Alert

President Trump signed into law HR 1, the Republican tax and spending package, on July 4, 2025. The sweeping tax and spending legislation permanently extends key business tax breaks and individual provisions originally enacted under the 2017 Tax Cuts and Jobs Act (TCJA), while also significantly reducing clean energy incentives and cutting spending on Medicaid and food assistance programs. The bipartisan Congressional Budget Office anticipates the legislation will cost $3.4 trillion over a 10-year period, according to preliminary analysis.

Read on for a summary of the key tax changes in the legislation and discover what they could mean for you.

Business-Related Provisions

The legislation includes the following tax provisions that significantly impact businesses:

• Pass-through deduction. Makes permanent the Internal Revenue Code (IRC) Section 199A qualified business income deduction for pass-through entities, maintaining the 20% deduction rate, increasing the deduction limit phase-in range, and providing a minimum deduction of $400.
• 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, permanently allowing the addback of depreciation and amortization, and generally increasing the amount of allowable business interest expense deduction. Includes a new provision to make capitalized interest subject to the limitation for taxable years after December 31, 2025, requiring the limitation to be calculated prior to the application of elective interest capitalization provisions.
• Bonus depreciation. Permanently restores 100% bonus depreciation for qualifying property placed in service after January 19, 2025.
• 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 which is placed in service before 2031.
• Research and development expenditures. Permanently restores immediate expensing of domestic research and experimental (R&E) expenditures paid or incurred in tax years beginning after December 31, 2024, and includes an optional election to capitalize such domestic research expenses. Allows taxpayers to elect to accelerate the remaining deductions for domestic R&E expenditures incurred between December 31, 2021, and January 1, 2025, over a one- or two-year period. Qualifying small business taxpayers may apply the change retroactively to tax years beginning after December 31, 2021. The requirement to amortize foreign R&E expenditures over 15 years remains unchanged.
• Clean energy tax credits and incentives. Significantly accelerates the expiration of clean energy tax credits and incentives.
• Qualified small business stock gain exclusion. Expands the benefits under the Section 1202 qualified small business stock (QSBS) gain exclusion, creating a tiered approach for the exclusion of gain for QSBS acquired after the date of enactment based on holding period—50% gain exclusion after three years, 75% gain exclusion after four years, and 100% gain exclusion after five years, increasing the per-issuer limitation from $10 million to $15 million for post-enactment shares, and increasing the gross asset threshold from $50 million to $75 million for stock issued after the applicable date.
• Opportunity zones. Renews and modifies the opportunity zone program.
• Employee retention credit. Disallows employee retention credit (ERC) 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.
• New markets tax credit. Makes the Section 45D new markets tax credit permanent.
• 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. Limits deductibility of C corporation charitable contributions by implementing a 1% floor on the deduction.
• Employer credit for paid family and medical leave. Makes permanent the credit for wages paid to qualifying employees while on family and medical leave.
• Advanced manufacturing investment credit. Increases the Section 48D advanced manufacturing investment credit from 25% to 35% for property placed in service after December 31, 2025.
• Pass-through entity tax (PTET) deduction. Notably, the final legislation does not include a limitation on the deduction for state and local income taxes (SALT) paid at the entity level by a pass-through entity. Previous versions of the legislation included such limitations, limiting the use of state workarounds that taxpayers are currently utilizing to avoid the SALT deduction cap.

International Provisions

• FDII Deductions. Permanently decreases the foreign derived intangible income (FDII) deduction rate from 37.5% to 33.34% for tax years beginning after December 31, 2025.
• Net CFC Tested Income Deduction (NCTI). Formerly referred to as the global intangible low-taxed income (GILTI), NCTI deduction rate will be permanently decreased from 50% to 40% for tax years beginning after December 31, 2025. However, the deemed paid tax credit has been increased from 80% to 90%.
• BEAT. Increases the 10% base erosion and anti-abuse tax (BEAT) rate to 10.5%.
• Downward Attribution Exception. Restores former Section 958(b)(4), which limited attribution of stock owned by non-U.S. persons to U.S. persons.
• Subpart F Look-Through Rule. Permanently extends the Section 954(c)(6) look-through exception to Subpart F income inclusions for certain income received by a controlled foreign corporation (CFC) from a related CFC.
• Enforcement of Remedies Against “Unfair Foreign Taxes. ” Notably, the final legislation does not include a provision from a previous version of the legislation which would have added new increased tax rates on certain foreign companies and individual residents of countries with “unfair foreign tax.”

Individual Tax Provisions

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

• Tax rates. Makes the 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 increases it by 1% per year until 2030, when it reverts back to the current $10,000 amount. The deduction phases down by 30% of the excess income over a threshold—$500,000 for 2025—not to be reduced below $10,000.
• Itemized deduction limitation. Permanently eliminates the “Pease” overall limitation on itemized deductions and introduces a new itemized deduction phaseout for high-income taxpayers, which effectively caps the benefit from itemized deductions at 35%.
• Estate and gift tax exemption. Permanently increases the estate and gift tax exemption amount to $15 million—$30 million for a married couple—beginning in 2026 and then adjusted for inflation.
• Noncorporate loss limitation. Makes the Section 461(l) limitation on excess business losses of noncorporate taxpayers permanent and retains the current treatment of disallowed excess business losses as net operating losses in subsequent tax years.
• Individual clean energy incentives. Repeals individual electric vehicle credits after September 30, 2025, and residential energy efficiency credits after December 31, 2025.
• Alternative minimum tax (AMT). Permanently extends the TCJA increased AMT exemptions amounts and phaseout thresholds but reverts the exemption phaseout thresholds to the pre-TCJA levels.
• Auto loan interest deduction. Creates a temporary deduction of up to $10,000 for qualified interest on personal auto loans for tax years 2025 through 2028, subject to income limitations. The deduction is applicable for new vehicles in which final assembly occurred in the United States.
• Tip income deduction. Provides a temporary deduction of up to $25,000 per individual for qualified tips for tax years 2025 through 2028, subject to income limitations.
• Overtime deduction. Provides a temporary deduction of up to $12,500 ($25,000 for joint returns) for qualified overtime compensation for tax years 2025 through 2028, subject to income limitations.
• 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 $6,000 deduction per eligible senior for tax years 2025 through 2028, subject to income limitations.
• Child tax credit. Permanently increases the child tax credit to $2,200 beginning in 2025 and indexes the credit for inflation.
• Casualty loss deduction. Makes permanent the provision that limits the itemized deduction for personal casualty losses to those related to a federally declared disaster and expands the rules to cover certain disasters declared by states.

Tax-Exempt Provisions

• 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 student adjusted endowment, with a highest rate of 8%.
• Excise tax on private foundations. Notably does not include a provision to change the current 1.39% tax rate on investment income of private foundations, which under a previous version of the legislation would have changed to a tiered rate structure based on the size of the private foundation, with a highest rate of 10%.

We’re Here to Help

To understand how these changes could impact you and your organization, contact your firm advisor.

Additional Resources

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