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By Jonathan Tucker | Principal, Research & Development Tax Credits
On May 12, 2025, the House Ways and Means Committee released a larger text than what Chairman Jason Smith (R-MO) released on May 9 for proposed tax legislation as part of the FY 2025 budget reconciliation process. These initial proposals focus primarily on extending or modifying provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that are currently set to expire after 2025.
Most notably, the current text addresses bonus depreciation, Section 174 research and experimental expenses, and some State and Local Tax (SALT) cap relief. However, House Republicans from high-tax states demand that the SALT deduction cap be increased in final negotiations.
KBKG Insight:
It is expected that bonus depreciation, Section 174 expensing, and at least the SALT cap currently included will make it into the final version of the bill when it comes up for a vote.
Breaking Down What is in the Bill:
- Five-year reinstatement of 100% bonus depreciation for property placed in service after January 19, 2025, and before January 1, 2030.
- Amortization under Section 174 is suspended for domestic research and experimental expenditures for tax years beginning after December 31, 2024, and before January 1, 2030 (i.e. taxpayers can expense domestic expenditures when incurred for this period).
- Individual Tax Rates: Permanently extends current brackets, including the 37% top rate (no millionaire’s tax rate), with inflation adjustments.
- Standard Deduction: Makes the higher deduction permanent and includes a temporary increase from 2025 to 2028.
- Child Tax Credit: Keeps the $2,000 credit permanent, temporarily raises it to $2,500, and requires valid Social Security numbers and legal status.
- SALT deduction cap increased from $10,000 to $30,000.
- Enhanced Deduction for Pass-Through Income (Section 199A): Boost the existing deduction for qualified pass-through business income from 20% to 23%. It also adjusts the phase-out thresholds, allowing certain specified service trades or businesses, such as law, accounting, consulting, asset management, and hedge funds, to receive a partial deduction across all income levels. These businesses would be eligible for a deduction equal to 25% of the full 23%, resulting in a maximum benefit of 5.75%.
- Estate & Gift Tax: Keeps the doubled exemption amount, raising it to $15 million.
- Opportunity Zones Revamp: A new round of Opportunity Zone designations, with states submitting nominations through their governors. These newly designated zones would be active from January 1, 2027, through December 31, 2033.
- Reduction of Clean Energy Incentives: Scales back many clean energy tax incentives introduced under the Inflation Reduction Act. It would eliminate tax credits for electric vehicle charging infrastructure, residential energy upgrades, and solar installations on homes for projects placed in service after December 31, 2025. Additionally, it ends incentives for newly acquired energy-efficient homes (45L) after that date, unless construction began before May 12, 2025.
- Full Expensing for Industrial Facilities: Allow manufacturers to fully expense the cost of nonresidential real estate used in manufacturing, production, or refining tangible goods. To qualify, construction must start between January 19, 2025, and December 31, 2028, and the property must be placed in original use by the taxpayer.
What to Expect Next
The debate will continue, as the full package faces several challenges:
- The Republican House budget allows $4.5 trillion in tax cuts only if $2 trillion in mandatory spending cuts are achieved. Without those cuts, the cap drops to $4 trillion. We have yet to see where the proposed spending cuts will be, with many Republicans reluctant to cut Medicaid.
- The Republican Senate is using a different method of measuring costs that can be problematic for House members.
- There are intra-party divisions among House Republicans as it pertains to deficit hawks, moderate Republicans, “Clean Energy” Republicans, and other Republicans.
- Some proposals could be scaled back or made temporary depending on budget trade-offs.
- The debt ceiling deadline looms: Treasury projects the government could run out of borrowing capacity by mid-July, adding urgency to wrap up reconciliation before the July 4, 2025, recess. Deficit hawks in the House see the increase in the debt ceiling as problematic.
Conclusion
If passed, these changes would have long-term implications for individuals, pass-through entities, and multinational corporations. KBKG and its experts specialize in navigating complex tax legislation and translating policy shifts into practical, strategic solutions. Those with questions about current tax incentives and benefits are encouraged to contact a KBKG expert today.
About the Author
Jonathan Tucker | Principal – Research & Development Tax Credits
Jonathan Tucker is based in Atlanta, GA, and has over 20 years of experience providing federal business tax advisory services, primarily in R&D tax credits, to clients in various industries including technology, manufacturing, transportation, healthcare, retail and consumer products, hospitality, media and entertainment, financial, and other professional services industries. Read More