22 May 2025 The G.O.P. Tax Bill: What We Know So Far
The G.O.P. has put forth the framework of a tax bill designed to extend the tax cuts President Trump enacted during his first term. The Tax Cut and Jobs Act (TCJA), passed in November of 2017, was a significant restructuring of the tax code: standard deductions and the child tax credit doubled, personal exemptions were eliminated, and the Qualified Business Income (QBI) deduction became a thing, among many other changes. The most notable (contentious?) alteration continues to be the deduction for state and local income tax, otherwise known as the SALT deduction. Previously an uncapped itemized deduction, the TCJA imposed a $10,000 limit, which resulted in a lot of unhappy taxpayers and a few different itemized deduction planning opportunities: bunching charitable contributions, and allowing small business owners to deduct state and local income taxes as a business expense, thereby avoiding the $10,000 cap that individuals face, to name two.
With the TCJA set to expire at the end of this year, the new bill, which just passed the House, looks to make permanent some features, amend others, and introduces a few that are new. Here’s a summary of the most impactful:
Tax Brackets: Makes permanent our current tax brackets, which the TCJA reduced versus previous law.
Child Tax Credit: Increases from $2,000 to $2,500 from 2025-2028. Thereafter, reduces to $2,000 with annual adjustments for inflation.
Standard Deduction: Makes it permanent and temporarily increase it from $15,000 to $16,000 for a single filer (S), and from $30,000 to $32,000 for a married couple filing jointly (MFJ). The $1,000/$2,000 increases go away in 2028.
SALT Deduction: Increases from $10,000 to $40,000, and makes it permanent. The deductible amount begins to phaseout when income reaches $500,000. However, those in the 37% tax bracket would only receive a 32% deduction.
Tips & Overtime Pay: Creates an above-the-line deduction, essentially making these types of income tax-free. Would take effect this year and lapse at the end of 2028.
Car Loan Interest: Subject to income limits and only on U.S. made cars, up to $10,000 of car loan interest would be deductible through the 2028 tax year.
QBI Deduction: Would increase from 20% to 23% and be made permanent.
Additional Deduction for 65+: Adds $4,000 to the standard or itemized deduction for filers over the age of 65. Single taxpayers with modified adjusted gross income (MAGI) less than $75,000, and married couples who file jointly with incomes less than $150,000, would qualify. Goes away in 2028.
Health Savings Account Contribution Limits: The amount that can be contributed would double, though eligibility begins to phaseout at $75,000 (S) and $150,000 (MFJ).
Estate Tax Exemption: Sets it to $15M (S) or $30M (MFJ), indexes it to inflation, and makes it permanent.
MAGA Accounts: The federal government will deposit $1,000 into an account for every child born between 2025-2028 (I read in a few places that this could apply to kids under 8, but I don’t have all the details). Parents can opt-out. Additional annual contributions up to $5,000 can be made on the child’s behalf until age 18. Growth is tax-deferred, and distributions of principal avoid taxation. A separate brief could be written on these accounts, so stay tuned.
Pass-Through Election: Mentioned at the tail-end of the first paragraph, the bill would not allow a business organized as a pass-through entity to deduct state and local taxes paid on behalf of the owner.
Paying for College: Currently, parents can borrow an unlimited amount via Parent PLUS loans to pay for their child’s education; The bill would cap the amount that can be accessed. Additionally, it would do away with Direct Subsidized student loans, where the government pays the interest as long as the student is working towards their degree, thereby making all Direct loans Unsubsidized.
The next step involves clearing the Senate, then heading to President Trump’s desk for his signature. Expectations are that further changes will be made by the Senate.
Until there is certainty about the final terms of the bill, you needn’t take any action. As more details are released, and once the final bill is approved, we’ll continue to communicate with you and your tax professional about any strategies that might be beneficial.
As always, reach out to us with any questions.
The content above is for informational and educational purposes only.
