Senate Finance Committee Releases its Version of Tax Legislation

Published: Jun 20, 2025
By: Jeffrey Kelson; Sarah E. Adkisson
Topics: Tax

Tax Legislation
Share

The Senate released its version of the tax legislation on Monday, June 16, 2025. Much like the House bill, the Senate version would significantly alter the tax code and make many expiring provisions of the Tax Cuts and Jobs Act (TCJA) permanent. As expected, there are significant changes from the House bill, as highlighted in bold. (A lack of commentary on the House version means there were little or no significant changes to that provision.) This should not be considered a comprehensive explanation of all provisions in the bill, but instead an overview.

Individual Provisions

Tax Rates: Permanently extends the reduced tax rates from the TCJA and adds an additional year of inflation adjustment for the lowest three brackets. The House version reduced the inflation adjustments for the top two highest brackets. (Observation: By increasing the lower brackets’ inflation adjustments, the Senate version more directly benefits lower-income taxpayers than the House.)

Standard Deduction: Permanently extends the increased standard deduction amounts from the TCJA, with a slight increase to $16,000 for single filers, $24,000 for head of household filers, and $32,000 for joint filers for tax year 2025. The House version of the bill includes temporary increases of $1,500, $2,000, and $2,500 for tax years from 2025 to 2028.

Increased Senior Deduction: Adds a temporary $6,000 deduction (available if itemizing or not) for each individual over the age of 65 for tax years 2025-2028, subject to the same AGI threshold as the House version. The House version includes a temporary increase for seniors of $4,000. (Observation: Much like the House version, this appears to be a way to deliver on campaign promises to reduce taxes on Social Security benefits.)

Personal Exemptions: Permanently terminates personal exemptions.

Child Tax Credit: Permanently increases the child tax credit to $2,200 beginning in 2025, indexed for inflation (including the refundable portion), and makes the $500 dependent credit permanent. The House version permanently increased the credit to $2,000, with a temporary increase to $2,500 for tax years 2025-2028, and did not address the dependent care credit.

State and Local Tax Deduction: The state and local tax deduction limitation is made permanent and held at its current level of $10,000/$5,000 (if Married Filing Separately), with the marriage penalty being continued as well (this is considered a placeholder). The House version increases the deduction limitation to $40,000/$20,000 if MFS, with phase-outs beginning when a taxpayer’s AGI exceeds $500,000/$250,000.

Pass-Through Entity Taxes: The bill alters how pass-through entity taxes (PTET) are treated by individuals, and beginning after December 31, 2025, limits the deduction to:

Any unused amounts from the SALT cap limitation, plus the greater of:
- $40,000 ($20,000 if married filing separately), not to exceed the PTET paid, or
- 50% of pass-through entity taxes paid.

To illustrate, assume a taxpayer has personal real estate taxes of $15,000:

Scenario	PTET Paid	PTET Deduction	SALT Deduction	Total Deduction
1	$20,000	$20,000	$10,000	$30,000
2	$50,000	$40,000	$10,000	$50,000
3	$100,000	$50,000	$10,000	$60,000
4	$400,000	$200,000	$10,000	$210,000

The bill also contains a provision that would exclude pass-through entity taxes from the legislative definition of a PTET if:

The jurisdiction imposes an individual income tax,
The PTET would exceed 102% of an unmarried individual’s tax liability on the same amount of net income as the PTE, and
Such tax is imposed for taxable years beginning 18 months after the date of enactment.

(Observation: Unlike the House version, there does not appear to be a specific limitation on Specified Service Trade or Businesses for PTETs (that is, all pass-through entities will qualify.) Accordingly, this provision benefits SSTBs, which are shut out in the House version, but halves the amount available to non-STTBs.)

Qualified Business Income (QBI) Deduction: Permanently extends the Qualified Business Income (QBI) Deduction under 199A, with the deduction amount generally remaining 20%, and increases the beginning phase-out threshold to $75,000 ($150,000 if MFJ). It also adds a $400 minimum deduction for taxpayers who materially participate in a business and have $1,000 of QBI. The House version increased the deduction to 23% and did not include the $400 minimum deduction for taxpayers who materially participate.

Estate Tax Exemption: Permanently increases the estate and gift tax exemption to $15,000,000, adjusted annually for inflation.

Alternative Minimum Tax: Makes the increased thresholds at which the Alternative Minimum Tax applies permanent and reverts the threshold amounts back to pre-inflation adjusted levels.

Mortgage Interest Deduction: Makes the $750,000 mortgage interest deduction limitation permanent.

Permanent Terminations: Permanently terminates miscellaneous itemized deductions, moving expense reimbursements, and bicycle commuting reimbursements.

Itemized Deduction Limitation: Permanently replaces the “Pease limitation” and limits the amount of itemized deductions by reducing the allowable deductions by 2/37s of the lesser of:

The amount of allowable deductions, or
The amount by which the taxpayer's taxable income exceeds the dollar amount at which the 37% tax bracket begins.

The House version contains a two-step calculation based on 2/37s and 5/37s of the allowable itemized deduction amount. (Observation: This is the same as the original provision in the House version.)

ABLE Account Enhancements: Permanently extends the following ABLE account provisions:

The additional ABLE account contribution amounts for employed beneficiaries,
The ability to use contributions to ABLE accounts to qualify for the Saver’s Credit, and
The ability to utilize tax-free rollovers from 529 plans to qualified ABLE programs.

No Tax on Tips: Creates a temporary deduction of up to $25,000 of qualified tips received by a qualified individual with a MAGI of $150,000 ($300,000 if MFJ) for tax years 2025-2028. The House version did not set a limit on the amount of tip income that could be deducted and disallows the deduction if the taxpayer’s earned income exceeds $160,000 in 2025. (Observation: This is generally the same as the version the Senate passed earlier this year but is temporary instead of permanent.)

No Tax on Overtime: Creates a temporary deduction of $12,500 ($25,000 if MFJ) for qualified overtime compensation for individuals with a MAGI of $150,000 ($300,000 if MFJ) for tax years 2025-2028. The House version does not set a limit on the deduction and disallows the deduction if the taxpayer’s earned income exceeds $160,000 in 2025.

Trump Accounts: Allows individuals to contribute up to $5,000 per year (adjusted annually for inflation) for children who are under the age of 18, provided they create the account prior to the beneficiary reaching the age of eight. A pilot program would automatically create an account and deposit a one-time, $1,000 tax credit for qualifying children born during taxable years 2025-2028. Distributions for qualified expenses are taxed as capital gains. Non-qualified distributions are included in income and subject to a 10% penalty if the beneficiary is under 30. After obtaining age 31, the account is deemed to be fully distributed to the beneficiary.

Adoption Credit: Allows for up to $5,000 of the adoption tax credit to be refundable, increases the exclusion for dependent care assistance to up to $7,500, and increases the maximum credit for child and dependent care to 50% of qualified expenses, up to $3,000 ($6,000 if caring for two or more dependent individuals), subject to income thresholds. The House version only enhances the adoption tax credit.

Car Loan Interest Deduction: Creates a temporary deduction for interest from loans for vehicles (with final assembly in the U.S.) for tax years 2025-2028. The deduction begins to phase out with MAGI of $100,000 ($200,000 if MFJ) and is reduced by $200 for each $1,000 over the threshold.

Charitable Deduction for Non-Itemizers: Creates a permanent charitable deduction for taxpayers who take the standard deduction of $1,000 ($2,000 if MFJ). The House version allows for a $150/$300 deduction.

Charitable Deduction Floor: Creates a permanent 0.5% floor for charitable contributions by those who itemize (effectively reducing their deductible charitable contributions by 0.5%) and permanently extends the increased charitable contribution limit of 60% of AGI for cash contributions. This does not exist in the House version.

529 Plan Enhancements: Allows certain elementary, secondary, homeschool, and post-secondary credentialing expenses to be treated as “higher education” expenses for purposes of IRC Sec. 529.

Interestingly, the bill also contains a “reserved” section for “tax treatment of certain international entrepreneurs.” This does not exist in the House version. It is possible this portion is intended for the proposed “Golden Visa” program.

Business Provisions

Qualified Small Business Stock/IRC Sec. 1202: Sec. 1202 is enhanced for stock acquired after the date of enactment of the bill as follows:

The exclusion amount is increased to $15,000,000 and will be increased with inflation beginning in 2027,
The aggregate assets amount is increased to $75,000,000 and will be increased with inflation, and
The percentage that taxpayers can exclude is now dependent on the following holding periods:
- 3 Years – 50%
- 4 Years – 75%
- 5 Years – 100%

This provision is not in the House version. (Observation: The tax rate on the taxable portion is 28% (see IRC Sec. 1(l). Under this proposal, targets above $50 million might be able to avoid having to engage in right-sizing transactions and might qualify when they did not under current rules.)

Full Expensing for Domestic R&D: Creates IRC Sec. 174A, which permanently allows businesses to fully expense domestic research and development expenditures, retroactive to January 1, 2025. The bill allows:

Small businesses (those with gross receipts under $31 million in 2025) to amend returns back to tax years beginning after December 31, 2021, and
All taxpayers to immediately deduct any domestic expenses paid or incurred between December 31, 2021, and January 1, 2025, that are being amortized over one or two years ratably, starting with the 2025 taxable year.

The House version only temporarily allows full expensing of domestic research and development expenditures for tax years 2025-2029 and does not allow taxpayers to deduct the expenditures they are currently amortizing.

IRC Sec. 163(j): The bill contains two provisions regarding IRC Sec. 163(j):

Revives the use of EBITDA (instead of EBIT) for purposes of determining the business interest expense deduction limitation under IRC Sec. 163(j) retroactive to taxable years beginning on or after January 1, 2025.
It also appears to disallow the use of interest capitalization (that is, IRC Sec. 266, 263A, and 263(a)) as a way to deduct the interest expense for tax years beginning on or after January 1, 2026.

This does not impact the 2024/2025 tax years. The House version was temporary for tax years 2025-2029 and did not include a provision regarding the treatment of interest capitalization.

Bonus Depreciation: The bill contains two bonus depreciation provisions:

Permanently extends 100% bonus depreciation for property acquired and placed in service after January 19, 2025. (Note: Property placed in service before January 20, 2025, would be limited to 40% bonus (or 60% if long-term property.) The House version was temporary for tax years 2025-2029.
Temporarily allows 100% depreciation for qualified production property, construction of which begins after January 19, 2025, and before January 1, 2029, and is placed in service before January 1, 2031.

179 Expensing: Permanently increases the IRC Sec. 179 expensing amount to $2.5 million and the phase-out threshold amount to $4 million, retroactive to Jan. 1, 2025.

Paid Family and Medical Leave Credit: Permanently extends the paid family and medical leave credit.

Employer Provided Childcare Credit: Permanently enhances the employer-provided childcare credit by increasing the maximum credit to $500,000 ($600,000 for small businesses with gross receipts under $31 million) and the percentage of covered expenses to 40% (50% for small businesses).

IRC Sec. 461(l) Excess Business Losses: Permanently extends the limitation on excess business losses for taxpayers other than corporations under IRC Sec. 461(l) and disallows net operating losses (NOLs) in future years. Accordingly, carryforwards from 2025 and thereafter will no longer be characterized as NOLs, and the excess business loss carryforward will only be able to offset trade or business income in future years.

Charitable Deduction Floor: Creates a 1% floor for charitable contributions by C corporations, effectively limiting their deduction to 9%.

International Provisions

Foreign-Derived Intangible Income: Renames Foreign-Derived Intangible Income to “Foreign-Derived Deduction Eligible Income,” reduces the deduction to 33.34% (currently, 37.5%), and modifies the calculation. The House version decreases the deduction to 36.5%, does not change the name, and does not modify the calculation.

Global Intangible Low-Taxed Income: Renames the Global Intangible Low-Taxed Income to “Net CFC Tested Income,” reduces the deduction to 40% (currently, 50%), and modifies the calculation. The House version decreases the deduction to 49.2%, does not change the name, and does not modify the calculation.

Base Erosion and Anti-Abuse Tax: Increases the BEAT rate to 14% (currently, 10%). The House version increases the rate to 10.1%.

Remittance Tax: Creates a “remittance tax” on money sent abroad of 3.5%, with a refundable tax credit for any transferor with a “work-eligible Social Security Number. This would not apply to funds that are:

Withdrawn from accounts held in financial institutions subject to the Bank Secrecy Act,
Funded with debit or credit cards issued in the U.S.

The House version only exempted U.S. citizens from the tax.

IRC Sec. 899 (Unfair Taxes): Sec. 899 (the so-called “revenge tax” against “unfair foreign taxes”) would not take effect until 2027, and the limitation on the additional tax is reduced to 15%. The House version allows an addition to tax of up to 20% and is effective upon enactment.

Tax-Exempt Organizations Provisions

Increased Application of IRC Sec. 4960: Includes all employees receiving remuneration in excess of $1 million in the definition of “covered employees” for purposes of the IRC Sec. 4960 excise tax.

Increase of University Endowment Tax: Increases the IRC Sec. 4968 excise tax rate on applicable educational institutions’ net investment income as follows:

1.4% for institutions with an endowment of at least $500,000 per student,
4% for institutions with an endowment in excess of $750,000 per student, and
8% for institutions with an endowment in excess of $2,000,000 per student.

The House version created four tiers of tax with a highest tax rate of 21%.

Qualified Opportunity Zones Provisions: The bill extends Qualified Opportunity Zones, with 10-year rolling designations for tracts starting January 1, 2027, and

Alters the definition of Low-Income Communities (LIC) to mean population centers with either:
- A median family income that does not exceed 70% of the area’s median family income, or
- A median family income that does not exceed 125% of the area’s median family income and a poverty rate of at least 20%.
Creates staggered holding periods for taxpayers to receive up to a 10% step-up in basis as follows:
- Years 1-3: 1% (total of 3%)
- Years 4-5: 2% (total of 4%)
- Year 6: 3%
Creates qualified rural opportunity funds which can receive up to a 30% step-up in basis.
Modifies the substantial improvement requirement for QOZ business property (i.e., improvements must generally exceed 100% of adjusted basis of qualifying property during a 30-month period). In the case of property located in a qualified opportunity zone comprised entirely of a rural area, improvements must only exceed 50% of the adjusted basis.

The House version only extends QOZ through 2034, and the 10% (or 30%) step-up in basis is only allowed after the end of five years. There is no staggered schedule.

Energy Credit Provisions

IRC Secs. 25C, 25D, and 30D: Terminates IRC Sec. 25C (Energy Efficient Home Improvement Credit), 25D (Residential Clean Energy Credit), and 30D (Clean Vehicle Credit) 180 days after the date of enactment. The House version terminates these credits after December 31, 2025.

IRC Sec. 25E: Terminates IRC Sec. 25E (Used Clean Vehicle Credit) 90 days after the date of enactment. The House version terminates these credits after December 31, 2025.

IRC Sec. 30C, 45L, and 179D: Terminates IRC Sec. 30C (Alternative Fuel Vehicle Refueling Credit), 45L (New Energy Efficient Home Credit), and 179D (Energy Efficient Commercial Buildings Deduction), 12 months after the date of enactment. The House version terminates these credits after December 31, 2025, and does not contain the termination of IRC Sec. 179D.

IRC Sec. 45: Terminates IRC Sec. 45 (Clean Hydrogen Production Credit) for construction beginning after December 31, 2025.

IRC Sec. 45Q: Keeps the current law for IRC Sec. 45Q (Carbon Oxide Sequestration Credit).

IRC Sec. 45U: Terminates IRC Sec. 45U (Zero-Emission Nuclear Power Production Credit) after December 31, 2031, and keeps transferability intact.

IRC Sec. 45W: Terminates IRC Sec. 45W (Qualified Commercial Clean Vehicles Credit) for vehicles acquired 180 days after the date of enactment. The House version terminates the credit after December 31, 2025.

IRC Sec. 45X: Generally, keeps the current phase out for IRC Sec. 45X (Advanced Manufacturing Production Credit), but phases out for wind components sold after December 31, 2027, and delays the phase out for critical minerals until December 31, 2030 (75% allowed in 2031, 50% in 2032, 25% in 2033, and no credit beginning in 2024). The House version begins the phase-out after 2031, with no additional time for critical minerals.

IRC Sec. 45Y: Terminates IRC Sec. 45Y (Clean Electricity Production Credit) and IRC Sec. 48E (Clean Energy Investment Credit) for wind and solar after December 31, 2027 (reduced to 60% for 2026 and 20% for 2027). Hydropower, nuclear, and geothermal continue to qualify for 100% of the credit for facilities that begin construction before December 31, 2033, with a phase-out beginning in 2034 (75% in 2034, 50% in 2035, with no credit after December 31, 2035). The House version begins to phase out the credit beginning in 2029 (with no differential treatment depending on the energy type).

IRC Sec. 45Z: Extends IRC Sec. 45Z (Clean Fuel Production Credit) through December 31, 2031, with a 20% reduction for foreign feedstocks. The House version prohibits the credit completely for foreign feedstocks.

IRC Sec. 48C: Freezes the IRC Sec. 48C (Advanced Energy Project Credit) credit allocation at current levels. This provision is not in the House version.

IRC Sec. 48D: Increases the advanced manufacturing investment credit from 25% to 30%. This provision is not in the House version.

Industry Specific Provisions

Rural Interest Exclusion: Allows specified financial lenders to exclude up to 25% of interest income derived from qualified real estate loans from gross income.

Low-Income Housing Tax Credit: Increases the state housing credit ceiling under the Low-Income Housing Tax Credit for calendar years 2026-2029 to 12.5% and allows additional buildings that are financed with tax-exempt bonds to qualify for housing credits if at least 25% of the aggregate basis of the building is financed with qualified bonds.

Qualified Productions: Extends the expensing rules for qualified film, television, and live theatrical productions to qualified sound production costs until January 1, 2026; and allows bonus depreciation for qualified sound recording productions placed in service (i.e., released or broadcast) before January 1, 2029.

Firearm Silencers: Repeals the excise tax on firearm silencers.

Litigation Funding Proceeds Tax: Creates new IRC Sec. 5000E-1 through 5000E-3 that imposes a 40.8% tax (highest individual rate plus 3.8%) on litigation proceeds realized from pursuant to a litigation financing agreement. This provision is not in the House version. (Observation: This also applies to C corporations, meaning corporations will have a tax increase of nearly 20% on amounts realized.)

Employee Retention Tax Credit: Creates new penalties for employee retention tax credit (ERTC) promoters, disallows ERTC refunds claimed after January 31, 2024, and extends the statute of limitations to assess penalties for the ERTC to six years after the latest of:

the date the original return was filed,
the date the return was treated as filed, or
the date the claim for the ERTC credit or refund is made.

This provision was removed from the House version.

The Senate bill does not contain the following provisions that were included in the House version:

All the HSA enhancements in the House version,
The increase on private foundations’ net investment income tax,
The limitation of amortization of intangibles under IRC Sec. 197 to 50% for sports franchises, and
The increase in the IRC Sec. 448(c) threshold for small U.S. manufacturers.

Much like the House version, these provisions are subject to change as the legislation works through Congress. The SALT cap, PTET, and energy credit provisions are the most likely to see changes. The next step is for the Senate Finance Committee to vote to send their portion of the bill to the Budget Committee to be compiled with the other sections of the bill.