On May 14, 2025, the House Ways and Means Committee approved a sweeping tax package along a party-line 26-19 vote. While this is an important step in the process, the bill is likely to continue to change going forward. The proposed legislation now heads to the House Budget Committee, which will combine it with other proposed legislation passed out of the other committees in advance of considering the entire package on the House floor.
One major issue to be addressed is the state and local tax (SALT) deduction cap. The current bill includes a $30,000 SALT deduction cap for individuals earning less than $400,000 annually. Members of high-income tax states don’t believe this amount is a high enough increase from the current cap of $10,000. However, with the projected cost of Ways and Means proposed legislation adding $3.7 trillion to the deficit through 2034, there’s some room to work with, considering the deficit ceiling can be up to $4.5 trillion. The SALT deduction cap could change when voted on by the full House chamber.
Below are some of the key items contained in the House Ways and Means tax package. Keep in mind that all these provisions are subject to change.
Individual Tax Rates Extended and Made Permanent
The current law column shows what the brackets would have become without a tax law change. The provision column shows what the permanent rates will be.
Standard Deduction Increase Made Permanent and Temporarily Increased
For 2025-2028, the amounts would increase by $2,000, $1,500 and $1,000, respectively, versus what they are currently.
Personal Exemptions Permanently Repealed
This move is representative of a shift toward a higher standard deduction in place of individual exemption amounts.
Child Tax Credit Increase Made Permanent and Temporarily Increased
In 2025-2028, the credit is increased to $2,500 per child. The $2,000 amount would be adjusted for inflation after 2028. The refundable portion of the credit would be capped at $1,400.
SALT Deduction Cap Made Permanent and Changes Made to Prevent Avoidance of the Cap
The cap is increased to $30,000 ($15,000 for married taxpayers filing separately). If a taxpayer’s modified adjusted gross income (MAGI) is more than $400,000 ($200,000 for married taxpayers filing separately), the cap would phase down by 20% of the excess MAGI over the threshold until it reaches $10,000 ($5,000 for married taxpayers filing separately).
There would also be changes in how pass-through entity taxes are handled.
No Taxes on Tips
An above-the-line deduction would be allowed for qualified tips received by an individual with a Social Security number in an occupation that traditionally and customarily receives tips. The tips would need to be reported by the employee to the employer for the purposes of withholding payroll taxes. An employee with income above a specified threshold ($160,000 in 2025 and adjusted annually for inflation) in a prior tax year may not claim the deduction. The deduction is allowed in 2025-2028.
No Tax on Overtime
An above-the-line deduction would be allowed for overtime pay as required under Section 7 of the Fair Labor Standards Act of 1938 that’s in excess of the regular rate. A 5% owner or an employee with income above a specified threshold ($160,000 in 2025 and adjusted annually for inflation) in a prior tax year may not claim the deduction. The individual must have a Social Security number to claim the deduction. The deduction is allowed in 2025-2028.
Enhanced Deduction for Seniors
A deduction for seniors (age 65 or older) of $4,000 will be allowed for 2025-2028. When the taxpayer’s AGI exceeds $75,000 ($150,000 for married filing jointly), the deduction will be reduced by 4% of earnings over the threshold. The deduction is allowed for both itemizers and non-itemizers.
No Tax on Car Loan Interest
An above-the-line deduction would be allowed of up to $10,000 for qualified passenger vehicle loan interest. The deduction phases out starting when MAGI exceeds $100,000 ($200,000 for married filing jointly). An applicable passenger vehicle for which interest can be deducted is manufactured primarily for use on public streets, roads and highways; has at least two wheels; is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle; and has final assembly occurring in the U.S. The deduction is allowed in 2025-2028.
Bonus Depreciation
100% bonus depreciation would be allowed for property placed into service on or after January 20, 2025, and before January 1, 2030.
Domestic Research and Experimental Expenditures Deduction
Taxpayers would be allowed to deduct domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030.
Taxpayers would retain the option of electing to capitalize domestic §174 costs and amortize such amounts over 10 years or the useful life of the research (with a 60-month minimum). Foreign research would still need to be amortized over 15 years.
Taxpayers would be required to reduce their domestic research or experimental expenditures (whether expensed or capitalized) by the amount of the research credit allowed under §41 for taxable years beginning after December 31, 2024, and before January 1, 2030. Similar to current law, taxpayers may instead elect to claim a reduced §41 research credit.
Updated Calculation of 163(j) Interest Deduction
Reinstates the EBITDA (earnings before interest, taxes, depreciation and amortization) limitation for the calculation of the deduction after December 31, 2024, and before January 1, 2030.
Special Depreciation Allowance for Qualified Production Property
This provision allows taxpayers to deduct 100% of the adjusted basis of qualified production property in the year such property is placed in service. “Qualified production property” is defined as the portion of any nonresidential real property that meets the following requirements:
- Subject to depreciation under section 168
- Used by the taxpayer as an integral part of a qualified production activity
- Placed in service in the United States or any possession of the United States
- Original use commences with the taxpayer
- Construction begins after January 19, 2025, and before January 1, 2029
- Subject to an election by the taxpayer to treat such portion as qualified production property
- Placed in service after the date of enactment and before January 1, 2033
Qualified production property doesn’t include the portion of any nonresidential real property used for offices, administrative services, lodging, parking, sales activities, software engineering activities or other functions unrelated to manufacturing, production or refining of tangible personal property.
A qualified production activity includes the manufacturing of tangible personal property, agricultural production, chemical production, or refining. Such activities of the taxpayer must result in a substantial transformation of the property comprising the product.
A qualified product is any tangible personal property.
Increase in Sec. 179 Deduction
The maximum amount a taxpayer may expense under Sec. 179 is increased to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. The $2.5 million and $4 million amounts are adjusted for inflation for taxable years beginning after 2025. The proposal applies to property placed in service in taxable years beginning after December 31, 2024.
Excess Business Losses of Noncorporate Taxpayers Made Permanent and Modified
The proposed legislation would provide that excess business losses disallowed in taxable years beginning after December 31, 2024, are taken into account in determining a taxpayer’s excess business losses in subsequent taxable years.
Qualified Business Income (QBI) Deduction Made Permanent and Enhanced
The deduction percentage would increase to 23% for taxable years beginning after December 31, 2025.
There is no longer a phase-in of the wage and wage + UBIA if taxable income is over the threshold or if the taxpayer is a specified service trade or business (SSTB). Once the threshold is exceeded, two numbers will be calculated and the greater of the two will be taken as a deduction:
- The regular QBI deduction using the 23% rate but limited by either wages or wages + UBIA
- The regular QBI deduction without any wage or wage + UBIA limits but then reduced by 75% of taxable income that exceeds the threshold.
These changes would allow owners of an SSTB who previously would have had their full deduction disallowed to receive some benefit.
Increased Estate and Gift Tax Exemption Amounts Extended and Made Permanent
The proposed legislation permanently extends the estate and lifetime gift tax exemption, increases the exemption amount to $15 million for single filers ($30 million for married filing jointly) in 2026, and indexes the exemption amount for inflation going forward.
Additionally, several credits would be repealed at the end of 2025, including:
- The previously owned clean vehicle credit under Section 25E for purchases after 2025
- The clean vehicle credit under Section 30D for purchases after 2025 unless the manufacturer has sold fewer than 200,000 clean vehicles since 2010, in which case the credit expires for purchases after 2026
- The commercial clean vehicle credit under Section 45W for purchases after 2025 unless the vehicle was acquired pursuant to a written binding contract in place before May 12,2025
- The alternative fuel refueling property credit under Section 30C for property placed in service after 2025
- The energy efficient home improvement credit under Section 25C for property placed in service after 2025
- The residential clean energy credit under Section 25D for property placed in service after 2025
- The new energy efficient home credit under Section 45L for property acquired after 2025, unless construction began before May 12, 2025
The House of Representatives hopes to vote on the complete bill during the week of May 19, but there’s the possibility of changes prior to the vote. Their goal is to get the bill passed by Memorial Day. There are also likely to be changes once the bill reaches the Senate. There haven’t yet been any scheduled mark-ups scheduled by the Senate. That being said, the administration has set July 4, 2025, as the deadline to have legislation passed.
We’ll continue to monitor this and other legislation, updating our clients on relevant changes that may impact them. In the meantime, if you have questions about how political and current events may impact you or your business, please schedule a call.
