7 Takeaways from the Tax Bill Proposal

Following a contentious debate regarding its impacts on the deficit and cuts to programs, Republicans in the House of Representatives passed an ambitious tax and spending bill by a single vote the morning of May 22. While the centerpiece of the bill is an extension of the Tax Cuts and Jobs Act (TCJA) of 2017, the proposed legislation contains several notable new tax provisions for individuals, businesses and families.

The bill now heads to the Senate, where it is likely to again face significant debate regarding the impact on the deficit, spending cuts and debt ceiling, with Majority Leader John Thune indicating that changes are likely. If ultimately passed by the Senate, the revised bill would return to the House for approval before being passed to the president’s desk — with a target date of July 4 for signage into law.

Below, we discuss our key takeaways from the proposed legislation and guidance.

Indefinite Extension of Tax Cuts and Jobs Act Provisions

As expected, this bill codifies the provisions of the Tax Cuts and Jobs Act (TCJA) of 2017, extending the current rates and rules indefinitely: This includes individual income tax rates, the higher alternative minimum tax threshold, limits on various deductions (such as mortgage interest, gambling losses, moving expenses and casualty losses), elimination of miscellaneous itemized deductions, and elimination of the personal exemption. The TCJA doubled the standard deduction from $6,500 for single filers and $13,000 for joint filers to $13,000 and $24,000, respectively. The new bill increases the standard deduction further from 2025 through 2029.

Increased Estate, Gift and GST Exemption for 2026 and Beyond

The bill increases the exemption for estate, gift and GST taxes to $15 million ($30 million per married couple) for 2026 and indexes it for inflation thereafter. This is more than a simple extension of current law and provides greater planning clarity for high net worth families who would otherwise be subject to an estate tax exemption that would drop to $7 million in 2026.

Cap on Deductions for State and Local Taxes

The proposed legislation increases the cap on deductions for state and local taxes (the SALT cap) from $10,000 to $40,000 for both single and joint filers and $20,000 for married taxpayers filing separately. This presents meaningful tax relief for taxpayers living in high-tax states and will incentivize millions who had used the standard deduction under the lower SALT cap to again itemize deductions. Taxpayers earning over $500,000, however, would have the higher cap phased out (the $500,000 phaseout threshold would increase 1% per year from 2027 through 2033). Note that the higher SALT cap is effective beginning in 2025.

Provisions Impacting Businesses and Business Owners

The bill provides relief to corporate taxpayers by renewing several expired business tax provisions from the TCJA, such as the expensing of certain research and development costs, as well as bonus depreciation for 2026 through 2030. Additionally, it contains enhanced credits for the cost of paid FMLA leave and employer-provided childcare.

Business owners would benefit from the extension of the Qualified Business Income (QBI) deduction under section 199A and the increase in the deduction limit from 20% to 23%. The benefits are extended to owners of certain Business Development Corporations by the addition of dividends to the definition of QBI.

Remittance Tax

The legislation as passed by the House includes a new tax on remittances to foreign recipients with a credit for the tax paid, if paid by a U.S. citizen. The scope and application of this provision are not completely clear at this juncture. The public discussion of this provision has centered on non-citizens transmitting wage income earned in the U.S. to foreign recipients.

Provisions Impacting Charities and Foundations

The bill increases the tax on net investment income of foundations that hold more than $50 million. While the current 1.39% rate remains for foundations under $50 million, it rises to 2.78% for those with $50 million to $250 million in assets; 5% for those with $250 million to $5 billion, and 10% for those holding over $5 billion. In addition, the excise tax on highly compensated employees is expanded.

The legislation also increases the tax on income earned by the endowments of private universities, based on the “endowment per student” calculation. The new rates start at 1.4%, rising to 21% for institutions with the highest endowment per student. Royalties from name, image and logo licenses, meanwhile, are treated as unrelated business taxable income (UBTI).

Savings Accounts for Minors

The original House bill introduced the “money account for growth and advancement” provision, or MAGA account. The new version of the bill changes the name of this provision to the Trump Account. This allows taxpayers to contribute up to $5,000 per year to a trust account for a minor, and the assets are not taxed while they remain in the account.

Distributions for qualified purposes (education, purchasing a primary residence, or paying back an SBA loan) are taxed upon withdrawal at capital gains rates for amounts in excess of basis. The bill also contains a pilot program where parents of children born between 2025 and 2029 can receive a $1,000 per child refundable credit from the Treasury Department deposited directly into a Trump Account for that child.

Our Take

The House vote substantially reduces the likelihood that income tax rates and the estate, gift and GST tax exemption will sunset. Proposed income tax rates for individuals under this version of the bill remain unchanged, broadly negating pressure to accelerate income into 2025. Similarly, with the proposal to increase the estate, gift and GST exemption for 2026, taxpayers considering making taxable gifts are not facing a “use it or lose it” scenario.

While the bill as written is not law and, as noted, could face substantive revision in the Senate, there are several steps taxpayers can consider in anticipation of potential enactment.

• Those in states with high state and local tax rates will want to manage their income and deductions to maximize the number of years their income level will allow them to deduct state and local taxes up to the increased cap. For example, if a taxpayer’s income is slightly over the phaseout limit, they might accelerate deductions into even years (bunching charitable deductions and harvesting tax losses) and defer income into the odd years (incur capital gains, deferred bonuses, etc.) so that every other year (the even years) they qualify for the maximum SALT deduction.
• Donors concerned by the increased tax on university endowments may consider restructuring gifts to universities to non-endowment funds or donor advised funds through community foundations so that they are not subject to the proposed new tax.
• Foundations with more than $50 million in assets should take steps to prepare for potentially higher tax on investment income, potentially by accelerating the income into 2025.
• Businesses should evaluate the timing for research and development investments and purchases of depreciable assets in light of proposed increased deductibility.

We will continue to monitor the bill’s progress through the legislative process and communicate as warranted.