Congress Advances Sweeping Tax Reconciliation Bill With Major Changes To SALT, Business, & Individual Taxes

May 16, 2025

Ways And Means Committee Approves Legislation, Full House Vote Looms

There has been quite a bit of activity over the past week on the significant reconciliation legislation moving through Congress.

The tax piece of the legislation is overseen by the Ways and Means Committee, which passed the proposed legislation along party lines on Wednesday, May 14, 2025, with all Democrats voting against.

Below is a summary of the major provisions of the legislation, with the significant caveat that these remain subject to revision as the full House of Representatives, with a slim Republican majority, considers the legislation, with the current plan being for a full House vote as early as the week of May 19.

Moreover, the U.S. Senate will be working over the next few months on its version of the legislation, which could differ meaningfully from what the House passes. The two versions would then need to be reconciled and passed by both chambers of Congress before being signed by the President.

The following are very high-level summaries, which contain special definitions and exceptions. If you believe these have the potential to be significant to you or your business, please contact a GBQ tax advisor.

Read Also: Budget Passage Unlocks Tax Reform

SALT Cap Increase & Pass-Through Entity Tax Changes Proposed

One issue that continues to demand attention is the so-called SALT Cap. Under current law, passed in 2017, taxpayers who itemize may deduct state and local taxes up to $10,000 ($5,000 for an individual married filing separately). In response, most states with an income tax now permit a partnership or S corporation to elect to pay and deduct income tax at the entity level (pass-through entity tax, or “PTET”), which effectively allows the owners an unlimited federal deduction.

The Committee’s bill would significantly change this landscape in at least two ways.

First, it would increase the SALT deduction to $30,000 for all taxpayers, not just business owners. However, that deduction would phase back down to $10,000 for taxpayers with income greater than $400,000.
Second, the bill would disallow the deduction of PTET for owners of a business who do not qualify for Section 199A treatment, i.e., a specified service trade or business.

In effect, the SALT Cap would be reinstated (albeit at $30,000 subject to phasedown) for owners of firms providing health, legal, accounting, consulting, financial, brokerage services, and any other trade or business excluded from Section 199A treatment. Owners of other types of businesses (e.g., a manufacturer) would still enjoy an unlimited deduction for PTET.

Business Tax Provisions Target Deductions & Depreciation

Pass-through business deduction (Section 199A) would be made permanent and increased from 20% to 23% for tax years after 2025.
100% bonus depreciation would be reinstated for years 2025 through 2029. The phase-out under current law would not be adjusted. So, once bonus depreciation expires in 2029, absent further legislation, there would be 0% first-year additional depreciation.
Research and experimentation expenses, currently required to be capitalized and amortized for tax purposes under Section 174, would be allowed as a current deduction through 2029, unless the expenses are incurred outside the U.S, in which case they would be required to be capitalized and amortized over 15 years.
Limitation on the deduction of interest (Section 163(j)), currently based on 30% of tax basis EBIT, would be based on tax basis EBITDA through 2029.
Gross receipts threshold under Section 448 would be increased from $25 million to $80 million for manufacturing taxpayers. This threshold determines whether an entity is required to use accrual accounting vs. cash, required to apply Section 263A capitalization to its inventory, or limit interest expense deductions under Section 163(j).
A new ‘bonus’ depreciation allowance for nonresidential real property that is used for the manufacturing, production, or refining of personal property.
Global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) deduction percentages would remain at their current percentages of 50% and 37.5%, respectively, rather than decreasing as scheduled after 2025. Similarly, the current base erosion and anti-abuse tax (BEAT) rate of 10% would be continued rather than increased to 12.5% as scheduled.
The legislation introduces a new retaliatory tax regime against the residents and governments of countries that impose a digital services tax or Pillar 2 under-taxed profits rule upon U.S. persons.
Expensing of depreciable assets under Section 179 would be increased to $2.5 million, with the phaseout threshold increasing to $4 million.
Employee retention tax credit refunds would no longer be permitted unless a claim was submitted on or before Jan. 31, 2024, and new penalties would apply to claims filed in excess of what a taxpayer was entitled to. The statute of limitations for the IRS to audit the claim is six years from when the claim is filed, meaning an audit for the credit could occur until Jan. 31, 2030.
Amortization tax deductions would be limited in the case of professional sports franchises acquired after the date of enactment.

Individual Tax Measures Focus On Permanency & New Deductions

Current individual tax brackets and rates would be made permanent.
The current level of the standard deduction would be made permanent, with a temporary increase of $2,000 for joint/surviving spouse filers and $1,000 for single filers for tax years 2025 through 2028.
The current increase to the child tax credit would be made permanent, with a temporary increase of $500 for tax years 2025 through 2028.
Current estate and gift tax exemption amounts would be made permanent for an inflation-adjusted $15 million for tax years after 2025.
Increased alternative minimum tax (AMT) exemption and phase-out thresholds would be made permanent.
Other individual provisions currently in effect, such as termination of the deduction for personal exemptions, mortgage interest payments, casualty losses, and qualified bicycle commuting reimbursement exclusions, would be made permanent.
A deduction, even if not itemizing deductions, for qualified tips received in an occupation that traditionally receives tips; employees receiving compensation above $160,000 would not qualify. This would only apply to tax years 2025 through 2028.
A deduction, even if not itemizing deductions, for overtime compensation received; employees receiving compensation above $160,000 would not qualify. This would only apply to tax years 2025 through 2028.
A deduction, even if not itemizing deductions, for passenger vehicle loan interest, subject to phase-outs. This would only apply to tax years 2025 through 2028.
A new type of tax-preferred account, called a money account for growth and advancement (MAGA account), which provides for tax-free growth of funds used for qualified expenses, such as higher education, qualified post-secondary credentialing, small business or farm loans, or purchase of a principal residence for a first-time homebuyer. The legislation would create a pilot program whereby the federal government would contribute $1,000 to such an account for each U.S. citizen born during the years 2025 through 2028..

Senate’s Version & Reconciliation Process Await

Several additional provisions are present in the legislation, including changes to clean energy tax credits, extensions and enhancements to Opportunity Zones, adjustments to excise tax and unrelated business income of tax-exempt entities, and tightening certain tax credits claimed without a Social Security Number, changes to Health Savings Accounts and Flexible Spending Accounts, and more.

The full proposed legislation and its application are very complex and subject to significant changes before full House passage and full Senate passage. If you have questions about how this potential legislation could impact your specific situation, contact a GBQ tax advisor to discuss further.

By Mark Silvaggio, JD, CPA, Tax and Business Advisory & John Petzinger, State and Local Tax