Last week the House of Representatives narrowly voted to approve its budget reconciliation bill, the so-called One Big Beautiful Bill Act. Much of the bill extends or makes permanent numerous provisions of the soon-to-be sunset Tax Cuts and Jobs Act (TCJA); however, there are some new additions as well.

While President Trump has signaled that he’d like to sign the bill by July 4, as of now the timing is uncertain. The Senate is expected to make changes to the bill before it goes back to the House for final approval.

We want to share some of H.R.1’s key provisions as they currently stand, particularly those that we believe are most likely to impact you and your business. We will continue to keep you appraised of future developments as they occur.

Business Provisions

Bonus Depreciation

The bill would extend and modify the Section 168 additional first-year (bonus) depreciation deduction through 2029. The deduction would be 100% for property acquired and placed into service after January 19, 2025 and before January 1, 2030.

Section 179 Expense Limitation

The bill would increase the maximum amount a taxpayer can expense on depreciable business equipment under Section 179 from $1.25 million to $2.5 million. It would also increase the phaseout threshold from $3.13 million to $4 million.

Interest Limitation Rules 

The bill would reinstate the EBITDA limitation under Section 163(j) – the deduction for business interest expense – for tax years after December 31, 2024 through January 1, 2030. This would increase the amount of interest expense to deduct as depreciation, amortization, and depletion would be added back to adjusted taxable income, effectively raising the 30% limitation threshold.

R&D Expenses

The bill would suspend the TCJA’s requirement which required research and development (R&D) expenses to be capitalized and amortized over a five-year period. The suspension would be in effect for domestic R&D expenses paid or incurred after December 31, 2024 and before January 1, 2030. Businesses are still required to amortize over the mandated periods any R&D expenses that have already been capitalized in 2022 through 2024.

Business Loss Carryforwards

The bill amends Section 461(I)(2) to provide that any excess business loss of a noncorporate taxpayer is carried forward as an excess business loss instead of being treated as a net operating loss. The impact would limit the future use of these business losses.

Special Depreciation Allowance

The bill would introduce an elective 100% depreciation allowance for qualified production property. The definition of qualified production property would include new construction or improvements to commercial building and structures used in the manufacturing, processing, and refinement industry. This provision applies to construction beginning after January 19, 2025.

No SALT Deduction for Pass-Through Entities

The bill increased the SALT cap for individuals (more detail below). However, a new provision would eliminate the pass-through entity tax workaround for certain businesses, notably impacting service firms like law, accounting, and health.  There is hope that this may change in the Senate’s version of the bill.

Clean Energy Provisions

The bill would repeal or phase out a large number of clean energy credits, particularly as they relate to electric vehicles, property investments in energy efficiency, clean energy, and alternative fuels.

Individual Provisions

Tax Cuts and Jobs Act (TCJA) Extensions

The bill would make the TCJA individual tax rates permanent and would modify the inflation adjustment mechanism for individual tax brackets. The bill would also make permanent the following TCJA provisions:

  • Standard deduction: The bill would make the TCJA’s increased standard deduction amounts permanent. For tax years 2025 – 2028, the standard deduction for married taxpayers filing jointly would increase by $2,000. It would increase by $1,500 for heads of household and $1,000 for all other taxpayers.
  • Personal exemptions: The deduction for personal exemptions would be permanently set at zero.
  • SALT deduction: The bill would increase the limit on the federal deduction for state and local taxes (the SALT cap) to $40,000 per household ($20,000 for married taxpayers filing separately), starting in 2025. This is a significant increase over the current $10,000 cap. The $40,000 deduction would be phased out for taxpayers with modified adjusted gross income over $500,000 ($250,000 for married taxpayers filing separately). For tax years between 2026 and 2033, the $40,000 cap and the $500,000 phase out would be increased by 1% per year. The SALT cap would remain at that level after 2033.
  • Estate and gift tax exemption: The estate and gift tax exemption and generation skipping transfer tax exemption would be permanently increased to $15 million. This amount would be indexed for inflation after 2025.
  • Alternative minimum tax (AMT): The bill would make the increased AMT exemption amount permanent.
  • Qualified business income: The Section 199A qualified business income deduction would be made permanent and the deductible amount for qualified businesses would increase from 20% to 23%. Section 199A threshold amounts would be indexed for inflation after 2025. The bill would also expand the income that would qualify for the deduction to include qualified business development company dividends.
  • Child tax credit: The TCJA’s increased and expanded child tax credit would be made permanent. For tax years 2025 – 2028, the credit would increase to $2,500 and would revert to $2,000 after that.

Taxation of Tips

The bill would exempt wages in the form of tips from taxation through an “above-the-line” deduction, meaning it is available to taxpayers claiming the standard deduction. The Treasury is expected to issue a definition of eligible occupations and what constitutes tips within 90 days of the bill’s enactment.

Taxation of Overtime

Similarly, the bill would exempt overtime wages from taxation via an above-the-line deduction, with the exception of qualified tips. Highly compensated employees would be ineligible to claim the overtime exemption.

Senior Bonus Deduction

The bill would provide a temporary “senior bonus deduction” for individuals 65 an older in the amount of $4,000. This amount would phase out for taxpayers with adjusted gross income over $75,000 for individuals and $150,000 for married filing jointly.

Tax-Favored Savings Accounts for Children

The bill establishes new tax-favored savings accounts for children under the age of 8 when the account is established. Contributions in these so-called “Trump accounts” would be limited to $5,000 per year, adjusted for inflation, until the beneficiary turns 18. Distributions for qualified expenses (such as higher education expenses), permitted after age 18, would be subject to capital gains tax. Other distributions would be subject to income tax plus an additional 10% if the beneficiary is under age 30.

The bill would also direct the Treasury to pay a one-time credit of $1,000 into Trump accounts for children born after December 31, 2024 and before January 1, 2029, who are U.S. citizens at birth.

Some Senators have indicated that they will press for substantial changes before approving this bill, so as mentioned previously, we will continue to keep you updated as developments occur.

In the meantime, if you have any questions about this pending legislation or any other tax matters, please contact your Kreischer Miller relationship professional or any member of our team.