The amended version of the budget reconciliation bill — aka the “One Big Beautiful Bill Act” — which aims to extend many provisions of the 2017 Tax Cuts and Jobs Act (TCJA), passed the U.S. House of Representatives last week. The bill now heads to the Senate, where many members are pressing for significant changes. The Senate’s decision, expected in July, will be crucial in determining the bill’s final form and its potential implementation. Below is a summary of the key provisions of the proposed bill in its current state:
Business Tax Provisions
- Make permanent the 199A pass-through deduction created by the TCJA and increase the deduction percentage from 20 percent to 23 percent after 2025. Additionally, modify the phase in of the wage and investment limitation and the SSTB limitation using a fixed rate, not a fixed range of taxable income.
- Allow taxpayers to immediately expense 100 percent (bonus depreciation) of the cost of qualified property acquired on or after Jan. 20, 2025, and before Jan. 1, 2030.
- For construction that begins after Dec. 31, 2024, and before Jan. 1, 2030, allow taxpayers to immediately deduct 100 percent of the cost of certain new factories and certain improvements to existing factories. The property must be used as an integral part of a qualified production activity, and any portion of a property that is used for non-production purposes (offices, administrative services, parking, sales, etc.) is not eligible for the accelerated benefit.
- For property placed in service in taxable years beginning after Dec. 31, 2024, increases the maximum amount a taxpayer may expense under IRC section 179 to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. Both amounts are adjusted for inflation.
- For tax years that begin on Jan. 1, 2027, and end on Dec. 31, 2033, create a second round of opportunity zones (OZs), adjusting previous rules created under the TCJA to create “rural qualified opportunity funds” (RQOFs) with enhanced benefits.
- For tax years that begin on January 1, 2025, and before December 31, 2029, allow taxpayers to immediately deduct 174 domestic research or experimental (R&E) expenditures paid or incurred in taxable years beginning after December 31, 2024.
- For tax years that begin on Jan. 1, 2025, and before Dec. 31, 2029, increase the cap on the deductibility of 163(j) business interest expense for taxable years beginning after Dec. 31, 2024, by allowing “adjusted taxable income” to be computed without taking into account deductions for depreciation, amortization, or depletion.
- For taxable years beginning after Dec. 31, 2025, increase the gross receipts threshold for small manufacturing business accounting methods (cash basis, inventories, 263A & 163(j)) from $25 million to $80 million. To qualify as a manufacturing business, a taxpayer must derive all of its revenue from the lease, rental, license, sale, exchange, or other disposition of tangible personal property produced or manufactured by the business.
- Make permanent the limitation created by the TCJA on excess business losses of noncorporate taxpayers.
- Modify requirements for third-party settlement organizations to eliminate their reporting requirement (Form 1099-K) with respect to the transactions of their participating payees unless they have earned more than $20,000 on more than 200 separate transactions in an applicable tax period.
- Increase the reporting threshold for Form 1099 to $2,000 and adjust for inflation payments made by a business for services performed by an independent contractor.
- Permanently increase the deduction amount for foreign-derived intangible income from 21.875 percent to 36.5 percent and increase the deduction for global intangible low-taxed income from 37.5 percent to 49.2 percent for taxable years beginning after Dec. 31, 2025.
- Permanently reduce the base erosion minimum tax rate from 12.5 percent to 10.1 percent beginning Jan. 1, 2026.
- Expand the Federal Insurance Contribution Act (FICA) tip tax credit to include beauty service establishments. Beauty services include barbering and hair care, nail care, esthetics, and body and spa treatments.
- Permanently increase the employer-provided childcare credit, create a separate credit amount for qualified small businesses, and index the maximum credit amount for inflation.
- Make permanent the paid family and medical leave (PFML) tax credit and allow employers to claim the credit for a portion of paid family leave (PFL) insurance premiums.
- Restore the Low-Income Housing Tax Credit (LIHTC) to its 2021 level with a 12.5 percent allocation increase.
Individual Tax Provisions
- Make permanent the modified federal income tax bracket schedule and lower tax rates created by the TCJA and boost the income thresholds for most of the tax brackets with an added inflation adjustment.
- Extend the increased standard deduction created by the TCJA inflation adjustment. Additionally, for tax years 2025 through 2028, increase the deduction by an additional $2,000 for married filing jointly ($1,000 for single filers).
- Raise the state and local tax (SALT) cap to $40,000 for taxpayers with income under $500,000, with the amount above $5,000 for singles and $10,000 for married couples phased out for higher-income taxpayers. Additionally, clarify and modify the list of taxes subject to the SALT cap to prevent workarounds for specified service businesses.
- Make permanent the increased child tax credit created by the TCJA and permanently index the credit amount for inflation beginning after 2026. Additionally, for tax years 2025 through 2028, increase the credit to $2,500 per child.
- Make permanent an increase in the estate and gift tax exemption created by the TCJA to an inflation-adjusted $15 million in 2026.
- Permanently extend the increased individual alternative minimum tax exemption amounts and exemption phase-out thresholds created by the TCJA.
- Permanently repeal the Pease limitation, which reduces the value of itemized deductions, and replace it with a new overall limitation on itemized deductions that applies only to taxpayers in the highest individual income tax bracket. This provision caps the value of each dollar of itemized deductions at $0.35 and is effective for taxable years beginning in 2025.
- Make permanent the $750,000 limitation created by the TCJA on acquisition indebtedness for home mortgage interest deductibility.
- For tax years 2025 through 2028, create an above-the-line deduction for qualified tips received by an individual in an occupation that traditionally and customarily receives tips. Additional taxpayer limitations apply.
- For tax years 2025 through 2028, create an above-the-line deduction for overtime compensation paid to an individual as required under Section 7 of the Fair Labor Standards Act that exceeds the regular pay rate.
- For tax years 2025 through 2028, create an above-the-line $4,000 deduction for seniors (age 65 or older) with a modified adjusted gross income that does not exceed $150,000 for married filing jointly ($75,000 for single filers).
- For tax years 2025 through 2028, create an above-the-line deduction of up to $10,000 for qualified passenger vehicle loan interest paid during a taxable year. The passenger vehicle’s final assembly must occur in the U.S. to qualify. The deduction phases out starting when the taxpayer’s income exceeds $200,000 for married filing jointly ($100,000 for single filers).
- Make the adoption tax credit partially refundable up to $5,000 (indexed for inflation) beginning in 2025.
- For tax years 2025 through 2028, create a charitable cash contribution deduction for non-itemizing taxpayers, up to $300 for married filing jointly ($150 for single filers).
- Create Money Accounts for Growth and Advancement (the “MAGA accounts”), a new type of savings account designed to incentivize education, entrepreneurship, and homeownership. Starting in 2026, parents of any child under the age of eight may open a MAGA account for their child. Contributions would be generally capped at $5,000 per year, adjusted for inflation. Account holders may not take distributions until age 18, and various restrictions apply. Distributions taken for qualified purposes are taxed as long-term capital gains. For U.S. citizens born between Jan. 1, 2024, and Dec. 31, 2028, the federal government will contribute $1,000 per child into every eligible account.
Other Tax Provisions
- Increase taxes on foreign companies and individuals whose countries are imposing discriminatory taxes on American businesses.
- Eliminate the clean electricity production credit and the clean electricity investment credit for facilities that either begin construction more than 60 days after the enactment date or are placed in service after 2028.
- Accelerate the expiration of the clean vehicle credit to Dec. 31, 2025.
- Accelerate the expiration of the qualified commercial clean vehicles credit to Dec. 31, 2025. Vehicles acquired pursuant to a written binding contract entered into before May 12, 2025, will continue to qualify for the credit.
- Retroactively repeal employee retention tax credit (ERTC) for any claim that was filed after Jan. 31, 2024, and increase the penalty for aiding and abetting the understatement of a tax liability by an ERTC promoter.
- Modify the excise tax rates on investment income of private colleges and universities, as well as increase tax rates on investment income of certain private foundations.
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