Trump To Sign Tax and Budget Law

On July 3, Congress passed the massive tax and budget bill, a significant legislative win for the GOP. The bill increases spending for immigration enforcement, border protection, and defense, cuts other discretionary spending, raises the debt ceiling, and makes significant tax changes, including extending expiring provisions in the Tax Cuts and Jobs Act of 2017 (TCJA).

Tax provision highlights

The new law makes changes to numerous provisions and addresses a wide variety of taxpayers and issues.

Crowe observation

There are numerous international tax law changes, including increases in the effective tax rate for certain foreign income, accelerated termination of certain energy tax credits, and tax increases on certain not-for-profit organizations.

Some key changes for individuals and businesses include:

Individual provisions

• Make permanent most expiring individual provisions in the TCJA, including lower individual marginal tax rates and limitations on various deductions and losses
• Make permanent a higher standard deduction and add a senior bonus amount of $6,000 for 2025 through 2028 that phases out for seniors with income above certain thresholds
• Limit itemized deductions for those with income taxed at the highest marginal tax rate
• Make permanent the Section 199A pass-through tax deduction and favorably revise rules for eligibility and computation of the benefit
• Make permanent the $10,000 top cap on the amount of state and local taxes (SALT cap) that can be deducted, but temporarily raise it to $40,000 in 2025 and $40,400 in 2026, with increases for 2027 through 2029, and phase-outs for higher-income individuals
• Continue the TCJA’s higher estate and gift tax exemption, making it $15 million for individuals who die in 2025 and indexing that amount for inflation for individuals dying in 2026 and later
• Make permanent the TCJA higher child tax credit, increase the maximum credit to $2,200, and add a Social Security number requirement for the child and the taxpayer to claim the credit
• Allow a deduction for certain cash tips, overtime, and car loan interest for 2025 through 2028, with limits on the deduction and eligibility based on income

Business tax provisions

• Permanently reinstate the deduction under Section 174 for domestic research and experimental expenses, including elective retroactivity for certain small businesses
• Permanently reinstate the add-back for amortization and depreciation when computing the business interest expense limitation under Section 163(j)
• For property placed in service after Jan. 19, 2025, permanently reinstate 100% bonus depreciation for qualified property
• Create a new, special 100% depreciation deduction for qualified production property placed in service in the U.S. before 2031 for construction beginning after Jan. 19, 2025, and before Jan. 1, 2029
• Increase the maximum amount that can be expensed under Section 179 to $2.5 million
• Renew and make permanent an enhanced opportunity zone deduction
• Tighten the aggregation rules for the limitation on the deduction for excess compensation under Section 162(m)
• Replace the $600 threshold for Form 1099-K, “Payment Card and Third Party Network Transactions,” reporting with the previous higher threshold retroactive to 2021 and later years
• Restrict employee retention credit (ERC) claims and refunds by creating penalties for ERC promoters, denying claims filed after Jan. 31, 2024, and extending the period of limitations on assessment
• Expand the gain exclusion deduction for small-business stock under Section 1202

Looking ahead

The new law presents opportunities and challenges for taxpayers. Expect the U.S. Department of the Treasury and the IRS to issue a raft of new guidance and tax form changes, which can add to complexity and burden. Understanding the full impact of the new tax law won’t be easy, so taxpayers should work closely with their tax advisers as they evaluate the changes and consider how the new law might affect them.