The GOP’s “Big Beautiful Bill” is currently making its way through Congress, and it carries several provisions that would directly and indirectly impact banks and financial services providers. While much of the attention is focused on broader economic sectors, the ripple effects on banking—from lending strategies to tax planning—are substantial. Here, we break down how these changes could reshape the financial services landscape. As you review these potential changes, keep in mind that the provisions highlighted here are currently proposals and are subject to change as the bill moves through the legislative process.
Direct Impacts on Banks
1. Phase-Out of Clean Energy Tax Credits and Transferability:
The proposed early termination of many clean energy tax credits introduced under the Inflation Reduction Act (IRA), along with the end of credit transferability, will diminish future incentives for banks to engage in clean energy projects. While existing deals are unlikely to be affected, given the effective dates of the proposed changes, banks should prepare for the potential of reduced demand in this sector moving forward. This may also negatively impact lending to industries that rely on these credits.
2. Full Bonus Depreciation Restored:
The proposed reinstatement of full bonus depreciation, replacing the previously scheduled 40%, offers potential tax planning opportunities for banks. This change could significantly reduce taxable income, especially if the bank acquires qualifying assets like branch locations or makes qualified leasehold improvements (QIP). However, clarity is needed on whether used property, such as purchased branches, would qualify under this proposed rule.
3. Domestic R&D Deduction Reform:
One of the more bank-specific positive proposals in the bill is the elimination of the requirement to amortize domestic R&D expenses over five years. This is particularly relevant for banks that claim the R&D credit for activities like customizing internal software. Under the new rule, these expenses can be fully deducted in the year incurred, improving the tax benefit and simplifying administrative compliance.
4. Partial Exclusion for Interest on Rural Real Estate Loans:
A proposed exclusion of interest income from loans secured by rural or agricultural real property would provide a permanent rate benefit, especially for community banks and ag-focused lenders.
5. 1% Charitable Deduction Floor:
Per the current proposed bill language, corporate charitable contributions would only be deductible to the extent that they exceed 1% of a bank’s taxable income. While many banks’ donations already exceed this threshold, the new rule could modestly limit deductions for institutions with smaller philanthropic programs.
6. Foreign Remittance Excise Tax:
A proposed excise tax on foreign remittance transfers raises compliance and operational questions. If banks are required to collect and remit this tax, it could increase administrative burdens and costs, particularly for institutions serving immigrant and global clients.
Indirect Impacts on Financial Services Providers
1. Boost to Auto Lending and Floor Plan Financing:
The proposed deductibility of interest on domestic manufactured auto loans would enhance the appeal of these financing arrangements. This change would benefit both banks and their dealership clients, potentially increasing demand for floor plan financing and related services.
2. Full Expensing of New Manufacturing Facilities:
A full write-off for newly constructed manufacturing facilities (qualified production property) would spur capital investment. While this stimulates general lending activity, banks may also explore leasing arrangements, potentially through bank subsidiaries or affiliates, for clients who cannot use the full tax benefit.
3. EBITDA-Based Interest Expense Limitation:
The proposed change to the definition of adjusted taxable income to an EBITDA basis, rather than EBIT, would improve the ability of borrowers to deduct interest expenses, and could enhance bank loan activity by shifting client preferences back toward borrowing rather than leasing.
4. Section 179 Cap Increase:
The proposed increase of the Section 179 deduction limit to $2.5 million would encourage more small and mid-sized businesses to invest in capital equipment. This would potentially translate to more demand for loans or leases facilitated by financial institutions.
5. Introduction of Trump Savings Accounts:
While still vague, the potential creation of Trump savings accounts signals the potential rollout of new tax-advantaged savings products. Financial institutions should closely monitor developments to determine how these accounts might be structured, regulated, and marketed.
What’s Next?
The tax bill is still in the legislative process, and several provisions—especially those around rural lending and foreign remittances—are likely to be the topic of ongoing negotiation. However, the overarching theme is clear: banks should be prepared to reassess their tax strategies, loan products, and client services in light of these potential changes.
From enhanced depreciation to expanded lending incentives, the bill offers new opportunities but also poses compliance challenges. Banks should begin modeling the impact of these changes now, particularly those involved in ag lending, auto finance, and R&D credit claims.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
