Legislative Update: Proposed Tax Changes in House Bill
The latest version of the House’s proposed legislation, previously known as the “One Big, Beautiful Bill,” remains intact, mainly following negotiations during the past week. Highlighted below are key provisions that may impact and are subject to changes:
Individual Tax Cuts
If the bill is passed in its current form, today’s individual income tax rates and brackets will be permanently extended. Congress can, of course, modify “permanent” tax laws at any time. The bill does not mention a top bracket of 39.7% for those with incomes exceeding $2.5 million, as President Trump had suggested this past month.
Estate and Gift Tax Exemption
The estate and gift tax exemption is slated to increase from $13.99 million to $15 million per individual beginning next year and will be indexed for inflation. Separate legislation is under consideration that would eliminate the estate tax, but it was not included in this bill.
Standard Deduction
The standard deduction is set to rise from $15,000 to $16,000, double that amount for married couples. While only approximately 10% of taxpayers itemize, it is essential to note that deduction amounts are reduced for those with incomes above $600,000. For income exceeding this threshold, the applicable reduction of income is 35% rather than 37%. This may disincentivize some from making substantial charitable contributions.
SALT Cap
The State and Local Taxes limitation is proposed to increase from $10,000 to $30,000 but with restrictions, particularly concerning pass-through entity workarounds. This potential SALT cap would decrease by 20% of the amount by which a taxpayer’s modified AGI exceeds $400,000 ($200,000 for single filers), though not below $10,000. As a result, not all high-income taxpayers will benefit from the increased SALT cap.
Social Security taxes were not eliminated. However, a tax break is included in the form of a $4,000 Senior Deduction for those 65 and older. This deduction is effective for three years and phases out at relatively low-income levels: $75,000 for single filers and $150,000 for joint filers.
Private Foundations
Private foundations are currently taxed at 1.39% on net investment income. A tiered system will replace this. Foundations with assets below $50 million will continue to pay 1.39%. Still, rates will increase for larger foundations: 2.78% for $50 million size to $250 million size, 5% for $250 million size to $5 billion size and 10% for size above $5 billion. This change may increase the attractiveness of Donor-Advised Funds (DAFs).
University Endowments
The bill proposes raising endowment taxes for the nation’s wealthiest private colleges. The most ‘endowed’ private colleges would experience an increased tax rate, from 1.39% to 21%. Therefore, foundations may be negatively impacted from both a donor and income tax perspective.
Opportunity Zones
The House modified and extended certain portions of the existing Opportunity Zone (OZ) program, emphasizing rural areas, stricter definitions, and new deferral and basis adjustment rules. This may present future investment and income tax mitigation opportunities.
Pass-Through Entities for Business Income
The Section 199A Deduction, or Qualified Business Income (QBI) deduction, is proposed to be permanently increased from 20% to 23%.
Inflation Reduction Act Credits
The bill proposes to repeal or phase out various clean energy tax credits from the Inflation Reduction Act. Therefore, those seeking to take advantage of energy credits should act promptly.
Please reach out to your Wealth Manager with questions.
Weekly Commentary
Wealth Planning Commentary – May 19, 2025
Mallon FitzPatrick
Legislative Update: Proposed Tax Changes in House Bill
The latest version of the House’s proposed legislation, previously known as the “One Big, Beautiful Bill,” remains intact, mainly following negotiations during the past week. Highlighted below are key provisions that may impact and are subject to changes:
Individual Tax Cuts
If the bill is passed in its current form, today’s individual income tax rates and brackets will be permanently extended. Congress can, of course, modify “permanent” tax laws at any time. The bill does not mention a top bracket of 39.7% for those with incomes exceeding $2.5 million, as President Trump had suggested this past month.
Estate and Gift Tax Exemption
The estate and gift tax exemption is slated to increase from $13.99 million to $15 million per individual beginning next year and will be indexed for inflation. Separate legislation is under consideration that would eliminate the estate tax, but it was not included in this bill.
Standard Deduction
The standard deduction is set to rise from $15,000 to $16,000, double that amount for married couples. While only approximately 10% of taxpayers itemize, it is essential to note that deduction amounts are reduced for those with incomes above $600,000. For income exceeding this threshold, the applicable reduction of income is 35% rather than 37%. This may disincentivize some from making substantial charitable contributions.
SALT Cap
The State and Local Taxes limitation is proposed to increase from $10,000 to $30,000 but with restrictions, particularly concerning pass-through entity workarounds. This potential SALT cap would decrease by 20% of the amount by which a taxpayer’s modified AGI exceeds $400,000 ($200,000 for single filers), though not below $10,000. As a result, not all high-income taxpayers will benefit from the increased SALT cap.
Social Security taxes were not eliminated. However, a tax break is included in the form of a $4,000 Senior Deduction for those 65 and older. This deduction is effective for three years and phases out at relatively low-income levels: $75,000 for single filers and $150,000 for joint filers.
Private Foundations
Private foundations are currently taxed at 1.39% on net investment income. A tiered system will replace this. Foundations with assets below $50 million will continue to pay 1.39%. Still, rates will increase for larger foundations: 2.78% for $50 million size to $250 million size, 5% for $250 million size to $5 billion size and 10% for size above $5 billion. This change may increase the attractiveness of Donor-Advised Funds (DAFs).
University Endowments
The bill proposes raising endowment taxes for the nation’s wealthiest private colleges. The most ‘endowed’ private colleges would experience an increased tax rate, from 1.39% to 21%. Therefore, foundations may be negatively impacted from both a donor and income tax perspective.
Opportunity Zones
The House modified and extended certain portions of the existing Opportunity Zone (OZ) program, emphasizing rural areas, stricter definitions, and new deferral and basis adjustment rules. This may present future investment and income tax mitigation opportunities.
Pass-Through Entities for Business Income
The Section 199A Deduction, or Qualified Business Income (QBI) deduction, is proposed to be permanently increased from 20% to 23%.
Inflation Reduction Act Credits
The bill proposes to repeal or phase out various clean energy tax credits from the Inflation Reduction Act. Therefore, those seeking to take advantage of energy credits should act promptly.
Please reach out to your Wealth Manager with questions.
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