House Ways and Means’ First Take at Tax Legislation

The House Ways and Means Committee has released its first pass at tax legislation meant to make permanent the provisions included in the Tax Cuts and Jobs Act – many of which are set to expire at the end of 2025. Also included are several new provisions that will affect many taxpayers. The text of the bill is available to read here – or check out a much easier to read bullet point summary here.

Keep in mind this is just the first pass. All of this – especially the details – are sure to change. Key aspects of this that will most likely survive the process in some shape or form are the permanent extension of the current reduced individual income tax rates and brackets, the QBI – Section 199A deduction, bonus depreciation, and elimination of many of the clean energy credits. The main challenge to this bill is the numbers. Passage requires a $2 trillion cut to spending. This hurdle is made even higher by the differing ways of measuring spending between the House and the Senate. Below is a summarized version of key measures.

Extension and Enhancement of the Tax Cuts and Jobs Act Passed in 2017

Highlights include:

• Extending permanently the current rate brackets and indexing them for inflation
• Making permanent the current increased standard deductions
  • Provides an increase for tax years 2025 through 2028
  • Also permanently eliminates personal exemptions
• Making permanent the doubled child tax credit of $2,000 per child and indexes it for inflation
  • Increases the credit amount to $2,500 for tax years 2025 through 2028
• Qualified Business Income Deduction (IRC Section 199A) is made permanent
  • Increases the deduction from 20% to 23% for tax years beginning after 2025
• Extends permanently the increased estate and lifetime gift tax exemption of $30 million for married couples filing jointly ($15 million for single filers) and indexes it for inflation
• Permanent extension of increased AMT exemptions, which has dramatically decreased the number of taxpayers subject to AMT since 2018
• Individual Deduction for State and Local Taxes (SALT)
  • Increases the SALT cap from $10,000 to $30,000 ($15,000 for single filers)
  • Increased deduction begins to phase out at higher income levels (over $400,000 for MJF – $200,000 for single filers) down to $10,000 limit
  • Makes SALT cap permanent
  • Limits state enacted PTE taxes used to circumvent SALT cap

New Tax Provisions

• No Tax on Tips
  • Deduction for tip income for tax years 2025 through 2028
    • Includes definition of tips and industries where it can apply
    • No need to itemize deductions to benefit
• No Tax on Overtime
  • Deduction for overtime pay required by the Fair Labor Standards Act of 1938
    • No need to itemize deductions to benefit
  • Limited for highly compensated employees
  • Applies to 2025 through 2028 tax years
• No Tax on Car Loan Interest
  • Deduction for up to $10,000 of vehicle loan interest for passenger vehicles
    • No need to itemize deductions to benefit
• Tax Credit for Contributions of Individuals to Scholarship Granting Organizations
  • Credit for contributions to qualified scholarship organizations
  • Available for tax years 2026 through 2029
• Charitable Contribution Deduction for Non-Itemizers
  • 2025 through 2028 – receive up to $300 deduction for charitable contributions
    • No need to itemize deductions to benefit
• Money Accounts for Growth and Advancement
  • Accounts can be set up for children under 8 years of age, and born before January 1, 2024
  • Accounts can receive contributions from parents and relatives
  • Distributions are taxed as long-term capital gains (if used for qualified purposes), and cannot be taken prior to age 18
• Newborn Money Accounts for Growth and Advancement
  • U.S. Citizens born during 2024 through 2028 are eligible for a contribution of $1,000 from the federal government to an account opened by the parent or guardian
• Bonus Depreciation
  • 100% Bonus Depreciation for qualified property purchased on or after January 20, 2025, and before January 1, 2030
• IRC Section 174 – Deduction for Domestic Research and Experimental Expenditures
  • Immediate deduction for domestic expenses in 2025 through 2029 tax years (i.e. no more amortization)
  • No change for foreign expenses
  • No retroactive application
• IRC Section 163(j) – Limitation on Deduction of Business Interest Expense
  • Restores definition of adjusted taxable income to income without deduction for depreciation, amortization, or depletion
  • Applicable to 2025 through 2029 tax years
• Bonus Depreciation for Qualified Production Property
  • Qualified nonresidential real property eligible for 100% bonus depreciation (vs current 39-year life)
  • Requirements:
    • Integral part of a qualified production activity (manufacturing, production, or refining of tangible personal property
    • Placed in service in the U.S. or a U.S. territory
    • Original use must be with the taxpayer
    • Construction must begin in 2025 through 2029
    • Placed in service prior to 2034
• Increases to IRC Section 179 Limitations
• 1099 Issuance Requirement increased to $2,000 and Indexed for Inflation
• Increased Gross Receipts Limitations for Small Manufacturing Businesses
  • Business must derive substantially all of its gross receipts from the sale of tangible personal property produced or manufactured by the business
  • Increases limitation from $25 million to $80 million and is indexed for inflation
    • Begins in 2026
    • Applies to:
      • Cash Method of Accounting
      • 163(j) Business Interest Limitation
      • Accounting for Inventories
• Decreases Corporate Limitation on Charitable Contributions to 1% from 10%
• Clean Energy Credits
  • Eliminates/limits most existing clean energy credits

For more information or if you have thoughts and/or questions about the information outlined above, please do not hesitate to contact us; our seasoned and experienced tax professionals are always here to help. You can also learn more by visiting our Tax service page.

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