On May 22, 2025, the House passed its FY 2025 budget bill, which includes substantial tax cuts. Following extensive negotiations in the House, legislators included last-minute amendments to the budget bill, which, among other items, would further increase the state and local tax deduction. At a high level, the tax proposals would permanently extend many expiring TCJA tax provisions, introduce new tax provisions, including ones that President Trump campaigned on, and repeal various clean energy credits established by the 2022 Inflation Reduction Act (“IRA”). Notably, the budget bill does not incorporate various portions of the Trump Administration's tax agenda, including closing the carried interest loophole (as discussed further here), lowering the corporate income tax rates, eliminating the 15% Corporate Alternative Minimum Tax, and imposing a so-called millionaire’s tax. The budget bill now heads to the Senate, with Republican legislators hoping to deliver a budget bill to President Trump before Congress recesses in July. The budget bill’s major business, individual, international, and exempt organization tax proposals are summarized below.
Business Tax Proposals
- Increasing the total interest that businesses may deduct for 2025 through 2029 by modifying the Section 163(j) business interest expense limitation from 30% EBIT to 30% EBITDA.
- Disallowing deductions for certain state taxes paid by pass-through entities, where the entity is engaged in a specified service trade or business (e.g., health, law, consulting, financial services, etc.).
- Reducing or terminating various clean energy tax credits introduced by the 2022 Inflation Reduction Act, as discussed further here.
- Reinstating the TCJA’s 100% bonus depreciation for certain property acquired and put into service after January 19, 2025, and through 2029.
- Providing 100% bonus depreciation for nonresidential real property connected to certain agricultural or chemical manufacturing and production activities, provided that (i) construction begins after January 19, 2025, and through 2029, and (ii) the property is put into service before 2033.
- Immediate expensing of domestic R&D expenditures incurred from 2025 through 2029.
- Permanently extending the TCJA’s Section 199A pass-through entity tax deduction on qualified business income and increasing the deduction from 20% to 23% of such income.
- Increasing the total amount of Taxable REIT Subsidiary (“TRS”) stock that a REIT can hold from 20% to 25%.
- Clarifying that the partnership rules applicable to disguised sales and disguised payments for services are self-executing in the absence of regulations, which was added as a last-minute amendment to the budget bill.
- Temporarily increasing the low-income housing credit from 2026 through 2029 by allowing states to issue more tax credits, and increasing credits for properties financed by tax-exempt bonds or in rural and Native American areas.
- Extending the Clean Fuel Production Credit through 2031.
- Expanding the tax credits for employer-provided child care and family and medical leave.
- Permanently increasing the Section 179 dollar limitation for expensing certain depreciable business assets from $2.5 million to an inflation-adjusted $4 million.
Individual Tax Proposals
- Permanently extending the TCJA’s tax rates, including the 37% top marginal tax rate.
- Increasing and capping the state and local tax deduction starting in 2025 to $40,000 ($20,000 for single filers), while also reducing the cap to as low as $10,000 ($5,000 for single filers) for taxpayers whose gross income exceeds $500,000. From 2026 through 2033, both the cap and income phase-out threshold would increase by 1% per year, g., in 2026, the cap would increase to $40,400 ($20,200 for single filers), and the phase-out would increase to $505,000. The 2033 limits would permanently apply after 2033.
- Eliminating the personal exemption and various itemized deductions, including miscellaneous itemized deductions, and deductions for casualty losses (other than from federally declared disasters), wagering losses, and moving expenses.
- Reinstating a modified version of the “Pease Limitation,” effectively limiting the after-tax benefits of itemized deductions that certain high-earning taxpayers may claim.
- Permanently limiting a non-corporate taxpayer’s ability to deduct excess business losses.
- Permanently increasing the estate and gift tax exemption to an inflation-adjusted $15 million.
- Permanently limiting mortgage interest deductions to only the first $750,000 of mortgage debt, and eliminating interest deductions on home equity indebtedness (i.e., non-acquisition indebtedness).
- Permanently extending the limitations on the Alternative Minimum Tax (“AMT”) provisions, including the increased exemption from, and the increased income threshold for phasing out the exemption to, the AMT.
- Providing up to $5,000 in tax credits to individuals making charitable contributions to scholarship-granting organizations for elementary and secondary schools.
- Creating a new tax-deferred investment account for children and allowing up to an inflation-adjusted $5,000 in annual contributions, including a one-time $1,000 payment by the Treasury for children born between 2025 and 2028.
- Expanding Section 529 plans to cover additional expenses related to credentialing and elementary and secondary schooling.
- Permanently extending the TCJA’s increased standard deduction, while also temporarily increasing the deduction from 2025 through 2028 by up to $2,000 for all persons, and up to $6,000 for certain taxpayers 65 or older.
- Allowing certain taxpayers, subject to an income phaseout, to deduct interest on car loans for cars produced in the United States.
- Permanently increasing the Child Tax Credit to an inflation-adjusted $2,000, including a temporary increase to $2,500 from 2025 through 2028.
- Enhancing the adoption credit, including making a portion refundable.
- Limiting taxes on tips and overtime pay from 2025 through 2028, by allowing specific individuals who are not high-earning employees to deduct (in addition to their standard deduction) their tip income and/or “qualified overtime compensation.”
- Expanding Health Savings Accounts to cover additional expenses.
- Allowing nonitemizing taxpayers to deduct (in addition to their standard deduction) up to $300 ($150 for single filers) in charitable contributions from 2025 through 2028.
- Permanently excluding certain student loan interest paid by an employer from an employee’s income, subject to an inflation-adjusted annual cap.
International Tax Proposals
- Taxing countries, and persons from such countries, that implement “unfair” taxes on U.S. persons (specifically digital service taxes, undertaxed profits rules, and diverted profits taxes) by subjecting such countries, and persons therefrom, to up to a 20 percentage point increase on their U.S. net income, withholding, and gross-basis tax rates.
- Slightly increasing the effective rates on Global Intangible Low-Taxed Income (“GILTI”) from 10.5% to 10.668%, Foreign Derived Intangible Income (“FDII”) from 13.125% to 13.335%, and the Base Erosion and Anti-Abuse Tax (“BEAT”) from 10% to 10.1%.
Exempt Organization Tax Proposals
- Increasing the 1.4% excise tax on private universities’ net investment income up to 21% and excluding certain “religious” universities from the excise tax.
- Increasing the 1.39% excise tax on a private foundation’s net investment income up to 10%.
- Expanding the scope of highly-compensated non-profit employees whose compensation is subject to a 21% excise tax.
- Limiting a corporation’s charitable deductions by disallowing deductions that are less than or equal to 1%, or more than 10%, of the corporation’s adjusted gross income.
- Limiting a private foundation’s excess business holdings (and the likelihood of being subject to the 10% excise tax thereon) by disregarding certain repurchases of employee stock held in an employee stock ownership plan.
- Increasing Unrelated Business Taxable Income by the amount of certain deductions claimed for employer-provided transportation and parking costs.
