House Passes Major Tax Bill – Key Provisions to Watch
Last week, the House of Representatives passed a significant tax bill, which now heads to the Senate for approval. As this bill navigates the legislative process, remember that its provisions can change before it becomes law. Here’s what you should know about the key proposals and how they might affect your wealth plan:
Individual Income and Estate Tax
The bill aims to permanently establish today’s individual income tax rates and brackets, removing their scheduled expiration under current law. However, Congress will always retain the power to change these rates in the future. Additionally, the bill proposes raising the estate and gift tax exemption from $13.99 million to $15 million per person starting next year, with future adjustments for inflation.
Changes to Deductions
Under the bill, the standard deduction would see a modest increase. For the State and Local Tax (SALT) deduction, the bill proposes a new $40,000 cap. If your Adjusted Gross Income (AGI) exceeds $500,000, this deduction shrinks by 30 percent of the income over that threshold, though it won’t drop below a $10,000 minimum. For example, someone with $600,000 in AGI is $100,000 over the threshold. Thirty percent of that $100,000 ($30,000) would reduce their $40,000 SALT deduction to the $10,000 minimum.
Other itemized deductions will remain available for mortgage interest, charitable donations, and medical expenses. However, if you’re in the highest income bracket (around $750,000 for married couples filing jointly), the bill reduces the value of these deductions by two percent. For instance, a taxpayer in this bracket making a $500,000 charitable donation would effectively receive a $490,000 deduction.
Higher Taxes for Nonprofits and Educational Institutions
The bill introduces higher, tiered excise tax rates for large university endowments and private foundations. The current 1.39 percent tax on endowments could climb to rates as high as 21 percent, while private foundations could face new top rates of up to 10 percent.
Opportunity Zones and “OZ 2.0”
If you’re already invested in Opportunity Zone (OZ) Funds, expect the current rules to remain unchanged. The deadline to defer capital gains by investing in an OZ Fund still stands at December 31, 2026, with taxes due then. The bill also introduces a potential “OZ 2.0” program, which will likely focus more on rural development. Expect this next version to feature stricter qualification criteria and updated deferrals and basis adjustment rules.
A New Break for Seniors
The bill introduces a “Senior Deduction” of $4,000 for individuals aged 65 and older. This deduction will be available for three years and starts to phase out at $75,000 of income for single filers ($150,000 for joint filers). Importantly, the bill does not eliminate taxes on Social Security benefits.
Business Tax Changes
The bill would permanently boost the Section 199A Qualified Business Income (QBI) deduction from 20 percent to 23 percent for business owners, especially those with pass-through entities.
Revisiting Clean Energy Tax Credits
This bill targets several clean energy tax incentives from the Inflation Reduction Act for repeal or phase-out. Given these potential changes, individuals or businesses considering these credits should carefully assess their options.
Looking Ahead
While this bill contains many other provisions, the above highlights cover some of the most relevant elements for many taxpayers and investors. We actively monitor developments and will share updates as the legislative process continues.
Please reach out to your Wealth Manager with questions.
Weekly Commentary
Wealth Planning Commentary – May 27, 2025
Mallon FitzPatrick
House Passes Major Tax Bill – Key Provisions to Watch
Last week, the House of Representatives passed a significant tax bill, which now heads to the Senate for approval. As this bill navigates the legislative process, remember that its provisions can change before it becomes law. Here’s what you should know about the key proposals and how they might affect your wealth plan:
Individual Income and Estate Tax
The bill aims to permanently establish today’s individual income tax rates and brackets, removing their scheduled expiration under current law. However, Congress will always retain the power to change these rates in the future. Additionally, the bill proposes raising the estate and gift tax exemption from $13.99 million to $15 million per person starting next year, with future adjustments for inflation.
Changes to Deductions
Under the bill, the standard deduction would see a modest increase. For the State and Local Tax (SALT) deduction, the bill proposes a new $40,000 cap. If your Adjusted Gross Income (AGI) exceeds $500,000, this deduction shrinks by 30 percent of the income over that threshold, though it won’t drop below a $10,000 minimum. For example, someone with $600,000 in AGI is $100,000 over the threshold. Thirty percent of that $100,000 ($30,000) would reduce their $40,000 SALT deduction to the $10,000 minimum.
Other itemized deductions will remain available for mortgage interest, charitable donations, and medical expenses. However, if you’re in the highest income bracket (around $750,000 for married couples filing jointly), the bill reduces the value of these deductions by two percent. For instance, a taxpayer in this bracket making a $500,000 charitable donation would effectively receive a $490,000 deduction.
Higher Taxes for Nonprofits and Educational Institutions
The bill introduces higher, tiered excise tax rates for large university endowments and private foundations. The current 1.39 percent tax on endowments could climb to rates as high as 21 percent, while private foundations could face new top rates of up to 10 percent.
Opportunity Zones and “OZ 2.0”
If you’re already invested in Opportunity Zone (OZ) Funds, expect the current rules to remain unchanged. The deadline to defer capital gains by investing in an OZ Fund still stands at December 31, 2026, with taxes due then. The bill also introduces a potential “OZ 2.0” program, which will likely focus more on rural development. Expect this next version to feature stricter qualification criteria and updated deferrals and basis adjustment rules.
A New Break for Seniors
The bill introduces a “Senior Deduction” of $4,000 for individuals aged 65 and older. This deduction will be available for three years and starts to phase out at $75,000 of income for single filers ($150,000 for joint filers). Importantly, the bill does not eliminate taxes on Social Security benefits.
Business Tax Changes
The bill would permanently boost the Section 199A Qualified Business Income (QBI) deduction from 20 percent to 23 percent for business owners, especially those with pass-through entities.
Revisiting Clean Energy Tax Credits
This bill targets several clean energy tax incentives from the Inflation Reduction Act for repeal or phase-out. Given these potential changes, individuals or businesses considering these credits should carefully assess their options.
Looking Ahead
While this bill contains many other provisions, the above highlights cover some of the most relevant elements for many taxpayers and investors. We actively monitor developments and will share updates as the legislative process continues.
Please reach out to your Wealth Manager with questions.
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