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CONTRIBUTORS

Bill Cass, CFP®, CPWA®

Director of Wealth Planning,
Franklin Templeton

On May 22, 2025, the House of Representatives passed a comprehensive tax bill to avoid an expiration of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of the year. The measure also introduces a slew of new tax breaks including temporary deductions for workers receiving tips and overtime pay. This tax bill is part of broader legislation that includes spending reductions and addresses the federal debt ceiling. The Senate will now consider the legislation and at least some modifications are likely. Treasury Secretary Bessent has indicated to Congress that the debt ceiling must be addressed by mid-July, establishing a timeline for Republicans in Congress to finalize the legislation.

Here are some of the highlights of the House bill:

  • The current income tax rates and brackets are extended permanently (there are no changes to long-term capital gains or qualified dividend tax rates).
  • The current standard deduction, which was doubled under the TCJA, is extended permanently and includes a slight increase for tax years 2025 through 2028.
  • The cap on deducting SALT is increased permanently from $10,000 to $40,000 with a phase-out of the increased amount once income exceeds $500,000. All taxpayers, regardless of income, will still be able to deduct the current $10,000 limit. The increase in the SALT cap begins in tax year 2025.
  • The Trump campaign promises of no taxes on tips and overtime are included in the proposal, but are generally not available for those who are considered “highly compensated.” (In 2025, workers with earnings over $160,000 are considered highly compensated.) Both of these provisions are temporary and will sunset at the end of 2028.
  • The lifetime exclusion for gifts and estates is increased to $15 million beginning in 2026 and made permanent, which includes annual adjustments for inflation for future years.
  • No reduction in taxes on Social Security. However, the proposal includes an extra $4,000 standard deduction for seniors (For individuals below $75,000 in income, $150,000 for married couples.) The deduction would sunset after 2028.
  • Rollback of clean energy tax preferences introduced during the Biden administration, such as tax credits for buying electric vehicles.
  • Renewal and expansion of Qualified Opportunity Zones, including a new round of opportunity zone investments available beginning in 2027 through the end of 2033. This program provides tax benefits for eligible investors if they invest capital gains in an economically distressed area or opportunity zone as defined by the IRS.
  • No changes to tax treatment of municipal bonds, including private activity bonds.
  • Creation of a new, tax-favored account for those under age 18 called “Trump accounts” where funds can eventually be used for a variety of reasons including, for example, education, home purchase or starting a business.
     

Expect change

The finish line is a long way off and there will be changes throughout the process. But the current legislation offers a look at the direction of the tax policy, and taxpayers may begin to see what aspects of the proposal may impact their individual financial situation.

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