What’s in the GOP’s Tax Bill? A Look at the Key Provisions

The long-anticipated GOP tax bill has been unveiled, and it’s making waves across industries and among taxpayers. Although the legislation is still in the early stages of the legislative process – and likely to undergo significant revisions as it moves through the House and Senate – it offers valuable insight into the Republican party’s current tax priorities. Keep in mind that the provisions highlighted here are currently proposals, and no changes to current tax law have yet been made. If passed in its current form, these are some of the bill’s most notable proposed tax law changes:

Business Provisions

• Bonus Depreciation (Section 168(k))
  • The bill would reinstate 100% bonus depreciation for property placed in service between January 19, 2025, and January 1, 2030. Long production period property would also get an extra year. No changes would be made to eligibility requirements.
  • This would replace the previously scheduled phase-down that had reduced bonus depreciation to 80% in 2023 and was set to phase out entirely by 2027. Businesses should consider aligning capital planning now to maximize the benefit of the 100% deduction in consideration for a potential phase out after 2029.
• R&D Expensing (Section 174)
  • Domestic R&D expenses, including software development, could be expensed for tax years beginning after December 31, 2024, through 2029. Taxpayers may also elect to amortize these expenses over a minimum of 60 months or up to 10 years. Foreign R&D must still be amortized over 15 years.
  • This rollback of TCJA’s amortization requirements would reduce taxable income in years with heavy R&D spending, easing financial strain on startups and innovation-focused businesses. This provision is meant to encourage domestic R&D spending and deter sending those innovation costs abroad.
• Interest Expense Deductions (Section 163(j))
  • The EBITDA-based limitation would be temporarily reinstated for tax years ending after December 31, 2024, through 2029, allowing companies to deduct more interest expense.
  • This change 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.
• Section 179 Expensing
  • The expensing cap would increase from $1 million to $2.5 million, with the phaseout beginning after $4 million in purchases.
  • These raised thresholds are meant to better align with today’s equipment and technology costs, making it easier for more SMBs to fully expense qualifying purchases and avoid hitting the phase-out range.
• Incentives for Industrial and Manufacturing Facilities
  • New and expanded provisions aim to encourage domestic manufacturing:
    • A 100% deduction for facilities involved in the production or refining of tangible personal property.
    • Full expensing for industrial facilities where construction begins after January 19, 2025, and before January 1, 2028, and is placed in service before January 1, 2033.
    • A Qualified Production Property Bonus for U.S.-based real property manufacturing.
  • These incentives are meant to support long-term capital investment and are designed to stimulate reshoring and industrial growth in the U.S. SMBs investing in new facilities may significantly reduce their upfront tax burden by placing projects in service within the designated window.
• Opportunity Zone Extensions
  • Deferral would remain in place until 2026, with the next inclusion year in 2033.
• Small Manufacturing Tax Breaks
  • Firms with gross receipts under $80 million gain access to targeted tax incentives.
• Increased Taxes on Endowments and Foundations
  • University endowments and private foundations would face new tiered tax hikes based on asset or per-student size, with top rates reaching 21% and 10%, respectively.
• Tax-Exempt Status Limitations
  • Organizations deemed to support terrorism would lose tax-exempt status.
• Contingent Fees
  • The bill restricts the Treasury’s ability to regulate contingent fees related to tax filings and claims.
  • This is meant to give taxpayers more flexibility in structuring payment arrangements with their tax professionals, potentially increasing access to services for those pursuing refund claims or amended returns.

Pass-Through Entity Provisions

• QBI Deduction (Section 199A)
  • The Qualified Business Income deduction would permanently increase from 20% to 23%.
• PTET Deduction Limits
  • Only certain “excepted taxes” would qualify for a state and local tax (SALT) deduction at the entity level, with Specified Service Trades or Businesses (SSTBs) largely excluded.
• Excess Business Losses (Section 461(l))
  • Previously disallowed losses would now re-enter the calculation annually, impacting future deductions.

International Tax Changes

• New Section 899
  • This section would add a 5% surtax on U.S. income earned by foreign entities from countries that impose discriminatory taxes on U.S. businesses.
• FDII & GILTI
  • The bill would increase deductions for both FDII and GILTI, effectively maintaining the lower rates originally enacted under the 2017 TCJA, starting in 2026.
• BEAT Changes
  • The scheduled increase of the Base Erosion and Anti-Abuse Tax to 12.5% would be formalized, and credits would no longer offset the calculation. Special rules previously slated for 2026 and beyond would be repealed.

IRA and Energy Credits

The bill proposes earlier expiration dates and rollbacks to many clean energy incentives included in the Inflation Reduction Act, enacted during the Biden administration:

• Repealed Credits: Credits for clean vehicles, residential clean energy, and alternative refueling stations would be repealed for property or vehicles placed in service after 2025.
• Transferability Restrictions: Many credits, including those for clean electricity and carbon capture, would no longer be transferable, starting two years after the bill’s enactment.
• Phaseouts: Gradual phase-downs are introduced for certain energy credits beginning in 2029 including the production and investment credits that many entities use to offset green energy projects.
• Foreign Entity Restrictions: New limitations would prevent benefits if components or developers have ties to foreign entities of concern.

Individual Provisions

• SALT Cap Changes
  • One of the most politically charged proposals is around the State and Local Tax deduction cap. The bill currently proposes a $30,000 cap, but that provision is still in flux as negotiations continue.
• TCJA Rate and Deduction Extensions
  • The ordinary income tax rates from the TCJA would be made permanent.
  • For 2025-2028, the standard deductions would be increased for all filers.
• Above-the-Line Deductions
  • Would be allowed for tips in traditionally tipped industries, overtime pay, and auto loan interest for US assembled vehicles.
  • Would be allowed for charitable contributions for non-itemizers.

What’s Next?

As the bill moves through the legislative process, many of these provisions may be revised or removed. Working closely with tax advisors will be key to optimizing strategies under these evolving rules. The Bonadio Group will continue to monitor developments and provide updates on how these proposed changes may affect your business or individual tax situation.

If you need further guidance or have any questions, 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.