House’s ‘megabill’ to extend and expand TCJA heads to Senate

Republicans in the House of Representatives passed their version of the multitrillion dollar tax and spending package tentatively titled the One Big Beautiful Bill Act (OBBBA) in an early morning vote on May 22. The massive “megabill” which includes many of President Donald Trump’s legislative priorities, passed by the narrowest of margins in a vote of 215- 214.

To gain enough votes within their slim House majority, House Republican leaders substantially increased the state and local tax (SALT) deduction and sped up phaseouts of Inflation Reduction Act-related energy tax credits passed by Democrats during former President Joe Biden’s time in office. This bill is now the de facto House position for negotiations with the Senate, which is expected to put its own stamp on the package. Republicans in the two chambers have some substantial differences over deficit concerns, spending choices and, to a lesser extent, tax policy, but will spend the coming weeks working behind the scenes attempting to reconcile those differences in a way that keeps the party together.  

Here are some of the tax changes made since the reconciliation bill was advanced by the House Budget Committee on May 18. For more on that original version, much of which remains intact in the House-passed legislation, see our story on the tax portion of the bill.

• More SALT breaks
  The SALT deduction would become significantly more generous than it has been since the passage of 2017’s Tax Cuts and Jobs Act (TCJA) under the new version of the legislation. The tax section introduced and advanced by Ways and Means Committee Republicans last week contained a $30,000 cap ($15,000 for married filing separately) but also had a phase-out for high earners and targeted numerous state-level workarounds passed since the cap was created in 2017. That version was up from the current $10,000 but not enough to satisfy several high-tax state Republicans in the House.
  If it survives, the new House-passed version would:
  • Increase the SALT cap to $40,000 in 2025 ($20,000 for married filing separately), with a 1% increase in the cap on an annual basis through 2033, at which point the cap will be more than $43,000 (more than $21,500 for married filing separately).
  • Implement a heftier income phasedown but beginning at a higher level of income; beginning in 2025, those with modified adjusted gross income (MAGI) of $500,000 or more would see their cap cut by 30% of the excess. The prior iteration began to phase down at 20% of the excess over $200,000 MAGI for single filers and $400,000 for joint filers. The beginning phasedown level of income also would increase by 1% annually through 2033, reaching more than $541,000. The same deduction floors in the bill’s earlier version ($5,000 for married filing separately, $10,000 for all others) exist, but fewer people would hit that minimum deduction allowed amount.
  • Result in new, complex limitations for taxpayers in the 37% bracket with respect to itemized deductions that hinge on the amount of the SALT deduction taken. This would slightly lower the tax savings for each dollar deducted, reducing the benefit for the highest earners. 
• Certain Inflation Reduction Act energy tax credits would be terminated much sooner, with no phaseouts
  • The clean electricity investment tax credit (Section 48E) and clean electricity production tax credit (Section 45Y) would be terminated for projects beginning construction more than 60 days after enactment of the legislation and placed into service after Dec. 31, 2028. However, the credits will still be available for advanced nuclear facilities with construction or expansion beginning by Dec. 31, 2028.
  • The new prohibition on “material assistance” from “prohibited foreign entities” — aimed at restricting Chinese investment — in the construction of qualified 45Y and 48E facilities would take effect even sooner than originally proposed, shifting from one year after enactment of the legislation to after Dec. 31, 2025.
  • Sections 45Y and 48E credits are denied for taxpayers that rent or lease residential solar and wind energy property to a third party if the lessee would qualify for a credit under Section 25D with respect to such property had the lessee owned such property.
• The nuclear electricity production tax credit would get a slight reprieve
  • Rather than being phased down, the nuclear electricity production tax credit (Section 45U) would be terminated for taxable years beginning after Dec. 31, 2031, one year earlier than current law. However, transferability of the credit, which was phased out after 2027 in the earlier version of the bill, has been restored through 2031.
• FDII, GILTI, BEAT would change (very slightly)
  • The deductions for foreign-derived intangible income (FDII) and the global intangible low-taxed income (GILTI) taxes would decline slightly under the House-passed bill. The FDII deduction would be reduced by 1 percentage point and the GILTI deduction would decrease by 0.8 percentage points. The base erosion and anti-abuse tax (BEAT) also would be increased marginally, from 10% to 10.1%. These changes are all far less impactful than those scheduled to go into effect in 2026 under current law.
• The proposed tax on remittances would be reduced from a 5% to a 3.5% rate. U.S. citizens and nationals would be exempt from paying the tax.

Unchanged from last week’s bill 

• The federal debt limit would be raised by $4 trillion.
• Personal income tax rates set by the TCJA would be extended and adjusted for inflation.
• Section 199A, the qualified business income deduction for passthrough entities, would be extended past its Dec. 31, 2025, expiration and expanded slightly, to 23% from 20%.
• Revivals of Section 163(j) EBITDA calculation of net interest deduction, Section 174 R&E expensing (for domestic research only), and 100% bonus depreciation.
• 100% bonus depreciation allowance for qualified production facilities.
• Creation of a new Section 899 and a new “super BEAT” on multinational companies headquartered in foreign jurisdictions to retaliate against “unfair” foreign taxes that impact U.S. companies.
• Increased taxes on universities, foundations.
• Scheduled expiration of the controlled foreign corporation (CFC) look-through rule.
• Crackdown on pass-through entity tax workarounds to the SALT cap.
• Deductions for overtime pay, tips, and auto loan interest, and an increased standard deduction for seniors, all through 2028.

Universal savings accounts seeded with $1,000 for each newborn — but rebranded from “MAGA accounts” to “Trump accounts.”

Next steps

The Senate will now take center stage within the reconciliation effort, as Senate Republicans decide whether to write their own version of the OBBBA from whole cloth or modify the House version. There is agreement on large swaths of the bill — especially extensions of the 2017 tax cuts — but some senators have made it clear that they intend to put their own stamp on the product. As in the House, though, some of the goals are contrary to one another, with fiscal hawks pushing for deeper spending cuts and others hoping to preserve more clean energy credits and moderate changes to Medicaid.

Senate Majority Leader John Thune, R-S.D., can lose no more than four votes among his Republican members. The party will likely spend the coming weeks engaged in private discussions and negotiations, as leaders seek a path to Senate passage on a product that can maintain House support. If, as expected, the Senate makes any changes to the House-passed version, the bill will have to return to the lower chamber for another vote.