By Jess LeDonne, Director of Tax Technical at The Bonadio Group
The Republican Party’s “One Big Beautiful Bill” passed the U.S. House of Representatives on May 22nd, marking an early but significant step in the legislative process. On June 16th, the Senate Finance Committee released its draft legislative text, offering a clearer picture of how the bill may evolve as it moves through the Senate. While the legislation is likely to undergo revisions as it moves through the process, the Senate draft highlights key differences from the House-passed bill, such as permanent extensions on many corporate tax provisions, modifications to international rules, and a limited expansion of the SALT deduction.
Republican lawmakers remain committed to an expedited timeline, aiming to pass the bill by July 4th. As such, understanding the most notable proposed changes is essential for anticipating the potential impact of sweeping tax law reforms.
Business Provisions
Bonus Depreciation (Section 168(k))
The Senate Finance Committee’s draft legislation would permanently extend the 100% bonus depreciation for property placed in service on or after January 19, 2025. This a departure from the House-passed bill which proposed a temporary reinstatement of 100% bonus depreciation through 2029.
The permanent extension eliminates the previously scheduled phase-down, which had reduced bonus depreciation to 80% in 2023 and was set to phase out entirely by 2027. This proposal offers some long-term certainty for businesses planning capital investments.
Research & Development (“R&D”) Expensing (Section 174)
The Senate Finance Committee’s draft legislation proposes a permanent repeal of the TCJA’s requirement to amortize domestic R&D expenses, allowing for immediate expensing of such costs starting in tax year 2025. This again goes further than the House-passed bill, which would have allowed expensing of those domestic R&D costs only through 2029.
In addition, the Senate draft includes a retroactive provision, permitting taxpayers to accelerate remaining deductions for domestic R&D expenses incurred between January 1, 2022, and December 31, 2024, over a one or two-year period. This retroactivity would be welcome relief for businesses that have already been impacted by the amortization rules and offers a planning opportunity for amended returns or accounting method changes.
This rollback of TCJA’s amortization requirements, both permanently in the Senate text and temporarily in the House text, would reduce taxable income in years with heavy R&D spending, easing financial strain on startups and innovation-focused businesses.
Interest Expense Deductions (Section 163(j))
The TCJA reduced the amount of interest expense a company can deduct, shifting from 30% of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) to 30% of Earnings Before Interest and Taxes (EBIT). The Senate Finance Committee’s draft legislation would reinstate EBITDA-based limitation for business interest expense deductions under 163(j) for tax year 2025 onward. Unlike the House-passed bill, which would sunset the provision after 2029, the Senate draft does not propose an end date, leaving the change permanent subject to further negotiations.
This add back of depreciation for interest expense deductions would be particularly beneficial for capital-intensive businesses or those relying on debt to fund growth, as it increases the amount of deductible interest under the more generous pre-2022 calculation method.
Pass-Through Entity Provisions
Qualified Business Interest (“QBI”) Deduction (Section 199A)
The TCJA currently allows pass-through entities to deduct up to 20% of their qualified business income. The Senate draft legislation would make that current 20% QBI deduction for pass-through entities permanent without increasing it to the 23% that was proposed in the House-passed bill. This more conservative approach on the Senate side would also exclude certain entities, such as Business Development Companies (BDCs), from eligibility.
Pass-Through Entity Tax Deduction Limits
Unlike the House-passed bill, which proposed narrowing the availability of the state and local tax (SALT) deduction for partners and shareholders and excluding Specified Service Trades or Businesses (SSTBs), the Senate draft does not include the same SSTB exclusion. Instead, it applies a general limitation on pass-through entity SALT deductions, but with fewer restrictions on eligible business types.
Excess Business Losses (Section 461(I))
Section 461(I) currently limits the amount of business losses that non-corporate taxpayers can deduct against non-business income. The Senate legislative text would make the excess business loss limitation permanent. This aligns with the House version and means that non-corporate taxpayers would continue to face limits on the amount of business losses they would be able to deduct against non-business income. The Senate bill also retains the provision that disallowed losses re-enter the calculation in subsequent years, impacting future deductions.
Individual Provisions
SALT Cap Changes
The SALT deduction allows taxpayers to deduct state and local income, sales and property taxes on their federal tax returns. The Senate’s text proposes to retain the $10,000 SALT cap whereas the House-passed bill would have increased that limit to $40,000. This provision was a huge sticking point on the House side, and this potential decrease proposed by the Senate may threaten the fragile agreement that the House reached, given the extremely narrow majority that the Republican’s hold there. This was, and remains, a provision to closely monitor.
Rates and Deductions
The Senate Finance Committee’s draft legislative text includes a partial tax exemption for tips and overtime pay, allowing individuals to exclude up to $25,000 in tips and $12,500 in overtime income from taxable income, with a combined cap of $25,000 per person or $50,000 per couple. These benefits begin to phase out at $150,000 of income, with income thresholds structured differently from the House version.
There is also a potential senior deduction increase (from $4,000 to $6,000), providing additional relief for older taxpayers. The Child Tax Credit would be permanently raised to $2,200 (slightly lower than the House’s proposed $2,500) starting in 2025.
IRA and Energy Credits
The Senate Finance Committee’s draft legislation proposes rollbacks to clean energy incentives included in the Inflation Reduction Act, enacted during the Biden administration.
The Senate language proposes a phased elimination of the Clean Electricity Production and Investment Tax Credits under Sections 45Y and 48E, respectively: Wind and solar projects would see their credit reduced to 60% in 2026, 20% in 2027, and fully eliminated by 2028. Other technologies like hydropower, nuclear, and geothermal would follow a slower phase-out, retaining full credit through 2032, then gradually declining down to zero by 2036. While the bill maintains transferability of these credits until their proposed expiration dates, it also eliminates the up to $7,500 consumer tax credit for electric vehicles, both personal and commercial, new and used. On the manufacturing side, the Section 48D Advanced Manufacturing Investment Credit would be 30% for property placed in service after December 31, 2025.
The Senate text also proposes changes to the Employee Retention Credit (ERC) by retroactively denying claims for Q3 and Q4 of 2021 if filed after January 31, 2024, while leaving earlier claims unaffected. It would also extend the statute of limitations to six years for those quarters and imposes new due diligence requirements on ERC promoters. These provisions reflect a significant shift in clean energy policy as well as ongoing increased scrutiny of the pandemic-era tax credit program.
Remember, the provisions outlined above are only a small fraction of the multitude of changes in the over 1,000 pages of legislative text. They are currently proposals and no changes to current tax law have yet been made. As the bill moves through Congress, via reconciliation, lawmakers will have to grapple with the costs of these potential changes, ensuring compliance with the reconciliation process’s Byrd Rule cost requirements and therefore provisions may be revised or removed. Keeping abreast of the latest updates and working closely with a tax advisor will be key to optimizing strategies under these evolving provisions.
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As director of tax technical at The Bonadio Group, Jess LeDonne serves as a key resource on tax legislation, technical guidance and policy developments that impact clients’ businesses. Jess oversees the firm’s specialized tax technical teams, ensuring they deliver innovative, consistent and practical solutions. She closely monitors the evolving legislative and regulatory landscape to provide clients with clear, actionable insights that drive informed decision-making. Since beginning her career in 2012, Jess has developed a deep expertise in tax, compliance and policy consulting, ensuring that the firm and its clients stay ahead of the curve. Jess also leads thought leadership initiatives, including webinars, articles and presentations, and spearheads tax technical education programs for both internal teams and clients, fostering excellence across all practice areas.
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Tags: Income Taxes, Taxes
