In the early morning of Thursday May 22nd, the House of Representatives narrowly approved, by a vote of 215-214, H.R, 1, the “One Big Beautiful Bill Act”, which includes proposed tax law changes, increased funding for border security and national defense, and spending reductions affecting many federal programs.
Approval by the House clears the way for the Senate to act on the legislation in June. Final passage of a bill may not occur until later in the summer.
The following is summary of the key federal tax provisions in H.R. 1, some of which will likely be modified by the Senate prior to final passage of the bill.
Individual Tax provisions
Tax Brackets: Current tax brackets, with a top rate of 37%, would continue, with annual inflation adjustments for all income tax brackets except the top bracket of 37%.
Standard Deduction: Permanently extend the enhanced standard deduction, adjusted annually for inflation, and would provide a temporary increase for 2025 through 2028 of an additional $1,000 for individual filers and $2,000 for joint filers.
Child Tax Credit: Proposed to increase from $2,000 to $2,500 per child from 2025 to 2028.
New Deductions for Tip & Overtime Pay: A deduction for qualified tip income and overtime pay for tax years 2025 through 2028. Only available to employees with a work-eligible Social Security number and would not apply to employees with earned income greater than the threshold for “highly compensated employees”, $160,000 in 2025.
Additional Deduction for Seniors 65+: An additional $4,000 deduction phased out after $150,000 of taxable income for joint filers ($75,000 for others).
State and Local Tax Deduction – SALT Cap: Permanently extends the SALT cap and increases it to $40,000 for 2025 for taxable income under $500,000, with both thresholds increased by 1% annually through 2033. If taxable income exceeds the threshold the deduction is phased down by 30% until reduced to $10,000.
This measure also defines taxes subject to the SALT cap and modifies accounting methods that pass-through entities – partnerships and S corporations – use to claim the deduction.
Overall Limitation on Itemized Deductions: Replaces the current overall limitation on itemized deductions (the Pease limitation) with a complicated two-pronged reduction based on the interaction of the deduction for state and local income taxes, other allowable itemized deductions, and the 37% individual income tax bracket.
Limiting overall itemized deductions for taxpayers in the highest tax bracket.
529 Plans: Expanded to cover more eligible costs, including tuition for postsecondary programs for vocational and certificate programs, enhancing educational savings options.
Charitable Deduction for Non-Itemizers: The $300 above-the-line deduction returns ($150 for individual filers), is allowed regardless of whether a taxpayer is itemizing deductions.
Form 1099-K: Repeals the reporting threshold unless the value for a payee is more than $20,000, and the number of transactions is more than 200.
Form 1099-MISC and Form 1099-NEC: Increases the reporting threshold from $600 to $2,000, adjusted for inflation after 2026.
Estate/Gift Exemption: The exemption for the estate and gift tax would be permanently extended and increased to $15 million ($30 million for a married couple), from $10 million, starting in the 2026 tax year. The exemption would be indexed to inflation.
Business Tax Provisions
Qualified Business Income (QBI) Deduction (Section 199A): Permanent increase in deduction from 20% to 23% starting in 2026 for qualified business income, and increased eligibility for certain specified service trades and businesses.
Business Loss Limitations under Section 461(1): Amends loss carryover provisions to treat a loss carryover as an excess business loss rather than a net operating loss (NOL).
Bonus Depreciation: Restoration of 100% immediate depreciation write-off on personal property acquired between January 20, 2025, and December 31, 2029.
Also allows taxpayers to immediately deduct 100% of the cost of qualified production property that’s placed in service before 2033 and is an integral part of a production activity, such as manufacturing or refining. It would exclude office or administrative spaces, research activities, lodging, or parking lots.
Section 179 Expense Election: Deduction limit increases from $1,000,000 to $2,500,000, with phaseout starting at $4,000,000 rather than $2,500,000.
R&D Costs under Section 174: Expensing restored for domestic research costs incurred from 2025 to 2029. No more capitalization and amortization required for costs in those years.
Business Interest Deduction Limit under Section 163(j): Allows the calculation of “adjusted taxable income” without deductions for depreciation and amortization for tax years from 2025 through 2029.
Energy Provisions
EV/Clean Vehicle Tax Credit Termination: Eliminates the maximum $7,500 tax credit for individuals to purchase certain new electric and hybrid vehicles starting in 2026 for most vehicles.
The credit could be claimed in 2026 only if a manufacturer has sold fewer than 200,000 clean vehicles as of Dec. 31, 2025. It would be fully eliminated by 2027.
The measure would also eliminate the maximum $4,000 tax credit for certain preowned electric and hybrid passenger vehicles, and tax credits for electric and hybrid commercial vehicles, starting in 2026.
Renewable Energy Credits: Phased out by December 31, 2025, including residential solar and wind credits.
Residential Clean Energy Credit: Eliminated after 2025
Conclusion
This is a summary of the significant tax measures in this massive, over 1,000-page, proposed legislation. The bill also includes cuts to Medicaid and the SNAP program, as well as debt ceiling limitation increases.
As indicated in the beginning of this article, the House bill will now be reviewed and acted on by the Senate, and therefore, there will most likely be additional modifications.
We will continue to monitor the status of this important legislation and will provide timely updates as they occur.
Please contact your Herbein tax consultant if you have questions regarding the contents of the article and how these proposals may affect your tax situation.
Article Contributed by Stephanie Atkins
