Tax Bill Passes House, Next Stop the Senate

By Adam Aucoin May 22, 2025

2025 has long been seen as an important year for tax policy since the Tax Cuts and Jobs Act (“TCJA”) was enacted in December 2017. Many tax provisions were set to automatically expire at the end of 2025 in TCJA, so 2025 was always expected to bring talk of extensions of its features and/or policy changes to the forefront.  Last week, a bill was introduced in Congress that represents the first formal step to addressing these changes.  It is preliminary, and rather lengthy.  The text of the bill may be found on the House of Representatives’ Ways and Means website, but we will list and discuss some of its features in this article. The bill was amended and passed by the House on May 22, 2025. The amendments to the original bill (linked above) can be found here.

Background

The landscape for 2025 tax policy was set into motion by TCJA in 2017. Since then, a number of changes occurred through COVID and beyond on both sides of the aisle. Each side discussed the possibility of extending provisions and enacting new provisions, but the 2024 election brought with it an increased likelihood of potential tax reform when Republicans won the Presidency, Senate, and House. This paved the way for tax policy to be enacted through a process called Budget Reconciliation – a process that, among other things, allows a simple majority to move items forward rather than requiring broader support.  This process has been used with increasing frequency in recent years by both parties.

Without getting into the weeds of how Budget Reconciliation works, the first step is the House and Senate agreeing to a baseline for net spending and revenue. This step was finalized on April 10 when the House passed the revised resolution from the Senate. This prompted immediate next steps, like deciding what may or may not be included in the overall spending and revenue package. This bill has implications beyond just tax law and policy; however, this article focuses only on tax policy changes.

The tax policy landscape gained more traction when Ways and Means Chairman Jason Smith released initial text for the Ways and Means committee to begin markup on May 13. This initial text focuses on various TCJA extensions and other policy proposals from Trump’s 2024 campaign.

It is possible – even very likely – that significant changes will be made before a bill sees the light of day, and what comes out the other side of the process may look very different from the current version.  With that caveat, let’s look at what Congress is thinking so far.  This is a large bill, so we will just list bullet points followed by brief commentary.  The features that seem to be of special interest to the banking industry are shown in bold print.

What is included thus far

• Permanent extension individual tax rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%) permanent
• Permanent extension of the standard deduction with temporary increase for four years 2025-2028
• Permanent extension of the $2,000 child tax credit with a temporary increase to $2,500 for 2025-2028 (with some restrictions apply)
• Making Section 199A Qualified Business Income deduction permanent, and  increasing it from a 20% deduction to 23%.
• Permanent extension of the increased level of estate tax exemption at $15 million (inflation adjusted)
• Extension of individual increased AMT exemption amounts past 2025
• Making the $750,000 mortgage interest deduction limitation permanent
• Permanent removal of personal exemption amounts
• Other items including foreign tax issues such as FDII
• New temporary suspension of tax on qualified tips by allowing a deduction for 2025 through 2028 (restrictions apply)
• New temporary suspension of tax on qualified overtime pay by allowing a deduction for 2025 through 2028 (restrictions apply)
• New temporary bonus deduction for seniors from 2025 through 2028 (restrictions apply)
• New temporary deduction on car loan interest (for 2025 through 2028 (restrictions apply) NOTE: Interest will be subject to 1099 reporting.
• Enhancements in employer-provided childcare credit, Paid Family and Medical Leave credit, and adoption credits
• Tax credit for contributions of individuals to scholarship granting organizations
• Extension of 529 plans to include expenses for additional elementary, secondary, and home school expenses
• Reinstatement of charitable deduction for those who do not itemize from 2025 through 2028 for $150 ($300 married filing jointly).
• Exclusion for employer payment of student loans under education assistance programs:  Make permanent after 2025 and indexed for inflation
• Creation of Trump accounts (editor’s note: there are many additional considerations for this policy/program. What we know right now is it could result in a $1,000 credit for children by their parents opening the Trump account which is designed to benefit children in a tax-exempt manner – that is likely oversimplifying how these accounts will look in final form!)
• Numerous changes to health savings programs and related employee benefits
• Increase to HSA contribution limitations for certain individuals
• Temporary return of 100% bonus depreciation for property acquired after 1/19/2025 through 12/31/2029. New asset class “Qualified Production Property”.
• Temporary suspension of Section 174 capitalization requirement for domestic research and experimental expenditures from 2025 through 2029.
• Reinstates favorable calculation rules for the Section 163(j) business interest limitation for years after 12/31/2024 and before 1/1/2030
• Qualified Opportunity Zone Funds are renewed with changes to the new and old rules.
• Increased Section 179 limitations and phaseouts for years after 12/31/2024
• Increased Form 1099 reporting threshold from $600 to $2,000 for 2026 and indexed for inflation
• Exclusion of 25% of the interest from loans secured by rural or agricultural real property made between the enactment date of the bill and 12/31/2028
  • Will be subject to Section 265 interest expense disallowance
• Increases the ceiling of low-income housing credits and makes other modifications to the low-income housing credit
• Termination and/or rollback of the Inflation Reduction Act clean energy credits (and transferability) including:
  • Clean vehicles credits
  • Alternative Fuel Vehicle Refueling Property Credit
  • Energy Efficient Home Improvement Credit
  • Residential Clean Energy Credit
  • New Energy Efficient Home Credit
  • Clean Electricity Production Credit
  • Clean Electricity Investment Credit
• SALT cap would be increased from 2025 level of $10,000 to $40,000 (or half for married filing separately). Restrictions apply.
• Increase the rate of tax on net investment income of certain private foundations
• Permanent extension of Section 461 excess business loss rule
• 1% floor added to corporate deduction for charitable contributions for years after 2025
• Increases to the penalty for Employee Retention Credit promoters and limits the credit or refund to claims submitted on or prior to January 31, 2024

Important to note: This is a high-level list of some items included in the bill.  It is not intended to be comprehensive. Please read the bill and amendments for the full detail.

Impact to financial institutions

Larger institutions may have some considerations around foreign tax and other items. Community banks likely see features applicable to one of two buckets: Those related only to S Corporations and features that apply to both C and S corporations.

S corporation – specific feature

Community banks formed as S corporations should strongly review the impact of making individual tax rates permanent and what a potential 23% 199A deduction could look like, if it applies to the institution. Additionally, some consideration might be needed for estate and gift purposes related to the potential exemption extension/permanence.

C and S corporations

There is no C Corporation tax rate change in this initial draft, but this is far from the final version of the bill. There are some potential changes we continue to monitor including changes to accelerated depreciation rules, rollback of clean energy credits, a 1% floor on charitable contribution deduction, Section 174 capitalization, and the like.

Additionally, there is a consideration regarding some part of loans for agriculture being exempt from tax (similar to municipal bonds, potentially). These factors could lead to considerations for timing of deductions and 2025 tax estimates.

Although not included in this bill, it is worth speculating/monitoring whether a corporate state income tax deduction limit materializes.  The individual cap, referred to as the SALT limitation, has been in place for some time, and nothing is stopping Congress from implementing a similar restriction for entities. If so this could reduce a bank’s state income tax deduction and have a ripple effect on ASC 740 tax calculations.

What’s next

We need to continue monitoring. Please remember that these items are all still up for discussion. No bills have been passed in this area, and this is not law yet and some or all of it may never be law.  If history is a guide, some features will pass, some will fall, others will survive but in very different form, and new features will materialize that haven’t been addressed yet at all.

As it stands right now this bill likely carries a hefty price tag that may need to be trimmed. Additionally, the SALT cap for individuals remains a sticking point for many in Congress, and it, and many other features, will require negotiation.

For more information or a discussion on how this may impact your bank, please contact Adam Aucoin or your BNN tax advisor at 800.244.7444.