December 31, 2028. The Byrd rule in the Senate reconciliation process restricts any bill from affecting Social Security directly. Thus, to accomplish “no tax on Social Security,” the House bill has proposed a new $4,000 deduction for individuals age 65 or over (with phaseouts starting for those with $150,000 adjusted gross income if married filing jointly (MFJ)). This deduction is also temporary through 2028.
7) Clean Energy Credit Changes
As noted previously, Republican House members were looking for ways to fund the various proposals in the Bill. One of their largest “pay-fors” ended up being clean energy credits. While many credits were simply repealed, others had their expiration dates adjusted, the option for transferring (or “selling”) the credit repealed, and/or had provisions that would exclude the involvement of certain specified foreign entities or foreign-influenced entities. Most of the credits on the chopping block were related to electric vehicles (and their chargers) or residential tax credits.
8) TCJA Individual Impacts
Most of the TCJA provisions being extended or made permanent by the House bill relate to individual taxpayers. Some notable items include:
- Permanence of modification of individual, estate, and trust rates
- TCJA-increased standard deduction would be made permanent, with a temporary increase of $2,000 MFJ (differing amounts for other filing statuses) through 2028
- Personal exemptions permanently disallowed
- Miscellaneous itemized deductions permanently disallowed
- TCJA-increased alternative minimum tax (AMT) permanent
9) Tax-Exempt Entity Applicability
In addition to clean energy and other initiatives, the adjustments applicable to tax-exempt entities are considered revenue raisers that help the House meet the scoring parameters set by the budget resolution. The 21% excise tax on excess compensation now applies to any employee. Further, the maximum excise tax rate has increased on both net investment income of private foundations and on certain private colleges.
10) International Tax
For tax years 2026 onwards, the global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) rates were increased to 10.878% and 13.335% respectively. Further, the House bill increases the base erosion and anti-abuse tax (BEAT) rate to 10.1% but maintains the current method for utilizing credits in the calculation.
What’s Next?
The difficult question to answer is what approach the Senate will take. Will it largely adopt the House-passed version, or craft its own approach and pressure the House into accepting it? There are already some indicators of variations between House and Senate opinions. Last week, the Senate passed a separate bill on the “No Tax on Tips” issue, which makes the deduction permanent (instead of temporary per the House bill).
In Other News ...
Tariffs continue to make headlines as Trump threatens a 25% tariff on certain smartphones if they are not manufactured in the United States. Currently, smartphones are on the listing of exemptions from Trump’s reciprocal tariffs announced earlier this year. In addition, although Trump was previously in negotiations with the European Union, he stated that he is “recommending a straight 50% Tariff on the European Union, starting on June 1, 2025.”4 Over the weekend, however, he extended the deadline5 for that tariff to July 9, 2025 to allow for further negotiations.
Tackling Tax
Be sure to catch this week’s installment of our new show “Tackling Tax,” where we’ll bring you the latest on tax policy and strategies. In our second episode, Heather Alley from the Washington National Tax Office at Forvis Mazars and Marc Gerson from Miller & Chevalier will take a deeper look at the reconciliation tax package in the Senate.
