House Ways and Means Moves Tax Legislation out of Committee

The House Ways and Means committee passed tax legislation out of committee on May 14, 2025, 26-19. The 389-page bill is broken down into multiple subtitles addressing different priorities and is estimated to cost $3.8 trillion. The bill now moves to the Budget Committee to be assembled into the larger legislative package, which will be voted on by the full House. This vote may come as early as next week. The bill generally extends or makes permanent the expiring provisions of the Tax Cuts and Jobs Act (“TCJA”), enacts some campaign promises, and repeals or modifies large portions of the Inflation Reduction Act.  

Individual Provisions 

Much of the bill addresses individual tax changes, which would: 

• Permanently extend the individual rates from the TCJA, with some modifications to inflation adjustments for 37% tax brackets. (Observation: Despite some support, no increased top rate was added.) 
• Permanently extend the increased standard deduction, with further increased amounts of $2,000 (joint filers), $1,500 (head of household), and $1,000 (all others) for tax years 2025-2028. Seniors would receive an additional $4,000, even if they itemize, subject to income thresholds. (Observation: This provision appears to partially address campaign promises to make social security benefits non-taxable. As drafted, social security benefits remain taxable for those over certain income thresholds.) 
• Permanently increase the TCJA child tax credit level of $2,000, with a further increased amount of $2,500 for tax years 2025-2028. 
• Permanently increase the estate and gift tax exemption to $15 million per taxpayer, adjusted annually for inflation. (Observation: The current exemption is $13.99 million per taxpayer.) 
• Permanently increase the AMT exemption and phase-out amounts. 
• Permanently extend the limitations on mortgage interest deductions (up to $750,000 of principal or $1 million if pre-2017) and most casualty losses. 
• Terminate miscellaneous itemized deductions and moving expenses deductions. 
• Replace the “Pease” limitation on itemized deductions with a new limitation, whereby a taxpayer's total amount of itemized deductions, as determined after the application of any other limitation on itemized deductions, is further reduced by 2/37 (approximately 5.41%) of the lesser of: 
  • Said amount of itemized deductions, or 
  • The amount by which the taxpayer's taxable income, including itemized deductions, exceeds the dollar amount at which the 37% income tax rate bracket begins for the taxpayer. 
• Allow an exclusion for tip income for “qualified workers” and for “qualified overtime compensation” (as defined under the Fair Standard Act of 1938). 
• Create universal “money accounts for growth and advancement” (“MAGA” accounts), allowing individuals to contribute up to $5,000 per year (adjusted annually for inflation) for children who are under the age of 18, provided they create the account prior to the beneficiary reaching the age of eight. A pilot program would automatically create an account and deposit a one-time, $1,000 tax credit for qualifying children born during taxable years 2025-2028. Distributions for qualified expenses are taxed as capital gains. Other distributions are included in income and subject to a 10% penalty if the beneficiary is under 30. After obtaining age 31, the account is deemed to be fully distributed to the beneficiary. 
• Increase the state and local tax (“SALT”) deduction limitation to $30,000 ($15,000 if married filing separately) for taxpayers with AGI under $400,000 ($200,000 for MFS). For taxpayers over that threshold, the amount of deduction allowed is reduced by 20% of the excess over the AGI threshold, up to an AGI of $500,000/$250,000. Taxpayers with AGI over $500,000/$250,000 are restricted to $10,000/$5,000. (Observation: As drafted, this provision does not address the marriage penalty in the SALT deduction limitation as the deduction remains the same for joint filers and single filers.) 
• Generally, restrict the ability to use a pass-through entity tax (“PTET”) election to only allow partnerships and S corporations that qualify for the qualified business income (“QBI”) deduction under IRC Sec. 199A to utilize these workarounds for taxable years beginning after December 31, 2025. Accordingly, professional service providers, financial service providers, athletes, medical professionals, investment vehicles, and enumerated professional firms would no longer be able to take advantage of SALT cap workarounds. (Observation: At least 75% of gross receipts, in the aggregate, must be derived from a qualified trade or business.) 
• Permanently extend the limitation on excess business losses for taxpayers other than corporations under IRC Sec. 461(l) and disallow net operating losses (“NOLs”) in future years. Accordingly, carryforwards from 2025 and thereafter will no longer be characterized as NOLs and the excess business loss carryforward will only be able to offset trade or business income in future years. (Observation: This provision was slated to expire in 2028.) 
• Allow taxpayers to deduct personal vehicle loan interest for taxable years 2024-2028, for vehicles with final assembly in the United States, limited to $10,000 per year. The $10,000 amount is phased out for taxpayers with AGI over $100,000 ($200,000 if MFJ), with no deduction allowed if the taxpayer’s AGI exceeds $150,000 ($250,000 if MFJ). (Observation: As drafted, this provision contains a marriage penalty.) 

General Business Provisions 

The bill’s business provisions would: 

• Permanently extend the 199A qualified business income deduction and increase the deduction to 23% from 20%. The legislation also modifies the phase-out limitations. (Observation: This is a 1% increase from the legislation released May 9, 2025.) 
• Suspend the requirement to capitalize and amortize domestic research and development expenditures under IRC Sec. 174 for taxable years 2025-2029, allowing a full domestic expenses deduction for those years. (Observation: Foreign expenditures must still be capitalized and amortized, and may not be recovered either as a deduction or a reduction to the amount realized for any property disposed, retired, or abandoned.) 
• Temporarily reinstate the EBITDA limitation for IRC Sec. 163(j) for taxable years 2025-2029. (Observation: This adds back depreciation and amortization, providing for more interest expenses to be deducted.) 
• Extend 100% bonus depreciation for property placed in service after January 19, 2025, and before January 1, 2030. (Observation: Unlike the TCJA, there does not appear to be a phase-out period.) 
• Temporarily allow an election to take 100% depreciation for “qualified production property” that begins construction after January 19, 2025, and before January 1, 2029. 
• Increase the IRC Sec. 179 amount to $2.5 million and the threshold amount to $4 million, adjusted annually for inflation beginning in 2026. (Observation: As many states do not conform to bonus depreciation but conform with IRC Sec. 179 deductions, this provision will grant taxpayers flexibility in deducting these expenses.) 
• Increase the amount of the Employer-Provided Child Care Credit from 25% to 40% (50% for eligible small businesses), not to exceed $500,000 ($600,000 for eligible small businesses), adjusted annually for inflation.   
• Permanently extend the Paid Family and Medical Leave Credit. 
• Restrict charitable deductions for C corporations, to the extent that the charitable contributions exceed 1% of the taxpayer’s taxable income, not to exceed 10% of the same. (Observation: C corporations would effectively lose a charitable deduction amount equal to 1% of their taxable income.) 
• Apply the 162(m) deduction limits and allocation rules to controlled groups. (Observation: Currently, this applies to affiliated groups.)  

International Provisions 

The bill contains international provisions that would: 

• Permanently extend the current GILTI deduction of 50%. 
• Permanently extend the current FDII deduction of 37.5%. 
• Permanently extend the BEAT rate of 10%. 
• Modify the de minimis threshold for imported goods and who qualifies. 
• Impose a 5% remittance excise tax, paid by the sender, for transfers to a person located in a foreign country. 
• Create a regime to counter “unfair foreign taxes” (such as digital services taxes) imposed on U.S. business under new IRC Sec. 899. The provision would increase the rate of tax applicable to taxpayers connected to the foreign country or jurisdiction. The provision would negate treaty benefits under IRC. Sec. 892. (Observation: This is effectively a retaliatory tax.)  

Health Care Account Provisions 

The bill contains a number of modifications to health care plans, which would: 

• Modify the rules for individual coverage Health Reimbursement Arrangements (“HRAs”) (renamed to “Custom Health Option and Individual Care Expense” or “CHOICE” arrangements) to permit employers to offer these accounts without violating the group health plan requirements on the Affordable Care Act. 
• Allow employees enrolled in an HRA though a cafeteria plan to purchase health insurance on the exchange even if they use salary reduction.  
• Provide an employer credit for the first two years for each employee who enrolls in an HRA account. The credit would be equal to $100 (adjusted annually for inflation) for each month the employee is enrolled in the arrangement in the first year, plus ½ of that amount for each month the employee is enrolled in the second year.  
• Allow individuals who are Medicare eligible to remain eligible for contributions to a Health Savings Account (“HSA”), provided they are only enrolled in Medicare Part A. However, if the individual has obtained age 65, they will not be allowed to use HSA funds to pay for health insurance premiums, and they will continue to be subject to the 20% additional tax on non-qualified HSA distributions.   
• Treat expenses paid for physical activities (such as fitness club memberships or sport leagues) as amounts paid for medical care eligible to be reimbursed from an HSA.  
• Allow both spouses to make catch-up HSA contributions to the same HSA, provided one spouse has family coverage under a High-Deductible Health Plan. 
• Allow for roll-over of FSA and HRA funds to an HSA. 
• Allow taxpayers to reimburse themselves for medical expenses incurred within 60 days before the establishment of an HSA. (Observation: Currently, taxpayers can only reimburse themselves for expenses incurred after their participation in an HSA.) 
• Double the amount of HSA contributions allowed for taxpayers within certain restrictive income limitations. 

Qualified Opportunity Zones 

The bill would significantly modify Qualified Opportunity Zones, and would: 

• Shorten the designation period for initial qualified opportunity zones (“QOZs”) to December 31, 2026, and allow for the designation of additional QOZs from January 1, 2027, to December 31, 2033, with a new requirement that at least 33% of designated QOZs be in rural areas. 
• Create a new QOZ investment period for gains from sales or exchanges incurred from January 1, 2027, through December 31, 2033, with ultimate inclusion of such deferred gains into income on December 31, 2033. 
• Replace the 10% and additional 5% basis step up for QOZs with one 10% increase after a five-year holding period. Funds that are considered new “qualified rural opportunity funds” will be eligible for a 30% basis step up if held for five years. 
• Allow taxpayers to elect to invest up to $10,000 of ordinary income in a qualified opportunity fund in their lifetime; however, such income would not qualify for the 10% (or 30% in the case of rural investments) basis step-up. 
• Modify the substantial improvement requirement for QOZ business property (i.e., improvements must generally exceed 100% of adjusted basis of qualifying property during a 30-month period). In the case of property located in a qualified opportunity zone comprised entirely of a rural area, improvements must only exceed 50% of the adjusted basis of qualifying period during a 30-month period.   
• Modify the definition of areas that qualify as low-income communities for purposes of the next round of qualified opportunity zone designations. The new requirements result in a reduction of the amount of areas that will qualify as compared to the overall population of areas that would have qualified under the original designation thresholds. 

Industry Specific Provisions  

The bill contains a number of one-off provisions targeting specific industries, which would: 

• Allow specified financial lenders to exclude up to 25% of interest income derived from qualified real estate loans from gross income. 
• Increase the IRC Sec. 448(c) threshold to $80 million (currently, $31 million) for manufacturing taxpayers and allow these taxpayers to use the cash method of accounting. (Observation: As drafted, this would increase manufacturing taxpayers’ 163(j) limitation.) 
• Limit the ability for sports franchises to amortize IRC Sec. 197 intangibles to 50% of the adjusted basis in the asset; provided the franchise is a professional sport. 
• Increase the state housing credit ceiling under the Low-Income Housing Tax Credit for calendar years 2026-2029 to 12.5% and allow additional buildings that are financed with tax-exempt bonds to qualify for housing credits if at least 25% of the aggregate basis of the building is financed with qualified bonds. 
• Extend the expensing rules for qualified film, television, and live theatrical productions to qualified sound production costs until January 1, 2026; and allow bonus depreciation for qualified sound recording productions placed in service (i.e., released or broadcast) before January 1, 2029. 
• Effectively repeal the excise tax on firearm silencers.  
• Repeal the excise tax on indoor tanning services. 

Tax-Exempt Organizations 

The bill would significantly increase certain excise taxes on tax-exempt organizations, and would: 

• Include all employees receiving remuneration in excess of $1 million in the definition of “covered employees” for purposes of the excise tax under IRC Sec. 4960. 
• Increase the IRC Sec. 4968 excise tax rate on applicable educational institutions’ net investment income to 7%, 14%, or 21% and apply the tax if the endowment is $750,000 per student. 
• Increase the IRC Sec. 4940(a) excise tax rate on private foundations’ net investment income tax to 2.78%, 5%, or 10% if the total assets are $50 million or more. 
• Allow the Treasury Secretary to terminate the tax-exempt status of organizations that they determine support terrorism.  

Miscellaneous Provisions 

Some stray provisions would: 

• Extend the clean fuel production credit through December 31, 2031, and modify the method of determining the emissions rate. 
• Generally, repeal or shorten the availability of credits created under the IRA, including the ability to transfer or sell credits. 
• Create new penalties for employee retention tax credit (ERTC) promoters, disallow ERTC refunds claimed after January 31, 2024, and extend the statute of limitations to assess penalties for the ERTC to six years after the latest of: 
  • the date the original return was filed,  
  • the date the return was treated as filed, or  
  • the date the claim for the ERTC credit or refund is made. 

Other Observations 

The legislation does not lower the corporate tax rate for American manufacturers, eliminate carried interest, or raise rates on individuals making over $2.5 million, all of which were discussed at one point.  

It should be noted that this legislation in its current form is unlikely to become the final bill. However, it is a good indication of what the priorities of the House are, and any provision could end up in the final draft.