Alert

The US House of Representatives narrowly passed a comprehensive reconciliation bill, HR 1—called the One Big Beautiful Bill Act—that includes significant proposed tax changes and spending cuts, on May 22, 2025.

While the House passed the bill, Senate consideration and likely revisions lie ahead as the budget reconciliation process continues. It’s expected that the Senate will begin negotiations over the legislation when they return from recess on June 2. However, if enacted, the bill could have a significant impact on business, individuals, and tax-exempt organizations.

Discover how the bill could impact taxes for businesses, individuals, and tax-exempt organizations insights into the bill’s key proposed tax changes.

Business-Related Proposals

The bill includes the following tax provisions that would significantly impact businesses if passed:

• Pass-through deduction. Increases the Internal Revenue Code (IRC) Section 199A qualified business income deduction for pass-through entities from 20% to 23% for tax years starting after December 31, 2025, makes the deduction permanent, and modifies the income limitations permitting some deduction for income related to specified service trades or businesses that was previously disallowed.
• Pass-through entity tax (PTET) deduction. Disallows the deduction for state and local income taxes paid at the entity level by a pass-through entity for specified service trades or businesses, effectively eliminating the benefit for these types of service businesses.
• Business interest expense limitation. Returns to earnings before interest, taxes, depreciation, and amortization (EBITDA)-based interest expense limitation for tax years beginning after December 31, 2024, allowing the addback of depreciation and amortization, generally increasing the amount of allowable interest expense deduction.
• Bonus depreciation. Temporarily restores 100% bonus depreciation for qualifying property placed in service after January 19, 2025, and before January 1, 2030.
• Special depreciation allowance for qualified production property. Temporarily provides an immediate deduction of 100% of qualifying real property used in the manufacturing, production, or refining of a qualified product in which construction begins after January 19, 2025, and before January 1, 2029, and is placed in service before 2033.
• Research and development expenditures. Temporarily restores immediate expensing of domestic research and experimental (R&E) expenditures paid or incurred in tax years beginning after December 31, 2024, and before January 1, 2030.
• Clean energy tax credits and incentives. Significantly accelerates the expiration of clean energy tax credits and incentives.
• Small business threshold for manufacturing. Increases the small business gross receipts threshold from $25M to $80M for manufacturers of tangible personal property, expanding eligibility for such businesses to utilize simplified accounting methods and other small business exceptions.
• Employee retention credit (ERC) changes. Disallows refund claims filed after January 31, 2024, and extends the statute of limitations giving the IRS additional time to adjust ERC claims and related tax deductions.  
• Opportunity zones. Renewal and modification of the opportunity zone program.
• Executive compensation. Applies aggregation rules for purposes of the executive compensation deduction limitation to include compensation paid by all entities within a public corporation’s controlled group, for tax years beginning after December 31, 2025.
• C corporation charitable deduction limitation. Limit deductibility of C corporation charitable contributions by implementing a 1 % floor on the deduction.

International Provisions

The bill has repercussions for organizations and individuals with international issues, including:

• GILTI & FDII Deductions. Permanently decreases the foreign derived intangible income (FDII) deduction rate from 37.5% to 36.5% and the global intangible low-taxed income (GILTI) deduction rate from 50% to 49.2%.
• BEAT. Increases the 10% base erosion and anti-abuse tax (BEAT) rate to 10.1%.
• Enforcement of Remedies Against “Unfair Foreign Taxes.” New increased tax rates on certain foreign companies and individual residents of countries with “unfair foreign tax.”

Individual Tax Proposals

The bill also includes provisions that would significantly impact individual taxes, including:

• Tax rates. Makes the Tax Cuts and Jobs Act (TCJA) tax rates permanent, with the highest individual income tax rate of 37%.
• State and local tax (SALT) deduction. Increases the itemized deduction limit for state and local taxes for 2025 to $40,000 and $40,400 beginning in 2026. The deduction phases down by 30% of the excess income over a threshold—$500,000 for 2025 and $505,000 after 2025—not to be reduced below $10,000.
• Itemized deduction limitation. Permanently removes the “Pease” limitation on itemized deductions and adds a new itemized deduction phaseout for high-income taxpayers, potentially reducing the benefit of the increased SALT deduction.
• Estate and gift tax exemption. Permanently increases the estate and gift tax exemption amount to $15 million—$30 million for a married couple—in 2026.
• Noncorporate loss limitation. Makes the limitation on excess business losses of noncorporate taxpayers permanent.
• Individual clean energy incentives. Repeals individual electric vehicle and residential energy efficiency credits after December 31, 2025.
• Alternative minimum tax (AMT). Permanently extends the TCJA increased AMT exemptions amounts and phase-out thresholds.
• Auto loan interest deduction. Creates an above the line deduction up to $10,000 for qualified personal auto loan interest for tax years 2025 through 2028, subject to income limitations.
• Tip income deduction. Provides a deduction for qualified tips for tax years 2025 through 2028.
• Overtime deduction. Provides a deduction for qualified overtime compensation for tax years 2025 through 2028.
• Standard deduction. Makes the TCJA standard deduction amounts permanent.
• Personal exemption. Permanently sets the deduction for personal exemptions at $0.
• Mortgage interest deduction. Makes the TCJA $750,000 limitation on home mortgage debt permanent.
• Senior enhanced deduction. Provides a $4,000 deduction per eligible senior for tax years 2025 through 2028, subject to income limitations.
• Child tax credit. Makes the TCJA $2,000 child tax credit amount and income thresholds permanent, increases the credit to $2,500 for tax years 2025 through 2028, and indexes the credit for inflation.
• Casualty loss deduction. Permanently makes casualty losses limited to a federally declared disaster.

Tax-Exempt Proposals

Not-for-profit organizations and tax-exempt entities are also featured in the bill. Proposed changes include:

• Excise tax on private foundations. Increases the excise tax on private foundation investment income for tax years beginning after December 31, 2025, replacing the current 1.39% tax rate with a tiered rate structure based on the size of the private foundation, with a highest rate of 10%.
• Excise tax on colleges and universities. Increases the excise tax on private college and university endowment investment income for tax years beginning after December 31, 2025, replacing the current 1.4% tax rate with a tiered rate structure based on the size of the endowment, with a highest rate of 21%.
• Unrelated business taxable income (UBTI) changes. Increases UBTI by qualified transportation fringe benefits.

We’re Here to Help

To understand how these proposed changes could impact you and your organization, and to stay up to date on potential Senate revisions to the bill, contact your Moss Adams advisor.

Additional Resources

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