Key Takeaways:
- Tax cuts for individuals and businesses would become permanent under the bill if it's approved by the Senate, including individual rate cuts and the qualified business income deduction.
- 100% first-year bonus depreciation is reinstated for property placed in service after January 19, 2025 — reversing the phasedown that was set to end by 2027.
- The cap for Section 179 expensing of depreciable business property doubled from $1.25 million to $2.5 million, with a phase-out beginning at $4 million.
- Full expensing of R&D costs returns through 2029 (domestic expenses only); clean energy incentives repealed.
The U.S. House of Representatives passed the One Big Beautiful Bill Act on May 22 with a vote of 215 to 214. Now the bill will be sent to the Senate for approval.
As the legislative process unfolds, tax leaders should closely check how the bill proceeds through the Senate — particularly those related to research and development (R&D) expensing, bonus depreciation, and qualified business income (QBI) 199A, which could materially affect business capital allocations, hiring, and M&A decisions.
Companies in capital-intensive sectors like manufacturing, biotech, and technology should model both short-term and long-term implications — including how the permanence of Tax Cuts and Jobs Act (TCJA) provisions might influence entity structure and tax planning strategies.
Individual Income Tax Proposals
- Extension of TCJA provisions: Makes the individual income tax rate cuts, standard deduction increases, and Child Tax Credit expansion from the TCJA permanent.
- Increase to Child Tax Credit: Temporarily increases the credit from $2,000 to $2,500 per child through 2028; reverts to $2,000 afterward.
- Elimination of personal exemptions: Permanently eliminates personal exemption deductions.
- Enhanced standard deductions: Adds a $4,000 standard deduction for individuals aged 65+, phasing out at higher income levels (through 2028). Adds $1,000 to individuals and $2,000 to joint filers.
- Deductions for tips and overtime pay: Allows deductions for cash tips and overtime pay, excludes high-income workers with income over $160,000. This deduction is capped at $25,000 per year and only applies to federal income taxes. Social Security and Medicare taxes still apply. Expires after 2028.
- Car loan interest deduction: Allows a deduction of up to $10,000 for interest on car loans, with income limits and a requirement that vehicles be assembled in the U.S.
- Estate and gift tax exemption: Permanently increases the exemption to $15 million per individual ($30 million per couple), indexed annually for inflation. This will take away the urgency for lifetime gifting as more wealth can be passed on to the next generation tax-free.
Business Tax Provisions
- Permanent extension of TCJA business incentives: Includes 100% bonus depreciation and an increase in the qualified business income (QBI) deduction from 20% to 23%.
- R&D expensing: Restores immediate expensing of R&D costs instead of requiring capitalization and amortization over 5 years — extended through 2029.
- Expansion of Section 179 expensing: Raises the expensing cap to $2.5 million for qualifying property purchases.
- Modification of energy credits: Repeals several clean energy tax credits introduced by the Inflation Reduction Act.
- BEAT rate repeal: Cuts the scheduled increase to the Base Erosion and Anti-Abuse Tax (BEAT), helping multinational businesses.
Other Key Provisions
- SALT deduction cap increase: Raises the state and local tax (SALT) deduction cap to $40,000, with income-based phase-outs starting at adjusted gross income of $500,000.
- Tax on university endowments: Imposes a tiered excise tax on large private university endowments.
- Higher tax on private foundation investments: Increases the excise tax rate on net investment income for private foundations.
Legislative Considerations and Outlook
- Reconciliation process: The bill is advancing via the reconciliation process, enabling passage in the Senate with a simple majority vote. The Senate is currently made up of 53 Republicans, 45 Democrats, and 2 Independent. There most likely will be some changes to the bill to reduce the overall deficit.
- Byrd Rule implications: Non-budgetary items may be stripped under the Byrd Rule during Senate consideration.
- Ongoing negotiations: The Senate is expected to develop its own tax legislation, which may differ significantly, potentially requiring a conference to align both versions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
