Client Alert: The Senate’s Other Big Beautiful Bill – Notable Changes to the House Version
Date: June 27, 2025
As noted previously, after passage in the House, the Senate was required to mark up the Act. On June 16, 2025, the Senate Finance Committee released a draft text as part of the Senate’s budget reconciliation process. Included in this version are several notable changes to the House’s bill. This client alert highlights the differences between the legislative texts to help individuals, businesses, and their advisors stay informed of and prepare for potentially significant changes to the tax system.
Key TCJA Provision Extenders and Amendments
The Senate version did not make many significant changes to the individual provisions of the House bill.
Individual Taxpayers
- Individual Income Tax Rate Reductions (Section 1(j)): The Senate version mirrors the House’s and permanently extends the lower tax rates and thresholds for individuals, estates, and trusts established by the TCJA, setting the highest marginal ordinary income tax rate at 37%.
- Child Tax Credit (Section 24(h)): The Senate version of the Act would extend the child tax credit, with an increase from $2,000 to $2,200 (instead of $2,500) per qualifying child in 2025.
- Standard Deduction (Section 63(c)(7)): The TCJA’s standard deduction changes would be increased for certain taxpayers from 2025 through 2028. The Act proposes a standard deduction of $16,000 for single filers; $24,000 for the heads of household; and $32,000 for married joint filers. The Senate version leaves these figures untouched.
- SALT Deduction Cap (Section 164(b)(6)): After continuing negotiations, the Senate announced that it would increase the cap on individuals’ state and local tax (SALT) deductions to $40,000 for a five-year period, after initially proposing a $10,000 cap in its initial draft.
- Mortgage Interest Deduction (Section 163(h)): The Senate version also permanently disallows any mortgage interest deduction for home equity indebtedness and generally permits interest deductions for acquisition indebtedness up to $750,000.
- Alternative Minimum Tax (“AMT”) Exemption (Section 55(d)): The House bill would cause the AMT exemptions and phase-out thresholds to equal the inflation-adjusted TCJA figures for 2018. The Senate version would permanently extend the increased exemptions and thresholds at the 2018 levels of $500,000 ($1,000,000 for joint filers), adjusting for inflation starting in 2027.
- Qualified Opportunity Zones (Sections 1400Z, 6039K, 6939L, 6726): The Senate bill aligns with the House bill’s new round of Opportunity Zone (“OZ”) investment and increased limitations of statewide area income. However, the Senate Bill does not require a specific set aside for rural OZs like the House bill.
- Estate and Gift Tax Exclusion Thresholds (Section 2010(c)(3)(C)): The Senate bill would also increase the estate and gift tax exclusion thresholds to $15 million for single filers and $30 million for married couples starting in 2026.
Business Taxpayers
- Pass-Through Business Income Deduction (Section 199A): While the House bill would permanently increase the 20% deduction for qualified business income from pass-through entities to 23%, the Senate version would retain the 20% rate.
- Limitation on Excess Business Losses of Noncorporate Taxpayers (Section 461(l)): The Senate version also permanently extends the disallowance of a deduction for excess business losses and applies to losses arising in tax years after 2025.
- Interest Deduction Limits (Section 163(j)): The Act modifies the 30% cap calculation of “adjusted taxable income” to the pre-2022 methodology. The House version would sunset this provision in 2029, while the Senate would make this change permanent.
- Bonus Depreciation for Qualified Property (Section 168(k)): The House reinstated 100% bonus depreciation for property acquired after January 19, 2025, and placed in service after such date, but before 2030. Again, the Senate version makes this change permanent.
- R&E Expensing (Sections 174 and 174A): The House suspends the current requirement to capitalize and amortize domestic-only research and experimental (“R&E”) expenditures for amounts paid or incurred after 2024 but before 2030. The Senate version follows the House’s, but it also provides that taxpayers with gross receipts below $31 million may retroactively benefit from expensing back to 2022.
International Tax Provisions
- GILTI and FDII (Section 250(a)): The Global Intangible Low-Taxed Income (“GILTI”) effective tax rate is currently set to rise from 10.5% to 13.125% in 2026. Likewise, the Foreign-Derived Intangible Income (“FDII”) effective tax rate is set to increase from 13.125% to 16.406%. The Act would extend the lower effective tax rates and slightly modify the percentage deductions related to a U.S. taxpayer’s GILTI inclusion and its FDII income. The House proposed deduction for GILTI is decreased from 50% to 49.2% of a taxpayer’s GILTI inclusion and would have been reduced to 37.5% without legislative action. The Senate version sets the GILTI deduction at 40% and the FDII deduction at 33.34%, creating an effective rate of 14% for both GILTI and FDII. The Senate proposal would also reduce the discount on foreign taxes paid on net CFC-tested income from 20% to 10%.
- Base Erosion & Anti-Abuse Tax Rate (Section 59A): The House bill expanded the Base Erosion and Anti-Abuse Tax (the “BEAT”) regime to include two rates, a standard 10.1% increase from 10%, and a Super BEAT rate of 12.5%, which could be applied to countries imposing “unfair foreign taxes, Digital Service Taxes, and diverted profits taxes.” Banks and certain financial institutions or service entities may be subject to an 11% BEAT rate. The Senate version, however, would increase the BEAT rate to 14%. Additionally, there was a cap on deductible-related party payments (3% of all deductions). The House version eliminates the 3% threshold on deductible-related party payments, while the Senate version retains a threshold set at a lower 2% rate.
- Look-Thru Rule Extension (Section 954(c)): The Senate bill would permanently extend the Look-Thru Rule, which excludes dividends, interest, rents, and royalties from foreign personal holding company income when earned by a CFC from a related CFC.
- Downward Attribution Limit Restoration (Section 958(b)): The Senate version would reinstitute restrictions on downward attribution of stock ownership. However, it also would enact section 951B, allowing downward attribution in limited circumstances. Here, a foreign-controlled U.S. shareholder of a CFC must apply CFC inclusion rules.
- Pro Rata Shares Rules (Section 951): The Senate version holds that when a U.S. shareholder owns stock in a CFC, the shareholder must include the pro rata share of the corporation’s subpart F income for the CFC tax year in gross income.
New Tax Provisions
The Senate version largely kept the House’s new tax provisions intact.
Individual Taxpayers
- No Tax on Qualifying Tips and Overtime (Section 225): The Senate version includes a $25,000 deduction cap for tips and a $12,500 deduction cap for overtime pay. Both tax provisions would expire in 2028.
- No Tax on Car Loan Interest (Section 163(h)(3)(F)): The Senate version aligns with the House’s $10,000 deduction for interest paid on qualified car loans related to personal use vehicles that are made in the United States. This provision also expires at the end of 2028.
- Enhanced Deduction for Seniors (Section 63(f)): The Senate version includes an increased deduction for seniors (age 65 or older) of $6,000 (up from $4,000) per eligible filer with a modified adjusted gross income that does not exceed $75,000 for single filers ($150,000 for married filing jointly). The deduction would also expire in 2028.
Business Taxpayers
- Partial Structure Expensing (Section 168(n)): The Senate version includes a 100% bonus depreciation deduction for qualified production property (“QPP”). QPP includes non-residential structures (such as commercial real estate) utilized as an integral part of qualified manufacturing, agricultural, chemical production, or refining of a qualified product. Unlike the House version that sunsets this provision in 2030, the Senate would make this deduction permanent.
- Increased Small Business Expensing of Depreciable Assets (Section 179(b)): The Senate version also increases the prior $1 million cost limitation of qualifying property to $2.5 million and increases the limitation reduction amount under Section 179(b)(2) from $2.5 million to $4 million, for property placed in service in tax years beginning after December 31, 2024.
- Curtailing SALT Deduction Cap (Section 164(b)(6)) Workarounds: The Senate version, like that passed by the House, also closes the workarounds on state and local tax (“SALT”) deductions for pass-through businesses.
- U.S. Surtax on Certain Foreign Payments (Section 899): The House version would increase applicable withholding taxes and gross-basis tax rates on foreign payments made to certain countries by 5% per year, and in some cases, up to a maximum rate of 20% (only 15% in the Senate version) above the typical statutory rate. This new provision (i) eliminates the $500 million gross receipts and 3% base erosion percentage threshold applicable under the BEAT regime, (ii) disallows and modifies deductibility and capitalization rules that would otherwise be applicable to certain foreign payments, and (iii) overall results in increasing the BEAT rate to 12.5% on U.S. companies with shareholders from applicable countries who own more than 50% of the vote or value of such corporations. The Senate version retains a 2% BEAT threshold rate, and it would not go into effect until 2027. Note: The Department of the Treasury asked Congress to remove the section 899 provisions from the Act.
- Inflation Reduction Act Changes: The Senate version maintains a similar phase-out structure for energy credits. However, the Senate proposal would also terminate the Section 179D deduction for property beginning construction more than a year after enactment.
Tax-Exempt Organizations
- Excise Tax on Private Colleges’ & Universities’ Investment Income (Section 4968): The Senate version also replaces the endowment excise tax on applicable educational institutions with a new rate structure, effective for tax years beginning after December 31, 2025. However, unlike the House bill’s range of 1.4% to 21%, based on student-adjusted endowment size, the Senate version caps the excise tax at 8%.
- Tax on Net Investment Income of Private Foundations (Section 4940(a)): The Senate version also increases the rate of tax on net investment income of certain private foundations, adding a progressive tax rate system for larger private foundations based on asset size.
The Legislative Process and Next Steps
Now that the Senate has released its marked-up version of the Act, both chambers must reconcile these bills. Once Congress accounts for the differences between their respective versions, the final omnibus legislation will be sent to the President for approval.
As the legislative process unfolds, Whiteford will continue to monitor further developments to assist taxpayers, advisors, and businesses to navigate these changes. We will continue to provide updates as the bill advances through Congress to ensure that clients have the information they need to effectively implement their tax strategies.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.