It’s summer, and tax talks are heating up.
Odds are good for major tax changes in the next month or so. But Congress still has work to do before any bill gets to President Trump’s desk.
The House passed its version of tax changes four weeks ago in a very narrow vote…215-214.
The One Big Beautiful Bill has lots of proposals. It would extend many of the expiring tax provisions in the 2017 Tax Cuts and Jobs Act and enhance a few, provide brand new tax breaks that Trump promised on the campaign trail, repeal clean-energy credits for individuals and businesses, and make Medicaid cuts to offset some of the bill’s cost.
The Senate has now released its tax plan.
Its version takes a similar approach to the House bill in that it would extend many of the TCJA’s expiring provisions, scale back energy credits, enact new tax breaks and make Medicaid cuts. But there are also key distinctions, some of which have sparked backlash from factions of Republican lawmakers in the upper chamber and in the House. Changes will have to be made before the Senate votes on any package. But for now, we’ll point out a few major differences between the versions. Note that there are lots of other differences that we don’t have room to discuss here.
Start with the deduction for state and local taxes that individuals claim on Schedule A of their 1040.
The TCJA capped the SALT deduction at $10,000. The House bill would quadruple the cap to $40,000, with the deduction phasing out for filers with modified adjusted gross incomes over $500,000. The Senate bill would permanently keep the cap at $10,000. Senate taxwriters say this is a placeholder because negotiations are still under way on the amount of the limit. The House bill narrowly passed after House GOP leaders and Trump reached a deal with a faction of House members from high-tax states who pushed for a higher cap. Senate leaders fervently hope those members can accept a figure between $10,000 and $40,000. But if they don’t and negotiations hit a standstill, it’s back to the drawing board. Though both versions of the tax bill would roll back clean-energy breaks that were originally enacted in Joe Biden’s 2022 Inflation Reduction Act… The Senate’s plan generally proposes a longer runway for the credits to end.
Three business tax breaks would be fully restored and made permanent.
The Senate plan would revive 100% bonus depreciation, let firms expense their costs for domestic R&D in the year incurred instead of amortizing them over five years, and ease the rules on the limitation on interest deduction write-offs for large firms. The House bill would temporarily restore these three breaks only through 2028.