House passes budget reconciliation bill with changes to tax provisions

The House of Representatives approved an amended version of the budget reconciliation bill Thursday morning, sending it to the Senate for consideration. The bill, H.R. 1, known as the One Big Beautiful Bill Act, passed by a vote of 215 in favor, 214 opposed, with one member voting present.

The bill had been debated for more than 21 hours in the House Rules Committee, which then approved a revised version of the bill on Wednesday evening.

The manager’s amendment that was approved by the committee was the result of behind-the-scenes negotiations that have been going on since last Friday. Although a manager’s amendment to a bill normally contains only technical corrections and conforming amendments, this bill’s manager’s amendment also made substantive changes to the text of the original bill, including an increase to the limit on the deductibility of state and local taxes.

After the Rules Committee adjourned Wednesday night, the full House took up the bill right away and debated it all night.

Tax changes in the final House bill

Here are tax-related provisions in the final bill that differ from the text of the bill that was approved by the House Ways and Means and Budget committees:

SALT cap: Among the substantive changes in the manager’s amendment is an increase in the limit on the federal deduction for state and local taxes (the SALT cap) to $40,000 per household ($20,000 for married taxpayers filing separately) starting in 2025. The deduction would be phased out for taxpayers with modified adjusted gross income (MAGI) over $500,000 ($250,000 for married taxpayers filing separately). The bill originally increased the current $10,000 SALT cap to $30,000, with reductions for taxpayers with MAGI over $400,000. For tax years between 2026 and 2033, the $40,000 and $500,000 amounts would be increased by 1% per year. The SALT cap would remain at that 2033 level for subsequent tax years.

The manager’s amendment did not make changes to the original bill’s denial of deductibility of state and local taxes for passthrough entities. The bill does not allow specified service trades or businesses (SSTBs) to deduct state and local income taxes, limiting the usefulness of state passthrough entity taxes (PTETs) in avoiding the SALT cap. The AICPA, in a letter Tuesday to the chairs and ranking members of the House Ways and Means and Senate Finance committees, had requested that the bill be amended to allow SSTBs to deduct state and local taxes.

Trump accounts: New tax-favored savings accounts for children, which the original text of the bill called “money account for growth and advancement,” or MAGA, accounts have had their name changed to “Trump accounts.”

Itemized deductions: The bill would permanently remove the Sec. 68 overall limitation on itemized deductions (known as the Pease limitation) and would implement a two-pronged reduction. First, the allowable itemized deduction would be reduced by 5/37 of the lesser of the amount of the taxpayer’s deduction allowable under Sec. 164 (the deduction for state and local taxes) or so much of the taxable income of the taxpayer for the year (determined without regard to the proposal and increased by the amount of otherwise allowable itemized deductions) as exceeds that dollar amount at which the 37% tax rate bracket begins for that taxpayer. The itemized deduction would be further reduced by 2/37 of the lesser of the amount of itemized deductions otherwise allowable for the year that exceeds the allowable Sec. 164 deduction or so much of the taxable income of the taxpayer for the year (determined without regard to the proposal and increased by the amount of otherwise allowable itemized deductions) as exceeds that dollar amount at which the 37% tax rate bracket begins for that taxpayer.

Contingent fees: The bill contains language under which Treasury “may not regulate, prohibit, or restrict the use of a contingent fee in connection with tax returns, claims for refund, or documents in connection with tax returns or claims for refund prepared on behalf of a taxpayer.” In its letter, the AICPA had asked that that language be stricken, but it remains in the bill as passed.

Business loss carryforwards: The bill amends Sec. 461(l)(2) to provide that any excess business loss of a noncorporate taxpayer is carried forward as an excess business loss rather than being treated as a net operating loss (NOL). In its Tuesday letter, the AICPA had argued that this would “effectively provide for a permanent disallowance of any business losses unless or until the taxpayer has other business income.” However, this provision of the bill was not changed in the manager’s amendment.

Low-carbon electricity production: The manager’s amendment would provide for a faster phaseout of existing tax credits for low-carbon electricity. To be eligible for the credit, construction of an eligible facility must start within 60 days of enactment and the plant must be placed in service by the end of 2028. However, nuclear reactor construction must start by the end of 2028.

Wind and solar leasing: The manager’s amendment would deny the Sec. 45Y clean-electricity production credit and the Sec. 48E clean-electricity investment credit for expenditures for wind and solar leasing arrangements.

FDII and GILTI: Under the TCJA, after 2025, the foreign-derived intangible income (FDII) deduction was scheduled to be reduced from 37.5% of FDII to 21.875%, and the global intangible low-taxed income (GILTI) inclusion deduction amount was scheduled to be reduced from 50% to 37.5% under Sec. 250(a)(3). The bill as originally written would have repealed those reductions. The manager’s amendment changes 37.5% to 36.5% and 50% to 49.2% and repeals the TCJA reductions.

BEAT tax: The bill repeals the scheduled increase in the base-erosion and anti-abuse (BEAT) tax from 10% to 12.5% after 2025, and instead increases it to 10.1%

Silencers: The manager’s amendment removes silencers from the definition of “firearm” under Sec. 5845 and sets the Sec. 5811 transfer tax rate on silencers at zero.

Waiver of House rule on tax increases: The committee waived Clause 5(b) of House Rule XXI for purposes of voting on the bill. That House rule requires a three-fifths vote in the House to increase federal income tax rates. A motion opposing that waiver, made by Ranking Member Rep. Jim McGovern, D-Mass., lost in the committee by a vote of 8 against and 4 in favor.

A report by the Congressional Budget Office released on Tuesday estimated that the tax provisions of the bill — prior to the changes made in the manager’s amendment — would increase the federal deficit by $3.775 trillion over 10 years from 2025 through 2034 (Congressional Budget Office, Estimated Budgetary Effects of a Bill to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14, the One Big Beautiful Bill Act (May 20, 2025)).

— Alistair M. Nevius, J.D., is a freelance writer in North Carolina. To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Updates on individual tax and business tax are among the many topics on the agenda at the AICPA & CIMA National Tax Conference, Nov. 17–18 in Washington, D.C., and online.