Reinstates 100% bonus depreciation for assets placed in service on or after Jan. 20, 2025, and before Jan. 1, 2030. Phasedowns of 20% per year begin for tax years beginning on or after Jan. 1, 2030.

 

A 100% depreciation deduction is available for certain U.S.-based real property facilities used in the production of tangible personal property. To qualify, construction must commence between Jan. 20, 2025, and Dec. 31, 2028, and the facility or improvement must be placed in service by Dec. 31, 2032. Subject to exceptions for certain facility acquisitions, there is an original use requirement. For purposes of the proposed legislation, production means the manufacture, production, or refining of a product that results in a substantial transformation of that product.

 

Increases the expensing limit to $2.5 million, with a phase-out threshold of $4 million, both indexed for inflation starting in 2026.

 

Adjusted taxable income will once again include addbacks for depreciation and amortization beginning with tax years beginning on or after Jan. 1, 2025, and before Jan. 1, 2030.

 

For tax years beginning on or after Jan. 1, 2025, and before Jan. 1, 2030, domestic research and experimentation expenditures may be deducted in the year paid or incurred. Taxpayers have an election to capitalize such expenditures over 60 months. Foreign expenditures must still be amortized and capitalized over 15 years.

For tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030, taxpayers must reduce their domestic research and development (R&D) expenses by the amount of the research credit claimed under Internal Revenue Code (IRC) Section 41. Alternatively, taxpayers may elect to claim a reduced Section 41 research credit in lieu of adjusting their R&D expenses.

 

Expands eligibility for simplified accounting methods by raising the gross receipts threshold for small business taxpayers.

 

Effective for tax years beginning after Dec. 31, 2025, corporate charitable deductions will be limited by establishing a floor of 1% and does not exceed 10% of the corporation’s taxable income. Contributions that exceed this threshold may be subject to disallowance, although certain carryforward provisions will apply to those disallowed amounts.

 

The initial designations of Qualified Opportunity Zones (QOZs) will expire after Dec. 31, 2026. A new round of QOZ designations will be established for investments made from Jan. 1, 2027, through Dec. 31, 2033, under rules that closely mirror those used for the original designations. Other changes proposed in the bill include certain changes as to what qualifies, potential new reporting requirements, and income recognition on investments that meet certain criteria outlined in the bill.

 

The proposed legislation would enact a restriction on certain pass-through entities from taking a PTET deduction. Specifically, the deduction would be eliminated for entities classified as SSTBs (specified service trades or businesses) for Section 199A purposes. This includes doctors, lawyers, accountants, investment managers, and entertainers, among other service providers.

 

For calendar years 2026 through 2029, the state housing credit ceiling will be increased by 12.5%, allowing states to allocate additional low-income housing tax credits. Additionally, the tax-exempt bond financing requirement for projects utilizing the 4% credit will be temporarily reduced from 50% to 25% of the project’s aggregate basis, subject to specific eligibility criteria.

 

The proposed legislation would make permanent the 50% deduction for global intangible low-taxed income (GILTI), resulting in a sustained effective tax rate of 10.5% on such income.

 

The proposed legislation would make permanent the 37.5% deduction for foreign-derived intangible income (FDII), resulting in a sustained effective tax rate of 13.125% on such income.

 

The proposed legislation would make permanent the current BEAT rates: 10% for most corporations and 11% for banks and registered securities dealers. It would also preserve the existing treatment of tax credits, repealing the post-2025 changes that would have increased the BEAT rate and limited the ability to offset regular tax liability with income tax credits.

 

A new IRC Section 899 would raise various tax rates, including withholding rates, on taxpayers of “discriminatory foreign countries” that levy defined “unfair,” “discriminatory,” or “extraterritorial” taxes. These higher rates, up to 20 percentage points above the statutory rate, could lead to a higher BEAT for some taxpayers. Certain exceptions and safe harbors would apply.

 

Under the proposed legislation, tax provisions related to the following clean energy tax credits would be repealed after Dec. 31, 2025:

– Clean vehicle credit (Section 30D) extended one year (2026) for companies not meeting 200,000 unit cap

– Credit for previously owned clean vehicles (Section 25E)

– Credit for qualified commercial clean vehicles (Section 45W) subject to a limited binding contract exception date of May 12, 2025, if vehicle is placed in service before 2033

– Alternative fuel refueling property credit (30C)

– Energy efficient home credit (25C)

– Residential clean energy credit (25D)

 

The proposed legislation revises the following sections related to clean energy:

– Clean Electricity Production Credit: Phases out beginning in 2029 and ends for facilities placed in service after 2031. Transferability limited to two years after enactment of legislation.

– Clean Electricity Investment Credit: Follows the same phase-out schedule as Section 45Y, ending after 2031. Transferability limited to two years after enactment.

– Carbon Sequestration Credit: Unchanged, but subject to Foreign Entity rules, and transferability limited to two years after enactment of legislation. Master Limited Partnership ownership allowed.

– Zero-Emission Nuclear Power Production Credit: Expires for electricity produced after 2031. Phasedown begins in 2029, through 2031.

– Clean Hydrogen Production Credit: Terminates for facilities beginning construction after 2025.

– Advanced Manufacturing Production Credit: Phases out after 2031, but in 2029 for wind energy components, with new restrictions on transferability after Dec. 31, 2027, and foreign entity involvement rules apply. 

– Energy Investment Credit: Expired under existing law subject to commence construction rules pre-2024, except for geothermal heat pumps subject to a new phase-out in 2031, beginning in 2030. Transferability limits do not apply to Section 48.

– Clean Fuel Production Credit: Extended through 2031 but limited to fuels produced using North American feedstocks. Foreign Entity rules apply starting in 2026.

– New Energy Efficient Home Credit: Eliminated for homes acquired after Dec. 31, 2025, unless placed in service before May 12, 2026.

– Bonus on property acquired and placed in service after Jan. 19, 2025, through the end of 2029.

Allows individuals to claim a federal income tax deduction for qualified tips, excluding tips and compensation paid to highly compensated individuals (defined as 5% owners or those earning over $160,000 annually) received between 2025 and 2028. This deduction is available to non-itemizers.

 

Allows a federal income tax deduction equal to the amount of qualified overtime compensation received by an employee, excluding tips and compensation paid to highly compensated individuals (defined as 5% owners or those earning over $160,000 annually). The deduction applies to tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029, and is available only to individuals with a valid Social Security number. This deduction is available to non-itemizers.

 

Allows individuals to deduct up to $10,000 per year in interest paid on loans for vehicles assembled in the U.S., beginning with purchases made in 2025. The deduction applies to vehicles under 14,000 pounds and is available regardless of whether the taxpayer itemizes deductions. Limitations and phase-outs apply.

 

Raises the state and local tax (SALT) deduction cap from $10,000 to $30,000 for individuals with a modified adjusted gross income of $400,000 or less, beginning in 2026.

 

Makes the deduction permanent and increases the deduction rate from 20% to 23%, while replacing the phase-in rules with a simplified two-step limitation based on W-2 wages and qualified property.

 

Makes the Section 461(l) permanent and any excess business losses disallowed in tax years beginning after Dec. 31, 2024, would be taken into account in determining the taxpayer’s excess business loss in subsequent years.

 

The lifetime unified gift/estate tax exemption under the proposed bill would be increased to $15 million per person, linked to inflation for future increases. Under current law, this amount is roughly $14 million per person in 2025, but would decrease by roughly half after Dec. 31, 2025.