In 1789, Benjamin Franklin wrote “In this world, nothing is certain except death and taxes.” Today he might add, “and Congress will continuously change the latter.”
Many tax provisions of the 2017 Tax Cut and Jobs Act expire at the end of this year unless extended by Congress. Congress, as part of the budget reconciliation process, is beginning to put together the language necessary to extend or make permanent several of those expiring provisions to avoid tax increases in 2026.
On Friday night May 9, the House Ways and Means Committee released a very brief 28-page text of its initial tax bill. By Monday, May 12, a more expansive 389-page tax bill was substituted in its place and deliberations began on Tuesday May 13. After a 17-hour all-night marathon of discussion and voting, the substituted tax bill was passed by the House Ways and Means Committee and forwarded to the House Budget Committee as a part of the budget bill titled “The One, Big Beautiful Bill”
Here is a breakdown of several of the tax items as included in the current proposal.
Estate/Gift and Generation Skipping Tax Items
- Beginning in 2026, increasing the Estate, Gift and Generation Skipping Exemptions to $15 million.
- This would also be permanent and adjusted annually for inflation going forward.
Individual Taxation Items
- Tax Rates and Brackets: Make the current income tax rates and brackets permanent with no increase to the top tax rate of 37%.
- In addition, all tax brackets, except the 37% bracket, would receive an inflation adjustment.
- Standard Deduction: Make permanent the current standard deduction.
- In addition, it would increase by $2,000 for joint filers, $1,500 for head of household and $1,000 for all other filers but only during the 2025-2028 tax years.
- Temporary Increase to Standard Deduction for those 65 and over:
- Temporarily during tax years 2025-2028 provides an additional standard deduction of $4,000.
- This additional amount is reduced by 4% of as much of the taxpayer’s modified adjusted gross income exceeds $150,000 for joint filers and $75,000 for all other filers.
- Itemized Deductions: Permanently disallow miscellaneous itemized deductions and brings back the “Pease limitation” to overall itemized deductions for high-income taxpayers that use itemized deductions rather than the standard deduction.
- Qualified Business Income (QBI) Deduction: Makes permanent the QBI Deduction and increases it to 23% from its current 20%.
- There would be changes in the calculations for W-2 wage limitations and other thresholds.
- Increase to State and Local Tax (SALT) Deduction:
- Makes permanent and increases the SALT deduction limit to $30,000.
- Provides a phase down at a rate of 20% for joint filers with modified adjusted gross income more than $400,000 and $200,000 for other filers.
- In addition, no longer would a service industry pass-through entity be allowed to utilize state Pass-Through Entity Tax elections to pay the state tax at the entity-level.
- Child Tax Credit: Makes permanent the current child tax credit.
- In addition, it would increase the maximum credit to $2,500 but only during the 2025-2028 tax years.
- The $2,000 maximum credit in future years would be adjusted for inflation annually.
- Additional Items:
- Makes permanent the residence interest limit on $750,000 of acquisition debt and provides no allowance for home-equity indebtedness.
- Provides a temporary deduction for qualified tip income during tax years 2025-2028 for those in traditionally and customarily tipped industries.
- Provides a temporary deduction for overtime income during tax years 2025-2028 based on the premium portion of overtime.
- Provides a temporary deduction for auto interest in tax years 2025-2028 for loans incurred to purchase, during 2025-2028, qualified vehicles with finished assembly in the United States.
Exempt Organization Items
- Increases in Private Foundation Excise Tax on Investments: Increases the current excise tax on investments of private foundations with total foundation assets within the following limits:
- $50 million to $249 million – 2.78%
- $250 million to $5 billion – 5%
- Greater than $5 billion – 10%
- Increase in Private College and University Endowment Excise Tax on Investments: Increases the current excise tax on investments based on student adjusted endowment assets, which is essentially total endowment divided by qualified student enrollment, as follows:
- $750,000 to $1.249 million– 7%
- $1.25 million to $1.999 million – 14%
- Greater than $2 million – 21%
There are still significant steps to passing the budget bill into law. The Joint Committee on Taxation indicates that over the next 10 years the tax package would add $3.8 trillion to the federal deficit. There are objections from both sides as to the Medicaid cuts proposed to keep the costs within the budget reconciliation process limit of a $4 trillion increase in the debt ceiling. Some Members of Congress on both sides would like to see a higher deduction allowed for state and local taxes (SALT). Others object to the debt ceiling increase of $4 trillion.
As always, the final bill may be changed as the legislative process grinds on, but Congress’ goal is to have the bill passed by the House by Memorial Day and signed by the President by Independence Day. As the legislative process evolves in the weeks ahead, your Oxford team will continue to keep you informed.
The information in this presentation is for educational and illustrative purposes only and does not constitute tax, legal or investment advice. Tax and legal counsel should be engaged before taking any action. This presentation has been prepared from original sources and data believed to be reliable. However, no representations are made as to the accuracy or completeness thereof. The opinions expressed are those of Oxford Financial Group, Ltd.’s Family Office Services technical team. The opinions referenced are as of the date of the publication and are subject to change due to market, economic conditions, or regulatory changes that may not necessarily come to pass. OFG-2505-20
