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On May 22, 2025, the House passed a sweeping tax reconciliation bill that could reshape the financial landscape for individual taxpayers, particularly high-net-worth individuals. The bill proposes to make permanent the tax rate reductions introduced by the Tax Cuts and Jobs Act (TCJA), which were originally set to expire at the end of 2025. This move aligns with several of President Trump’s campaign promises, including the elimination of taxes on tips for certain workers. While the bill preserves favorable tax rates, it also introduces new limitations that could offset some of the benefits for top earners.
Among the most impactful provisions is the increase in the qualified business income (QBI) deduction from 20% to 23%, which would benefit a broader range of taxpayers, including those in specified service trades or businesses (SSTBs). However, the bill also imposes stricter caps on itemized deductions for individuals in the top 37% tax bracket, reducing the value of deductions such as charitable contributions. Additionally, the bill would eliminate the pass-through entity tax (PTET) deduction for SSTBs and investment entities, requiring taxes to be reported at the individual level where new limitations would apply.
The legislation also proposes a significant increase in the state and local tax (SALT) deduction cap—from $10,000 to $40,000—with a phase-out for individuals earning over $500,000. This change could provide relief for taxpayers in high-tax states, though the wealthiest may see limited benefit. Furthermore, the bill would make permanent the limitation on excess business losses for noncorporate taxpayers, effectively turning what was a temporary deferral into a long-term restriction. This could hinder the ability of individuals to offset investment income with large business losses.
Other notable changes include a permanent increase in the lifetime estate and gift tax exemption to $15 million, a new limitation on the amortization of certain sports franchise assets, and the introduction of IRC Section 899, which targets income from discriminatory foreign tax regimes. As the bill moves to the Senate, further revisions are expected, particularly around contentious issues like the SALT cap and clean-energy credits. Lawmakers aim to finalize the legislation by July 4, 2025, setting the stage for significant changes in the U.S. tax code.