On May 22, 2025, the U.S. House of Representatives passed the sweeping Tax Reform and Reconciliation Act by a 215–214 vote. This 1,100-page tax package, developed through the House Ways and Means Committee under the reconciliation process, now advances to the Senate, where additional debate and changes are expected.
What’s Included in the House Bill?
The legislation would bring significant tax changes for individuals and businesses nationwide if passed into law. Selected provisions include the following.
SALT Deduction Cap Increased
The House vote followed Wednesday’s release of a 42-page manager’s amendment that introduced several key changes, including an increase to the State and Local Tax (SALT) deduction cap.
Originally proposed at $30,000 for joint filers, the House-passed bill raised the cap further to $40,000 ($20,000 for separate filers), effective beginning January 1, 2025. This is an increase from the longstanding $10,000 cap implemented in 2017. The revised deduction includes a phaseout for taxpayers with adjusted gross income (AGI) above $500,000 for joint filers ($250,000 for separate filers), and both the cap and the phaseout thresholds will rise by 1% annually beginning January 1, 2026.
Elimination of PTET Deduction
Beginning January 1, 2025, the bill repeals the IRS’s treatment of state-level Pass-Through Entity Taxes (PTET) under Notice 2020-75, eliminating the federal deduction at the entity level for pass-through businesses that elect to pay PTET. This change is expected to increase federal tax liabilities, particularly for owners of Specified Service Trades or Businesses (SSTBs) with incomes above the Qualified Business Income (QBI) deduction thresholds, who may be more reliant on the PTET workaround to offset SALT deduction limits.
What It Means for Businesses:
- Enhanced QBI Deduction: Starting January 1, 2026, the qualified business income deduction would be permanently increased from 20% to 23%. This would reduce taxable income for pass-through entities such as LLCs, S corporations, and sole proprietorships.
- Section 179 Expensing Increased: Effective January 1, 2025, through December 31, 2029, the limit on Section 179 expensing would rise to $2.5 million, with a phase-out threshold of $4 million, allowing businesses to write off more qualifying property, such as equipment and vehicles, in the year of purchase.
- 100% Bonus Depreciation Extended: The bill extends 100% bonus depreciation for qualifying property placed in service from January 19, 2025, through December 31, 2029, allowing immediate expensing of major investments.
- Full R&D Expensing: Full expensing for domestic research and development (R&D) costs would be reinstated from January 1, 2025, through December 31, 2029.
- Interest Deduction Relief: From January 1, 2025, to December 31, 2029, businesses could calculate interest deductibility using an EBITDA-based cap rather than EBIT. Fiscal-year filers may need to act quickly to optimize the timing.
- International Tax Adjustments: Effective January 1, 2026, the bill slightly increases effective tax rates on foreign income by reducing deductions for Global Intangible Low-Taxed Income (GILTI) from 50% to 49.2% and Foreign-Derived Intangible Income (FDII) from 37.5% to 36.5%. It also raises the Base Erosion and Anti-Abuse Tax (BEAT) rate from 10% to 10.1%.
What It Means for Individuals:
High-income individuals and family-owned businesses may also be affected by the reforms:
- Estate and Gift Tax Exemption Made Permanent
The estate and gift tax exemption would be permanently set at $15 million beginning after the current TCJA provisions sunset on December 31, 2025. The exemption would be indexed for inflation thereafter and would offer long-term planning certainty for wealth transfers and succession strategies. - TCJA Provisions Extended
Several provisions from the 2017 TCJA would be extended, including lower individual income tax rates, a higher standard deduction, and an expanded Child Tax Credit, offering continued relief for middle-income taxpayers.
What Will Happen Next?
The bill now moves to the Senate, where it can pass with a simple majority under budget reconciliation rules. However, as negotiations unfold, it may face amendments related to the SALT cap, PTET repeal, and deficit implications. Any provision of the bill is subject to change during this process.
Advice for Businesses and Individuals:
Businesses and individuals should begin preparing now for the potential changes ahead:
- Monitor Senate Progress: Stay informed on evolving provisions, especially those related to the SALT cap and PTET repeal, as Senate negotiations may bring further changes.
- Assess SALT and PTET Impacts: Model how the elimination of the PTET deduction could affect your federal tax liability, particularly if you’re in a Specified Service Trade or Business (SSTB) or based in a high-tax state. Consider whether the increased SALT cap offsets this loss.
- Maximize Capital Investment Opportunities: Develop a strategy to take advantage of expanded Section 179 expensing, extended 100% bonus depreciation, and full deductibility for domestic R&D costs through December 31, 2029.
- Plan for QBI and Trust and Estate Impacts: Evaluate how the permanent 23% Qualified Business Income (QBI) deduction and the increased $15 million estate and gift tax exemption could influence business succession, wealth transfers, and trust planning.
Plan With an Advisor
Tax planning in the changing legislative environment requires coordination and care. Proactive discussions can help you respond quickly once the final bill language is clear.
Our team continues to monitor these developments and will provide updates as the legislation unfolds. For personalized guidance on how these legislative updates could impact your short-term or long-term strategy, connect with your Grassi Advisor or contact Jeff Cohen, Partner and Tax Practice Leader, or TJ Beary, Partner, SALT Practice, and Tax Controversy Practice Leader today.
