Major Tax Legislation on the Horizon: What We Know So Far
On Friday, May 9, the House Ways and Means Committee released its initial draft of the tax portion of the budget reconciliation bill. The Committee replaced that draft with a more robust draft Monday, May 12 which included some of the specific promises President Trump made on the campaign trail, among other provisions.
The legislation remains subject to substantial negotiation and change before reaching its final form. At Clark Schaefer Hackett, we are actively monitoring these developments and assessing potential impacts and opportunities for businesses and individuals.
As the bill moves through the legislative process, we will continue to keep you informed and provide insights on significant changes. While the specifics are still evolving, the current bill should provide some insights on where we are headed.
What’s in the Budget Reconciliation Bill (So Far)
Among the key provisions included in the evolving proposal:
Top Tax Rate Remains Unchanged: A surprising development at this point is that the initial drafts leave the top tax rate on individual income at 37% and make it permanent.
Estate and Gift Tax Exemptions: The current version of the bill sets the lifetime exemption at $15 million and adjusts the limit for inflation. This provision is permanent and not set to sunset like under current law.
SALT Deduction Cap Relief: One of the most controversial issues—the $10,000 cap on the State and Local Tax (SALT) deduction—is once again on the table. The bill proposes raising the cap for single taxpayers to $15,000, and $30,000 for other filing statuses. Those enhanced limits then phase out as taxpayers cross certain income thresholds. Many blue-state Republicans are still unhappy with this limit and phase-out.
Pass-Through Entity Taxation (PTET): Updates to the federal treatment of PTET regimes are being discussed. These policies, initially designed to mitigate the SALT cap’s impact, could be restricted depending on final negotiations.
Section 199A Deduction – A Push for Permanence: As drafted the Section 199A qualified small business income deduction, which currently allows certain taxpayers to deduct 20% of certain business income, would be made permanent. The deduction would also go from 20% to 23%, and some small service businesses would qualify which do not under prior legislation.
Bonus Depreciation and Section 179: Under the current draft of the bill 100% bonus depreciation is back for assets acquired after January 19, 2025 and before January 1, 2030. Additionally, Section 179 expensing limits are increased. There are also enhanced limits for domestic manufacturers.
Business Interest Expense: As drafted, taxpayers can once again add back depreciation and amortization when determining adjusted taxable income for purposes of the Section 163(j) business interest deduction limitation. This change would increase the allowable deduction for many businesses.
A sampling of other provisions and changes included in the bill include no tax on tips, no tax on overtime, MAGA savings accounts, elimination of most green energy credits, and changes to HSA expenses, though there are many more changes.
As noted at the outset, the bill is still subject to substantial negotiation and change. As the legislation advances, CSH will keep you informed. In the meantime, please don’t hesitate to reach out to your advisor if you have questions.
