Congress is in the midst of negotiating one of the most sweeping federal tax packages in years: the One Big Beautiful Bill Act (OBBBA). Originally passed by the House with strong Republican backing, the bill proposes significant changes to business expensing, individual tax deductions, charitable giving rules, energy incentives, and more. However, the Senate Finance Committee has advanced its own version of the bill—one that contains critical differences that could reshape the final legislation.
At Evolved, we are monitoring both versions closely to help our clients understand the evolving tax landscape. Below, we outline the key similarities and differences between the House and Senate proposals, and discuss planning implications for businesses and individuals.
House Proposal:
The House version significantly raises the state and local tax (SALT) deduction cap to $40,000 for individuals ($20,000 for married individuals filing separately) beginning in 2025, with annual 1% increases through 2033. This change aims to provide meaningful relief to taxpayers in high-tax states.
Senate Proposal:
In contrast, the Senate has retained the existing $10,000 SALT cap (introduced in the Tax Cuts and Jobs Act), citing budgetary concerns. Several senators from high-tax states have already voiced opposition, suggesting the Senate version could face substantial resistance if it does not address SALT relief.
Advisory Insight:
Clients residing in states like New York, California, New Jersey, and Illinois should be prepared for both outcomes. High-income taxpayers should model how either cap may affect their effective federal liability under varying income thresholds.
2. Section 199A Deduction for Pass-Through Businesses
House Version:
Expands the Qualified Business Income (QBI) deduction under Section 199A from 20% to 23%, and simplifies the application of wage and basis limitations.
Senate Version:
The Senate retains the existing 20% QBI deduction but introduces a modest guaranteed minimum deduction of $400 for qualifying taxpayers.
Planning Note:
Owners of pass-through entities—including partnerships, S corporations, and sole proprietors—may benefit from evaluating entity structures and income thresholds under both proposals.
3. Bonus Depreciation and R&D Expensing
Both Versions Aligned on Business Incentives
Both chambers support restoring 100% bonus depreciation for eligible property acquired and placed in service between 2025 and 2030. They also reinstate full expensing for domestic research and experimentation (R&E) costs—a key reversal of the 2022 capitalization rules under Section 174.
House: Makes these provisions temporary, expiring after 2029.
Senate: Advocates permanent treatment for R&E expensing, citing the need for long-term certainty.
4. Charitable Contributions by Corporations
House-Only Provision:
The House version limits corporate charitable contribution deductions to amounts exceeding 1% of taxable income, layering this new “floor” onto the existing 10% cap. Contributions disallowed under the 1% rule may only be carried forward in years where contributions exceed the 10% threshold.
Senate:
As of this writing, the Senate has not addressed this provision, though negotiations are ongoing.
What This Means:
Corporate giving programs—particularly those at large public companies—may need to reassess philanthropic allocations if the House’s language prevails. Structuring contributions across fiscal years could become a strategic consideration.
5. SALT Deduction at Entity Level (Pass-Throughs)
House:
Eliminates SALT deductions for certain partnerships and pass-throughs in industries that do not qualify for the Section 199A deduction (e.g., specified service businesses).
Senate:
Has not directly addressed this provision yet.
Advisory Note:
This could represent a significant change for professional services firms, real estate partnerships, and other pass-throughs currently relying on entity-level workarounds for SALT deductibility.
6. Child Tax Credit, Senior Deduction, and Tip Income
Child Tax Credit:
House: Temporarily increases credit to $2,500 per child, expiring in 2028.
Senate: Proposes a lower, but permanent, credit of $2,200, indexed for inflation.
Senior Deduction:
House: Offers a temporary $4,000 above-the-line deduction for seniors aged 65+.
Senate: Proposes a more generous $6,000 deduction, also permanent.
Tip and Overtime Income:
House: Creates a deduction for tip and overtime earnings from taxable income for taxpayers earning up to $160,000.
Senate: Deductions on overtime compensation up to $12,500 individual / $25,000 MFJ, phased out after $150,000 AGI. Tip income deduction of up to $25,000 with a phaseout implemented when AGI exceeds $150,000/$300,000 MFJ.
7. Qualified Opportunity Zones (QOZs)
Both versions appear to support a reauthorization and expansion of Opportunity Zones through 2033, with special provisions for Qualified Rural Opportunity Funds. The House proposes a 30% basis increase for investments held five years or more in rural-designated QOFs.
Conclusion and Next Steps
As negotiations unfold, tax practitioners should prepare for divergent outcomes between the House and Senate. Several of the House's more generous provisions face resistance in the upper chamber, with fiscal conservatives pressing for more limited relief. Final legislation may emerge as a reconciliation package or as piecemeal reform, depending on political compromise.
What Tax Professionals Should Do Now:
We will continue to track this evolving legislation and provide client-specific guidance once clearer legislative language is finalized.