On May 22, 2025, the US House of Representatives passed H.R.1 – One Big Beautiful Bill Act (The Bill) with a narrow 215-214 vote. The current draft of the comprehensive tax reform package makes permanent most of the 2017 Tax Cuts and Jobs Act (“TCJA”) provisions. The Bill may be revised before it is passed by the Senate and becomes law. We have summarized the key tax law provisions in the current draft below.
INDIVIDUALS
1. Tax Rates.
The current maximum marginal tax rate of 37% will be made permanent and the inflation adjustment mechanism for the various brackets will be modified.
2. Standard Deduction.
For tax years 2025 through 2028, the standard deduction is increased to $13,000 (single), $19,500 (head of household), and $26,000 (joint filers).
3. Personal Exemption.
The personal exemption is permanently repealed.
4. Itemized Deductions.
The Pease Rule, the section 68 overall limitation whose purpose was to reduce the value of itemized deductions for higher-income individuals, is removed and replaced by a two-prong rule. This new rule would reduce itemized deductions for certain taxpayers in the highest individaul income tax bracket (individuals whose taxable income exceeds the threshold at which the 37% tax bracket begins). The reduction is 2/37 (approximately 5.4%) of the lesser of the taxpayer’s total itemized deductions or the amount by which their taxable income exceeds the 37% bracket threshold.
5. State and Local Tax (“SALT”) Deductions.
The limitation on the state and local tax deduction (the “SALT Cap”) will be made permanent. The SALT Cap will be $40,000 per household ($20,000 for married taxpayers filing separately) starting in 2025. The deduction would be phased out for taxpayers with modified adjusted gross income (MAGI) over $500,000 ($250,000 for married taxpayers filing separately). For tax years between 2026 and 2033, the $40,000 and $500,000 amounts will increase 1% per year.
Passthrough entities and specified service trades or businesses (SSTBs) will not be able to deduct state and local taxes. Hence, there will be limited workaround to the SALT cap going forward.
6. Tip Deductions.
For tax years 2025 through 2028, individuals earning less than $160,000 per year (adjusted annually for inflation after 2025), will be able to claim a 100 percent income tax deduction for cash tips. The deduction will be capped at $25,000 per year.
7. Overtime Compensation Deductions.
For tax years 2025 through 2028, deductions for overtime compensation for itemizers and non-itemizers are allowed.
8. Deductions for Car Loan Interest.
For 2025 through 2028, interest payments on car loans can be deducted. The deduction is capped at $10,000 and phases out for single taxpayers earning $100,000 ($200,000 for joint returns).
9. Child Tax Credit.
The increased section 24 child credit is made permanent. For tax years 2025 through 2028, the child tax credit would increase to $2,500 and will be adjusted for inflation for tax years after 2028.
10. Miscellaneous Itemized Deductions.
The Bill permanently eliminates the deduction for miscellaneous itemized deductions – those itemized deductions not specifically excluded by section 67(b). Examples of these include certain accounting and legal fees.
11. Mortgage Insurance Premiums.
The Bill makes permanent the $750,000 for joint returns ($375,000 for single) Sec. 163(h)(3) limit on the treatment of mortgage insurance premiums as qualified residence interest. Home-equity indebtedness will continue to be excluded from the definition of qualified residence interest and the exclusion will become permanent.
12. Trump Accounts.
The Act would create a new tax-exempt trust account. The federal government will deposit $1,000 per eligible child born between January 1, 2025, and January 1, 2029.
BUSINESSES
1. Corporate Tax Rate.
The top corporate tax rate will continue to be 21%.
2. Qualified Business Income (“QBI”) Deduction.
The QBI deduction is increased to 23% and made permanent.
3. Section 163(j) Deductions.
For tax years 2025 to 2028, The Bill changes what the definition of “adjusted taxable income” under section 163(j) is based on from Earnings Before Interest and Taxes (“EBIT”) to Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”). This change will be more favorable for taxpayers.
4. Bonus Depreciation.
For qualified property acquired and placed in service after January 19, 2025, and before January 1, 2030, 100% first-year bonus depreciation would be reinstated.
5. Research and Development.
The Bill restores immediate expensing for domestic Research and Domestic expenditures through 2029. The Bill also has retroactive application covering tax years after December 31, 2021; however, the transition rules have not been drafted. Foreign Research and Development expenditures are still subject to 15-year amortization.
6. International.
a. Global intangible Low-Taxed Income (GILTI). A permanent extension of the lower effective tax rate on GILTI. The Section 250 deduction for GILTI is reduced from 50% to 49.2%.
b. Foreign Derived Intangible Income (FDII). A permanent extension of the lower effective rates on FDII. The Section 250 deduction for FDII is reduced from the current rate of 37.5% to 36.5%.
c. Base Erosion and Anti-Abuse Tax (BEAT). The BEAT rate is changed to 10.1% effective 2026.
ESTATE AND GIFT TAXATION
1. The Bill permanently increases the estate tax and gift tax exemption and the generation-skipping transfer tax exemption to $15 million. The $15 million exemption amount will be indexed for inflation after 2025.
CONCLUSION
As discussed above, modifications to the current draft of the Bill are expected before the Bill becomes law. We will keep you updated on legislative developments.
Geffen Mesher’s team is available to assist you with questions related to these updates. Please contact Denise Reyes for more information at dreyes@gmco.com.
