On May 12, Republicans on the House Ways and Means Committee released their long-awaited tax legislation proposal. The proposed bill lays out the specifics of Republicans’ plans for extending (and adding to) the Tax Cuts and Jobs Act (TCJA), which is scheduled to expire on December 31, 2025.
At a high level, the bill would permanently extend most of the core provisions of TCJA, as well as add a host of new provisions – some modifying existing TCJA tax rules and others creating new ones altogether – most (but not all) of which would take effect temporarily from 2025 through 2028.
Of TCJA’s core provisions, a few – like the current marginal tax rates and brackets, elimination of personal exemptions, and the increased Alternative Minimum Tax exemptions – would simply be extended permanently. Meanwhile, others would be extended but with temporary augmentations: For example, the current standard deduction of $15,000 for single filers and $30,000 for joint filers would be made permanent, with a temporary increase of $1,000 for single and $2,000 for joint filers from 2025 through 2028 (along with a “bonus” deduction of $4,000 for taxpayers age 65 and older).
One of the most contentious TCJA provisions, the $10,000 limit on State and Local Tax (SALT) deductions, would remain in place under the proposed legislation, but be raised to $30,000 – though it would be phased back down to as low as $10,000 for higher-income households. Also, for pass-through business owners who have made use of Pass-Through Entity Taxes at the state level to circumvent the SALT deduction limit, the new proposal introduces rules that would curtail such strategies (potentially resulting in some higher-income business owners deducting fewer state and local taxes under the proposed legislation than they have been able to under TCJA).
Also relating to pass-through business owners, the Section 199A deduction for Qualified Business Income (QBI) would be permanently extended under the Republicans’ proposed legislation, with two key modifications: First, an increase in the deduction amount from 20% to 23% of QBI; and second, a change in the phaseout rules for higher-income business owners that would notably result in Specialized Service Trade or Business (SSTB) owners not automatically being fully phased out of the deduction once their income surpasses a certain threshold. In combination, these changes could result in a significant tax break for professionals like doctors, attorneys, consultants (and financial advisors!) who earn a substantial amount of their income from SSTBs.
The proposed legislation also includes provisions that President Trump introduced on the 2024 campaign trail, including deductions for tip and overtime income and for up to $10,000 interest on new or refinanced auto loans (although these would only be available from 2025 through 2028). Additionally, the proposal would introduce new categories of eligible 529 plan expenses (including one that would potentially make the cost of attaining and maintaining the CFP designation eligible for 529 plan funds) and reforms to HSA (including doubling the maximum annual contribution to over $16,000 for households with family health coverage). It also creates a new type of savings account for children – Money Account for Growth and Advancement, or “MAGA” accounts – which the Federal government would automatically open and fund with $1,000 for every US citizen born from 2025 through 2028!
The key point is that the House Republicans’ proposed bill remains a draft, meaning that many of its provisions could change – or even be eliminated – before final passage. And given Republicans’ narrow majorities in both the House and Senate, along with differing opinions on issues such as the SALT cap, clean energy tax credits (which the bill would end in 2026), and the overall impact on the national deficit, the legislative process could involve intense negotiation and extend well into the summer. But for advisors and their clients, the proposal offers a glimpse of what’s on the table – and suggests that, at the very least, a permanent extension of most TCJA provisions, along with new tax breaks, remains a distinct possibility.
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