This information is current as of June 23, 2025.

Key points covered in this article:

  • Key Tax Policy Differences: The House and Senate tax proposals both aim to extend provisions of the 2017 Tax Cuts and Jobs Act but diverge significantly on key issues such as the SALT cap, clean energy credits, and the permanence of business tax breaks like bonus depreciation, QBI deductions, and R&D expensing.

  • Business and Individual Impacts: While both proposals support enhanced deductions and lower tax rates, the House offers short-term boosts (e.g., increased QBI and child tax credits through 2029), whereas the Senate prioritizes permanent changes and long-term predictability for businesses and individuals alike.

  • Outstanding Challenges: Major sticking points include disagreements over the SALT cap, PTET limitations, and the overall cost of the legislation, which could delay reconciliation before the early July deadline.

The Senate Finance Committee has released its version of the tax bill, aiming to match up with the House’s proposal that passed in May. Both versions extend major parts of the 2017 tax law and update certain business and individual tax breaks. But they take different approaches, and there are still some big differences to work through before anything becomes final. For taxpayers, it’s important to understand what each version includes in order to plan ahead, take advantage of new opportunities, and stay compliant.

Legislative Background

In late May, the House passed its version of the tax bill, with a focus on continuing core provisions from the 2017 tax law and raising the cap on state and local tax deductions. The Senate released its draft in mid-June. While both are trying to accomplish many of the same things, they differ in how they approach several key areas, most notably SALT and clean energy.

The Senate is now advancing its version through the budget reconciliation process, which allows passage by simple majority, but it comes with strict inclusion rules and a lengthy amendment period. Meanwhile, the House bill follows the regular legislative process. Before any tax changes can head to the president’s desk, both chambers must agree on identical text. That won’t be easy, especially with unresolved issues and a tight deadline around early July.

Provisions for Businesses

SALT Cap and PTET Limitations

While the SALT deduction is often viewed as a personal tax issue, it has implications for owners of pass-through businesses who reside in high-tax states. The House bill would raise the cap on state and local tax deductions from $10,000 to $40,000 per household in 2025, followed by annual increases of 1% through 2033. This approach reflects ongoing pressure from lawmakers representing high-tax jurisdictions.

The Senate, on the other hand, maintains the existing $10,000 cap and introduces new limits on the use of pass-through entity tax (PTET) workarounds. These workarounds, currently permitted in many states and allowed by the IRS starting in November 2020, allow pass-through entities to pay state taxes at the entity level, thereby sidestepping the SALT cap on individual returns. Under the Senate version, deductions for PTET payments would be limited to either the unused portion of a taxpayer’s SALT cap plus $40,000 or half of the total PTET paid, whichever is greater. Many professional organizations are opposed to this provision.

The state PTET workarounds have been very beneficial for many pass-through entities over the past five years with 36 states now offering a PTET election option for eligible entities.

Bonus Depreciation

Both bills favor full expensing of capital investments, but the Senate proposal makes 100% bonus depreciation permanent for property acquired after January 19, 2025. The House limits full expensing through 2029, after which it would phase out. For businesses planning equipment or technology upgrades, the Senate’s version offers greater long-term certainty.

Interest Expense Deductibility

Both chambers support restoring the more favorable EBITDA-based calculation for business interest expense under Section 163(j), rather than the narrower EBIT approach. The House extends the EBITDA definition through 2029, while the Senate makes it permanent.

R&E Expenses

On the research and experimentation side, both bills end the requirement introduced in 2022 to amortize domestic R&D costs. But while the House version of immediate expensing phases out by 2029, the Senate goes for a permanent fix. The Senate would also allow many businesses to retroactively accelerate their remaining 2022–2024 research deductions. This could benefit smaller startups that have already begun capitalizing R&D costs.

QBI Deduction

The House increases the Qualified Business Income (QBI) deduction from 20% to 23%, but only through 2029. The Senate maintains the deduction at 20% and makes it permanent. For pass-through businesses, the tradeoff is between a higher short-term benefit versus long-term predictability. The QBI deduction has been a valuable tax deduction for many pass-through entities since it was firm implemented in 2018 and allows smaller pass-through businesses to be more competitive from a tax perspective with larger C corporation businesses.

Provisions for Individuals

The individual tax provisions in both bills largely mirror each other. Each would make the TCJA’s lower tax brackets and higher standard deductions permanent. The Senate provides an additional year of inflation adjustment to bracket thresholds.

Both chambers also propose a deduction for seniors. The House allows a $4,000 annual “senior bonus” deduction from 2025 through 2028. The Senate offers a larger $6,000 deduction, with income-based phaseouts starting at $75,000 for single filers ($150,000 joint), applicable during the same years.

In terms of the child tax credit, the House temporarily boosts the credit to $2,500 for tax years 2025 through 2028, then returns it to the $2,000 baseline with inflation adjustments. The Senate opts for a permanent increase to $2,200, also indexed for inflation.

Both proposals also maintain a higher estate and gift tax exemption, setting it at a $15 million base starting in 2026, indexed for inflation. This aligns with current inflationary projections and offers estate planning opportunities for high-net-worth families.

Clean-Energy Provisions

The House bill aggressively curtails clean energy credits introduced under the Inflation Reduction Act (IRA), ending or phasing them out rapidly. The Senate takes a more gradual approach, preserving some credits until 2026 or beyond and linking expiration to when construction begins. This distinction is important for developers structuring renewable energy projects. The Senate also retains transferability provisions for as long as the credit remains valid.

Outstanding Areas of Negotiation

The SALT cap remains one of the biggest points of contention. House lawmakers from high-tax states have pushed for expanded relief, while Senate Republicans have shown little interest in raising the cap. The Senate’s proposed PTET limits further complicate this issue for business owners using entity-level state tax deductions.

Cost is another sticking point. While official scoring from the Senate is still pending, both versions of the bill are expected to add trillions to the federal deficit over the next decade. Even some Republican lawmakers have raised concerns about the price tag, especially given the scope of proposed tax relief and the corresponding cuts to popular social programs used to offset the cost. With some hesitation from fiscal conservatives, the overall expense of the legislation remains a key challenge in moving it forward.

Conclusion

Both the House and Senate bills aim to extend the TCJA and modernize key provisions. As the self-imposed July Fourth deadline closes in, tracking updates and engaging in forward-looking planning can help taxpayers take advantage of emerging opportunities and avoid surprises when the final version becomes law. For more information on tax planning, contact PBMares Tax Partner Charles Dean Smith, Jr.