Accounting
What the House gave the Senate: Inside the Big Beautiful tax bill
The reconciliation bill passed by the House on May 22 is currently being considered by the Senate, and will likely undergo changes before approval by the upper chamber. To what extent the changes will create stumbling blocks before a final bill is produced and voted on is uncertain, with the increased SALT deduction, Medicaid reforms, and repeal of certain Inflation Reduction Act credits on the line.
While much can change between now and the final version of the bill, the following is a quick overview of some of the provisions:
- Bonus depreciation. First-year bonus depreciation, currently being phased down 20% per year since 2023, is 40% for 2025, and will drop to 0% in 2027. Under the One Big Beautiful Bill Act (or OBBBA) it will be reset at 100% for eligible property acquired and placed in service after Jan. 19, 2025, and before Jan. 1, 2030.
- Section 199A Qualified Business Income deduction. The QBI deduction, created by the Tax Cuts and Jobs Act, is available through 2025 to owners of pass-through entities, sole proprietors and the self-employed. The OBBBA would make the deduction permanent, and the deduction would increase to 23% for tax years beginning after 2025.
- Domestic research and experimental expenditures. The OBBBA would reinstate the deduction available to businesses that conduct research and experimentation. Expenses incurred after 2024 and before 2030 would be eligible.
- Section 179 expensing. The bill increases the limit to $2.5 million and increases the phaseout threshold to $4 million for property placed in service after 2024. The limit and threshold would be adjusted annually for inflation.
- Excess business loss limitation. The bill makes permanent the excess business loss limitation for pass-through entities.
- Pease limitation. The bill would make permanent the repeal of the Pease limitation on itemized deduction, but would introduce a new limitation for taxpayers in the 37% bracket for years after 2025. It would also temporarily increase the standard deduction for tax years 2025 through 2028.
- The Child Tax Credit. The bill makes the CTC permanent and raises it to $2,5000 per child for tax years 2025 through 2028, after which it would return to its present $2,000 with an annual inflation adjustment.
- Federal gift and estate tax exemption. The bill increases the federal gift and estate tax exemption to $15 million, and adjusts it annually for inflation. It is currently set at $13.99 million.
One sector the bill is very positive for is real estate, according to Tyler Davis, president of Saunders Real Estate: “It makes a lot of the TCJA provisions permanent. The estate tax exemption is made permanent and raised to $15 million, and the bonus is back to 100% for the next four years. This allows purchasers to depreciate their investments a lot faster, so it makes deals more attractive for investors and developers. A special provision for industrial manufacturing property under the bill, it is eligible for 100% expensing.”
Photographer: Nikita Sobolkov/nikkytok – stock.adobe.com
This would allow 100% of a project’s cost to be deducted in the first year, making it “hugely attractive,” he said. “The administration wants to bring investment back to the U.S. This will incentivize that process.”
Under the bill, the Section 163(j) business interest deduction would expand and allow more interest to be deducted on qualifying real estate, he said. “And they’re redoing some of the Opportunity Zone rules and boundaries, and are lowering reinvestment thresholds for investments. This should drive more investment into rural communities. And, lastly, there are no Section 1031 changes in the bill. That’s a really positive thing from a transactions and reinvestment perspective.”
President Donald Trump told Senate Republicans he is open to a state and local tax deduction cap lower than the $40,000 in the House-passed version of his
Trump signaled his position in a meeting with Senate Finance Committee Republicans on Wednesday, and the comments added momentum to Senate GOP efforts to enact a lower SALT cap.
That push has led to resistance from the House, with Speaker Mike Johnson
After the White House meeting Wednesday, Senate Finance Committee Chair Mike Crapo lamented about the cost of the House bill’s SALT cap.
“There’s not a single Republican senator from New York, New Jersey or California, so there’s not a strong sentiment in the Republican conference to do $350 billion for states that the other states subsidize,” Crapo told reporters.
Crapo’s top priority for the Senate tax bill is extending a bevy of temporary business tax breaks in the House bill that would expire after 2029, including enhanced interest expensing and deductions on research, development and equipment. Crapo is looking to trim other aspects of the House bill in order to offset the added cost of making those breaks permanent.
He said that a decision had not yet been made on whether to lower the SALT cap or to what level. Under current law, individuals and couples can deduct $10,000 in state and local taxes if they itemize on their tax returns.
Johnson said that the higher cap is crucial for the House to be able to pass the final version of the tax bill when it is sent back from the Senate later in the summer. He said he has made that clear to the Senate GOP.
“I told my friends I am crossing the Grand Canyon on a piece of dental floss,” he said.
The Washington Post first reported Trump’s openness to a smaller cap.
“The White House is working closely with leaders in Congress to ensure that this landmark legislation gets over the finish line,” said spokesperson Kush Desai.
Employment grew by 139,000 jobs in May, the U.S. Bureau of Labor Statistics reported Friday, while the unemployment rate remained unchanged at 4.2%.
Employment continued to grow in the health care, leisure and hospitality and social assistance sectors, but the federal government continued to lose jobs as the Trump administration kept up its efforts to slash the workforce. The professional and business services sector lost 18,000 jobs in May, but added 3,100 in accounting, tax preparation, bookkeeping and payroll services.
Average hourly earnings increased 15 cents, or 0.4%, to $36.24 in May. Over the past 12 months, average hourly earnings have increased 3.9%.
“Really only two sectors made up the bulk of all job growth — health care and social assistance (+78K) and leisure and hospitality (+48K),” said Andrew Flowers, chief economist at Appcast. “The ‘diffusion index’ (which measures the breadth of job growth) fell near the lowest point of this cycle. Beyond those sectors, there were signs that professional and business services job growth has weakened further, with the three-month moving average now negative. Moreover, the DOGE-led effort to trim government bureaucrats is having real effects, with a -22K job contraction in the federal workforce.”
As part of those cuts, the U.S. Bureau of Labor Statistics itself has been
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