House Releases New Updates to Tax Proposals for Ways and Means Markup

On May 12, the House Republicans submitted updated tax proposals as part of the overall budget reconciliation process in a 389-page bill. The House Ways and Means Committee has scheduled a markup of tax reconciliation measures for May 13. The bill costs $3.7 trillion over 10 years, which is within the $4.5 trillion limit set by Republican lawmakers in the concurrent budget resolution. With a narrow Republican majority in the House of Representatives, we expect rigorous debating over many of these provisions before a final committee vote.

The new proposals include:

• Increasing the state and local tax (SALT) limitation cap from $10,000 to $30,000, with income phaseouts of $200,000 for individuals filing separately and $400,000 for married couples filing jointly. (Some Republican lawmakers have called for the cap to be expanded to as much as $124,000).
• Making permanent and increasing the Section 199A pass-through entity deduction from 20% to 23%. (The May 9 proposal increased the deduction to 22%). The bill includes the May 9 provisions that open the door for pass-through entity owners in the specified service industries to utilize the deduction.
• Extending current deductions for research and experimental expenses through Dec. 31, 2029.
• Extending 100% bonus depreciation through Dec. 31, 2029.
• Allowing businesses to include amortization and depreciation when calculating the business interest limitation through Dec. 31, 2029.
• Making permanent the excess business loss limitation.
• Retroactively terminating the Employee Retention Tax Credit for taxpayers who filed refund claims after Jan. 31, 2024. (Commentators have raised doubts about whether such retroactive legislation satisfies constitutional standards).
• Eliminating tax on tips for employees in certain defined industries where tipping has been a traditional form of compensation.
• A new $4,000 deduction for seniors that phases out starting at $75,000 of income.
• Eliminating tax on overtime pay.
• Allowing individuals an above-the-line deduction for interest on loans used to purchase American-made cars capped at $10,000 with income phaseouts starting at $100,000 (single) and $200,000 (married filing jointly).
• Increasing tax on certain private college investment income to a maximum of 21% on universities with a student-adjusted endowment above $2 million.
• Phaseout and restrictions on clean energy facilities beginning in 2029.
• Limiting or eliminating clean housing energy and vehicle credits.

As previously noted, we expect new proposals, changes, and updates to be occurring constantly until the president signs a final bill.

Some important previous proposals released on May 9 and included in the May 12 write-up include making the rates for individuals, estates, and trusts enacted in the TCJA permanent with modifications for inflation. The expiration date of the standard deduction from TCJA is removed, and temporary increases in the standard deduction result in a deduction of $16,000 for individuals, $24,000 for heads of households, and $32,000 for joint returns. These increases expire Jan.1, 2029.

The personal exemption is permanently reduced to zero, while the child tax credit will increase to $2,500 through 2028. The expiration of the TCJA increase in the individual AMT exemption amounts and phase-out thresholds are also repealed, along with certain miscellaneous itemized deductions.

Of interest to homeowners, the $750,000 ($375,000 married individual filing separately) limit on principal residence acquisition indebtedness is made permanent, as is the exclusion of interest on home equity indebtedness from the definition of qualified residence interest. In addition, the temporary limitation on personal casualty losses in section 165(h)(5) is made permanent. The deduction for moving expenses, except in the case of a member of the Armed Forces (or their spouse or child) is repealed.

As mentioned above, the proposal also modifies the qualified business income deduction for pass-through entities under section 199A. The deduction is made permanent, and the calculation amount is generally increased from 20% to 23%. Additionally, there is an opportunity in some instances to apply the benefit to income derived from a specified service trade or business, which has historically been unavailable. An inflation index is also added after 2025.

The unified estate and gift tax exemption is made permanent to an inflation-indexed $15 million for taxable years beginning after Dec. 31, 2025. The generation-skipping transfer tax exemption is also permanently increased to an inflation-indexed $15 million.

In international taxation, the proposal lowers the preferential rates on GILTI and FDII by increasing the deduction for corporations for taxable years beginning after Dec. 31, 2025, from 37.5% to 50% of their GILTI (including section 78 gross-up amount) and from 21.875% to 37.5% of their FDII. For BEAT, the special rules of subsection 59A(b)(2), which would have increased the rate to 12.5% and reduced regular tax liability by all credits, are repealed.

Provisions that did not make it into the May 12 bill include:

• Increased tax rates for high-income individuals
• Elimination of tax on Social Security benefits
• Taxation of carried interests in partnership-taxed entities

Again, the process is fluid, and we anticipate additional proposals and changes to be forthcoming. We will keep you informed of any significant changes as they occur.