What's in the 2025 Big Beautiful Tax Bill?
The tax landscape in 2025 is subject to significant changes, largely due to the scheduled expiration of many provisions from the 2017 Tax Cuts and Jobs Act (TCJA). While specific legislation is still being debated, several key areas are expected to be addressed:
Key Provisions and Potential Changes:
Individual Income Tax Rates and Brackets: The lower statutory income tax rates enacted by the TCJA ( 2017 Tax Bill) for most income levels are set to expire. There are proposals to permanently extend these rates, with some adjustments to inflation.
Standard Deduction: The near doubling of the standard deduction under the TCJA is also scheduled to expire. Proposals aim to permanently extend this higher standard deduction, with additional temporary increases for single and married filers from 2025-2028.
Child Tax Credit (CTC): The $2,000 per child credit amount from the TCJA is set to revert to $1,000. There are proposals to permanently extend the $2,000 credit, provide a temporary $500 per child boost (to $2,500) from 2025-2028, and permanently extend the refundable amount and phase-out thresholds.
Qualified Business Income (QBI) Deduction (Section 199A): The 20% deduction for pass-through business income, also set to expire, is proposed to be permanently extended and increased to 23%. Rules limiting the deduction for high-income taxpayers may also be eased.
Bonus Depreciation: The phase-down of 100% bonus depreciation is also a focus, with efforts to potentially restore or extend more generous depreciation allowances. This would allow real estate investors, business owners, and some 1099 employees to be eligible for up to 100% Bonus Depreciation for Tangible Personal Property. This may offer great tax savings and tax planning opportunities for for individuals who perform a cost segregation study.
Personal Exemptions: The TCJA permanently repealed personal exemptions, which are currently scheduled to return in 2026. The 2025 tax bill may permanently repeal them again.
Estate and Gift Taxes: The higher estate tax exemption under the TCJA is scheduled to expire. Proposals aim to permanently extend a higher exemption, potentially setting it at around $15 million (inflation-adjusted) beginning in 2026. The annual gift tax exclusion is also increasing to $19,000 in 2025.
Business Interest Deduction (Section 163(j)): The limitation on business interest expense deductions is expected to be revised. Proposals suggest changing the calculation of adjusted taxable income (ATI) to be based on EBITDA, which would generally result in an increased deduction.
Research and Development (R&D) Expensing: The requirement to amortize R&D costs over multiple years (instead of immediate expensing) is a current concern for businesses. There are proposals to temporarily restore immediate expensing.
Individual Itemized Deductions: The repeal of certain miscellaneous itemized deductions and the $750,000 limitation on mortgage interest indebtedness are likely to be extended. (see more below).
Alternative Minimum Tax (AMT): The increased AMT exemption amounts are expected to be made permanent.
Other Potential Changes: Discussions also include potential deductions for auto loan interest, expansion of childcare credits, increased charitable contribution deductions for non-itemizers, and changes to international tax provisions like GILTI and BEAT.
Major Itemized Deductions and Their Status for 2025:
State and Local Tax (SALT) Deduction Cap: This is one of the most contentious areas. The TCJA imposed a $10,000 cap on the deduction for state and local taxes (property, income, and sales taxes). This cap is set to expire after 2025, but proposals exist to:
Permanently extend the cap: Some proposals suggest making the $10,000 cap permanent.
Increase the cap: Other proposals aim to significantly raise the cap (e.g., to $30,000 or $40,000) and make it permanent, possibly with income-based phase-downs.
Disallow "workarounds": Some proposals also seek to disallow pass-through entity tax (PTET) regimes used by states to allow businesses to effectively bypass the SALT cap.
Home Mortgage Interest Deduction: The TCJA limited the deduction for mortgage interest to the first $750,000 of mortgage debt. This limit is scheduled to increase to $1,000,000 after 2025. Current proposals aim to permanently extend the $750,000 limitation, meaning interest on up to $750,000 of mortgage debt would remain deductible. Interest on home equity loans remains generally nondeductible unless the loan is used to buy, build, or substantially improve the home.
Charitable Contributions: The TCJA increased the charitable deduction limit for cash contributions to 60% of Adjusted Gross Income (AGI). This higher limit is expected to be made permanent. There are also proposals to create a temporary deduction for charitable contributions for non-itemizers.
Medical Expense Deduction: Taxpayers can deduct unreimbursed medical expenses that exceed 7.5% of their AGI. This percentage floor is expected to remain in place.
Personal Casualty Losses: Under the TCJA, personal casualty losses are only deductible if the loss is attributable to a federally declared disaster area. This limitation is expected to be permanently extended.
Miscellaneous Itemized Deductions (Subject to 2% AGI Floor): The TCJA suspended these deductions through 2025. This category included things like unreimbursed employee expenses, tax preparation fees, and investment expenses. It is highly likely that these deductions will remain suspended or permanently repealed.
Moving Expenses: With the exception of certain military-related moving expenses, moving expense deductions were largely eliminated by the TCJA. These are expected to remain non-deductible.
Overall Impact:
Many of the proposed changes aim to extend or modify provisions from the TCJA, largely benefiting individuals and businesses by preventing tax increases that would occur if those provisions expired. However, the exact form and impact of the 2025 tax bill will depend on ongoing legislative negotiations and the political landscape.
