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Senate Finance Committee Releases Revised Tax Bill Text
(Parker Tax Publishing June 2025)
On June 16, the Senate Finance Committee released its version of H.R. 1 (the One, Big, Beautiful Bill Act), the budget reconciliation bill that passed the House on May 22. While retaining many of the provisions in the House bill, the Senate's version makes several changes, including a permanent extension of the current $10,000 SALT cap (as opposed to a new $40,000 cap in the House version), permanent (rather than temporary) extensions of bonus depreciation and other business tax breaks, changes to the termination dates and phaseout periods for clean energy credits. It also scales back some new tax breaks such as deductions for tip income and overtime pay. Senate Tax Bill (2025-06-16).
The Senate bill text is subject to further negotiations within the chamber and will have to be reconciled with the House version. The White House is standing by a July 4th deadline for final passage and has insisted that Congress stay in session until the bill has been sent to the President for signature.
Key Differences Between the Senate Bill Text and the House Bill
SALT Limitation. The Senate provision permanently extends the SALT cap at the current rate of $10,000 ($5,000 for MFS), rather than the higher $40,000/$20,000 limit included in the House bill. However, the Senate bill notes that this provision is subject to further negotiation. The Senate bill also establishes an individual-level limitation for a partnership or S corporation owner's separately stated share of pass-through entity taxes (PTETs). The PTET limitation allows an individual pass-through entity owner to deduct any unused portion of their SALT cap plus the greater of (1) $40,000 of their allocation of the PTET or (2) 50 percent of their allocation of the PTET.
Qualified Business Income Deduction. The Senate bill retains the permanent extension of the deduction for qualified business income (QBI) under Code Sec. 199A that was provided in the House bill. However, the Senate provision extends the deduction at the current percentage of 20 percent, rather than the increased 23 percent deduction in the House bill The Senate proposal also expands the deduction limit phase-in range by increasing the $50,000 (non-joint returns) and $100,000 (joint returns) amounts to $75,000 and $150,000, respectively. Additionally, the Senate bill introduces a new, inflation-adjusted, minimum deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trades or businesses in which the taxpayer materially participates.
Deductions for Tips, Overtime, and Car Loan Interest. The Senate bill scales back the deductions for tips, overtime, and car loan interest provided in the House bill. The tip deduction is capped at $25,000 and includes a phaseout when the taxpayer's modified AGI exceeds $150,000 ($300,000 in the case of a joint return). The Senate bill limits the overtime pay deduction at $12,500 ($25,000 in the case of a joint return) and phases out this deduction for taxpayers with modified AGI over $150,000 ($300,000 in the case of a joint return). With respect to the deduction for car loan. interest, the Senate bill limits the deduction to vehicles the original use of which commences with the taxpayer (i.e., new vehicles).
Bonus Deduction for Seniors. The Senate bill increases the additional deduction for individuals age 65 and older from $4,000 as provided in the House bill to $6,000.
Charitable Deduction for Non-Itemizers. The Senate bill raises the maximum amount of the deduction for charitable contributions by non-itemizers to $1,000 for single filers ($2,000 for married filing jointly). Under the House bill, this deduction is capped at $150 for single filers ($300 for married filing jointly).
Child Tax Credit .This Senate bill text makes permanent the current child tax credit amount of $2,000 per child and also makes permanent the refundable child tax credit of $1,400, adjusted for inflation ($1,700 in 2025). The provision does not include the temporary increase of the maximum child tax credit to $2,500 that was provided in the House bill for tax years 2025 through 2028. The Senate provision also makes permanent the increased income phase-out threshold amounts of $200,000 ($400,000 in the case of a joint return), as well as the $500 nonrefundable credit for each dependent of the taxpayer other than a qualifying child. Additionally, the Senate bill permanently increases the nonrefundable child tax credit to $2,200 per child beginning in tax year 2025 and permanently indexes the nonrefundable credit amount for inflation beginning after tax year 2025 (rounded down to the nearest $100).
Dependent Care Assistance Exclusion. The Senate bill increases the annual exclusion for dependent care assistance from the current limit of $5,000 ($2,500 for MFS) to $7,500 ($3,750 for MFS), effective for tax years beginning after December 31, 2025. This provision was not included in the House bill.
Bonus Depreciation. The Senate bill permanently extends the 100 percent additional first-year depreciation deduction (i.e., bonus depreciation) (the House bill extends bonus depreciation through 2029).
Deduction for Domestic Research and Experimental Expenses. The Senate bill permanently extends the option to immediately deduct domestic research and experimental expenses (as opposed to the temporary extension through 2029 provided in the house Bill). The provision allows small business taxpayers with average annual gross receipts of $31 million to apply this change retroactively to tax years beginning after December 31, 2021. Furthermore, all taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, will be permitted to elect to accelerate the remaining deductions for such expenditures over a one-year period or a two-year period.
Qualified Small Business Stock Exclusion. The Senate bill contains a provision not included in the House bill that modifies the exclusion for gain on the sale of qualified small business stock (QSBS) held more than five years under Code Sec. 1202. The Senate bill modifies the QSBS gain exclusion by providing a tiered gain exclusion for QSBS acquired after the date of enactment. In particular, the provision allows a 50 percent exclusion after three years, 75 percent after four years and 100 percent after five years. Also, the proposal increases the per-issuer dollar cap from $10 million to $15 million for post-enactment shares, indexed to inflation beginning in 2027. For stock issued after the applicable date, the corporate-level aggregate-asset ceiling is increased from $50 million to $75 million, indexed to inflation beginning in 2027.
Tax on Third Party Litigation Funding Arrangements. Another new provision in the Senate bill is a tax on third-party litigation financing arrangements, where outside investors fund legal claims in exchange for a share of the recovery. Under the provision, a tax equal to the highest individual income tax rate plus 3.8 percent would apply to "qualified litigation proceeds" received by covered parties, which include third-party investors, domestic or foreign, who fund litigation in exchange for a contingent financial interest. This tax would apply at the entity level for pass-through entities. Qualified litigation proceeds would be excluded from capital asset treatment under Code Sec. 1221 and excluded from gross income under new Code Section 139L. Additionally, the proposal disallows loss offsets and overrides Code Sec. 104(a)(2) and Code Sec. 892(a)(1) exclusions. The provision applies to tax years beginning after December 31, 2025.
Healthcare Provisions. The House bill contained several provisions to expand health reimbursement arrangements and health savings accounts. The Senate bill does not include any of these provisions.
Clean Energy Credits. The Senate bill changes many of the termination dates and phaseout periods for clean energy credits provided in the House bill, in addition to other modifications to these provisions (see below).
Other Key Provisions
The following provisions of the House bill are also included in the Senate bill (with changes as noted):
Individuals
(1) Permanent extension of the TCJA individual income tax rates
(2) Permanent extension of the higher TCJA standard deduction (but no temporary increase for 2025-2028 as provided in the House bill)
(3) Termination of deduction for personal exemptions (other than the $6,000 senior deduction, discussed above)
(4) Permanent extension of the estate and lifetime gift tax exemption, increasing the exemption amount to $15 million for single filers ($30 million for married filing jointly) in 2026 and indexing the exemption amount for inflation thereafter
(5) Permanent extension of excess business loss limitation; excess business losses disallowed after December 31, 2024, are taken into account in determining excess business losses in subsequent years
(6) Permanent extension of TCJA alternative minimum tax exemption amounts and phaseout thresholds
(7) Permanent reduction of the qualified residence interest deduction to the first $750,000 in home mortgage acquisition debt
(8) Permanent limitation of the itemized deductions for personal casualty losses to losses from federally declared disasters and certain state-declared disasters
(9) Permanent termination of miscellaneous itemized deductions other than certain educator expenses
(10) Repeal of the Pease limitation on itemized deductions, replaced with a new overall limitation on the tax benefit of itemized deductions; the provision generally caps the value of each dollar of otherwise allowable itemized deductions at $0.35, and applies only to taxpayers in the highest individual income tax bracket
(11) Permanent elimination of qualified bicycle commuting reimbursement exclusion and one additional year of inflation adjustment for other qualified transportation fringe benefits
(12) Permanent repeal of the exclusion for moving expenses, except for active-duty service members
(13) Permanent extension the TCJA limitations on wagering losses
(14) Permanent extensions and enhancements to ABLE accounts
(15) Permanent extension of the exclusion for income from student loan discharges due to death or disability
(16) Trump accounts and contribution pilot program
(17) Partial refundability of the adoption credit up to $5,000 (indexed for inflation), retroactive to January 1, 2025
(18) Exclusion for employer payments of student loans
(19) Additional expenses treated as qualified higher education expenses for purposes of 529 accounts
(20) Extension of current law treatment of disaster-related personal casualty losses through 30 days after the date of enactment
(21) Removal of transfer and manufacturing taxes on firearm silencers, short-barreled rifles, short-barreled shotguns, and certain other devices
Businesses
(1) Permanent extension of bonus depreciation deduction, retroactive to January 19, 2025
(2) Immediate expensing of domestic research and experimental expenditures, retractive to January 1, 2025
(3) Increased cap on deductibility of business interest expense, retroactive to January 1, 2025
(4) Permanent extension and enhancement of paid family and medical leave credit
(5) Continuation of current exemptions from the deduction limitation for business meals; adds an exemption for food or beverages provided on certain fishing vessels and fish processing facilities
(6) Increase of the maximum amount depreciable business assets can be expensed to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million, retroactive to January 1, 2025
(7) Special depreciation allowance for qualified production property
(8) Permanent increase to the employer-provided child care credit, with a separate credit amount for qualified small businesses and indexing of the maximum credit amount for inflation
(9) Permanent extension of opportunity zones
(10) Permanent enhancement of the low-income housing credit
(11) Elimination of third-party network transaction reporting unless the taxpayer has earned more than $20,000 on more than 200 separate transactions in an applicable tax period
(12) Increase in reporting threshold for payments to independent contractors from $600 to $2,000, adjusted for inflation beginning in 2025
(13) Expansion of the special expensing rules for qualified film, television and live theatrical productions
(14) Exclusion by certain banks of interest on loans secured by rural or agricultural real property
(15) Clarification of Code Sec. 707(a)(2), regarding payments from partnerships to partners for property or services
(16) Due diligence requirements for employee retention credit (ERC) promoters; extension of penalty for excessive ERC refund claims; cutoff of ERC claims filed after January 31, 2024
Clean Energy Credits
(1) Termination of the previously-owned clean vehicle credit for vehicles acquired more than 90 days after enactment (the House bill terminates this credit for vehicles acquired after December 31, 2025)
(2) Termination of the clean vehicle credit for all vehicles acquired more than 180 days after enactment (the House bill terminates this credit for vehicles acquired after December 31, 2025, with a special rule for 2026 that allows the credit for vehicles produced by manufacturers that have not sold 200,000 new clean vehicles as of December 31, 2025)
(3) Termination of the qualified commercial vehicles credit for vehicles acquired more than 180 days after enactment; commercial vehicles over 14,000 pounds would be subject to the same limitations applicable to new clean vehicles, effective as of the date the legislation was introduced (the House bill terminates this credit for vehicles acquired after December 31, 2025, with an exception for vehicles placed in service before January 1, 2033, which are acquired pursuant to a written binding contract entered into before May 12, 2025)
(4) Termination of the alternative fuel vehicle refueling property credit for property placed in service after the date that is 12 months after enactment (the House bill terminates this credit effective for property placed in service after December 31, 2025)
(5) Termination of the energy efficient home improvement credit for property placed in service after the date that is 180 days after enactment (the House bill terminates this credit effective for property placed in service after December 31, 2025)
(6) Termination of the residential clean energy credit for expenditures made after the date that is 180 days after enactment (the House bill terminates this credit for property placed in service after December 31, 2025)
(7) Termination of the energy efficient commercial buildings deduction for property construction after the date that is 12 months after enactment (the House bill does not terminate this credit)
(8) Termination of the new energy efficient home credit for homes acquired after the date that is 12 months after enactment (the House bill generally terminates this credit for homes acquired after December 31, 2025; in the case of any home for which construction began before May 12, 2025, terminated for homes acquired after December 31, 2026)
(9) Termination of the special cost recovery period for qualified clean energy facilities for property placed in service after the date of enactment (the House bill does not address this provision)
(10) Termination of the clean hydrogen production credit for facilities the construction of which begins after December 31, 2025 (same as provided in the House bill)
(11) Phaseout of the clean electricity production credit beginning in 2026, with no credit allowed by 2028 (longer phaseout provided for hydropower, nuclear, and geothermal facilities) (the House bill terminated this credit effective for facilities (1) the construction of which begins after the date 60 days after the date of enactment or (2) which are placed in service after December 31, 2028)
(12) Phaseout of the clean electricity investment credit beginning in 2026, with no credit allowed by 2028; longer phaseout provided for hydropower, nuclear, and geothermal facilities (the House bill terminates this credit effective for facilities (1) the construction of which begins after the date 60 days after the date of enactment or (2) which are placed in service after December 31, 2028)
(13) Phaseout of the advanced manufacturing production credit for producing critical minerals beginning in 2031, with no credit allowed beginning in 2034; also phases out the credit early for wind components produced and sold after December 31, 2027 (the House bill eliminates this credit for wind energy components sold after December 31, 2026, and eliminates the credit for all other components sold after December 31, 2031)
(14) Extension of the clean fuel production credit through December 31, 2031, and other modifications (the House bill also extends this credit through 2031)
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
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