What’s in the final budget bill? Key tax updates to know now 

This blog post was originally published June 23, 2025. It was updated on July 3, 2025.

One of the most sweeping pieces of legislation in President Trump’s second term in office has passed Congress and now only awaits the President’s signature before becoming law. The One Big Beautiful Bill Act includes tax provisions aimed at supporting taxpayers, encouraging business investment, and improving U.S. tax competitiveness, while also including some controversial changes, such as the elimination of popular energy tax incentives.

How did we get here? Well, it’s been a busy few weeks in Congress. As part of recent budget negotiations, the Senate Finance Committee released its version of a 2025 tax bill in response to H.R. 1 – The One Big Beautiful Bill Act, which passed the House of Representatives on May 22, 2025. On July 1, 2025, the Senate voted 51-50, with Vice President J.D. Vance casting the tie-breaking vote, on a reconciliation bill that went back to the House of Representatives for a final vote. The final bill passed the House on July 3rd and is expected to be signed into law by President Trump on July 4th.

Overview of key tax provisions

So what’s in the final budget bill? The following is an overview of several key tax provisions that may impact you or your business. 

• Child Tax Credit (CTC) provisions: The bill proposes a permanent increase to the Child Tax Credit, raising the maximum benefit per child from $2,000 to $2,200. It also includes stricter eligibility criteria, such as requiring both the child and parents to have Social Security numbers. 

• Limitation on interest expense deduction: The bill would reinstate the EBITDA-based limitation under Section 163(j) for tax years beginning after December 31, 2024. This means that for purposes of the business interest deduction, adjusted taxable income would once again be calculated without subtracting depreciation, amortization, or depletion—a more generous approach than current law, which uses EBIT.  This modification would be permanent.  

• R&D expensing: The final version of the bill proposes a permanent restoration of immediate expensing for domestic research and development costs. Notably, it offers a retroactive benefit: taxpayers with average gross receipts under $31 million may amend 2022–2024 returns to claim full expensing, while others may deduct unamortized costs from those years on their 2025 tax return or over two years. This introduces strategic opportunities for eligible taxpayers. 

• Energy tax provisions: Under the bill, the Section 179D energy-efficient commercial building deduction, would be eliminated, effective for projects beginning after June 30, 2026. (The deduction remains available for projects with construction starting prior July 1, 2026.) It also repeals the 45L credit and begins a phaseout of certain green energy incentives including investment and production tax credits for solar and wind properties. These changes could significantly impact taxpayers involved in sustainable construction or energy-related planning. 

• SALT deduction: The bill increases the $10,000 cap on the state and local tax (SALT) deduction to $40,000 while preserving the Pass-Through Entity Tax deduction. The bill also includes a 1% per year raise in the $40,000 cap each year through 2029, after which the cap would return to $10,000 in 2030.  The final version of the bill would phase out the SALT deduction at $500,000 of modified adjusted gross income in 2025 while increasing the phaseout threshold by 1% in subsequent years. However, it would not reduce the cap to below $10,000 via income-based phaseouts.

• Enhanced deduction for taxpayers over 65 years of age: The bill has a $6,000 deduction for seniors. This enhanced deduction will be limited based on modified adjusted gross income, and this provision will expire after 2028.  

• Estate and gift tax exemption: The bill would permanently increase the estate and lifetime gift tax exemption to $15 million for single filers (or $30 million for joint filers) starting in 2026. These amounts would be adjusted for inflation annually thereafter.

• Mortgage interest deduction: The bill would permanently extend the TCJA’s cap on mortgage interest to debt of up to $750,000, and would also permanently exclude home equity loan interest from the definition of qualified residence interest. Additionally, it would treat mortgage insurance premiums as qualified interest for deduction purposes. 

• Qualified small business stock: The bill provides a tiered qualified small business stock gain exclusion effective for acquisitions after the date of enactment. Stock held three years would qualify for 50% of the total exclusion amount, stock held for four years gets 75% and stock held for five years or longer gets 100% of the total exclusion amount. The total exclusion amount for qualified small business stock would increase from $10 million to $15 million. In addition, the aggregate gross asset limitation on qualified small businesses increases from $50 million to $75 million. Both of these items would be subject to future adjustments for inflation. 

International tax highlights

The final version of the bill includes several international tax changes that aim to simplify calculations, improve foreign tax credit (FTC) utilization, and align with global tax developments: 

Changes to Foreign Tax Credit calculations:

• Raises the deemed paid credit on foreign taxes from 80% to 90% on Net CFC Tested Income (fka GILTI), helping reduce residual U.S. tax on foreign earnings of controlled foreign corporations. 

• Reduces the type of deductions allocated to the Net CFC Tested Income bucket 

• Allows up to 50% of income from inventory manufactured in the U.S. and sold to foreign customers to be treated as foreign-source when a foreign office is involved. 

Adjusted §250 deductions and expanded BEAT:

• Lowers both Foreign-Derived Deduction Income (FDDI, formerly known as FDII) and Net Tested CFC Income deduction percentages to achieve a 14% effective tax rate 

• Removes the 10% qualified asset floor for both FDDI and Net Tested CFC Income, potentially impacting more taxpayers 

• For large multinational groups, broadens the scope of the Base Erosion and Anti-Abuse Tax (BEAT), potentially impacting more multinational businesses. 

Other important international tax changes

• A permanent extension of the look-through rules for payments of passive income from lower tier to upper tier controlled foreign corporations, eliminating the potential for Passive Foreign Holding Company (FPHC) treatment. 

• A restoration of the limitation on downward attribution, which caused U.S. corporations to be deemed owners of the foreign parent’s other subsidiaries.  This is replaced by a more directed approach to prevent abuse. 

• Changes the allocation of Subpart F and Net Tested CFC Income by using a pro rata calculation based on the number of days held, instead of testing on the last day of the CFC’s year.  This will affect sellers of CFC’s and cause an income inclusion for the portion of the year they held the CFC stock. 

These provisions reflect a push toward greater tax parity and enforcement in cross-border operations. 

Planning ahead: What you can do now

It is expected that the President will sign the “Big Beautiful Bill” in the next 24 hours.  This is a good time to start evaluating your current tax strategy in light of the proposed changes. Being proactive can help you stay ahead of any potential impacts—whether you’re an individual taxpayer, a business owner, or managing international interests. 

Here are a few steps to consider in the coming days and weeks: 

• Review prior-year R&D treatment to identify potential refund opportunities if retroactive expensing becomes law.

• Assess upcoming capital expenditures in light of possible extensions to bonus depreciation and Section 179 limits.

• Evaluate international tax exposure, particularly for export income and global intercompany payments.

• Consider potential changes to energy-related tax incentives, such as Section 179D and 45L, when evaluating upcoming projects. 

• Revisit mortgage and real estate strategies, including use of home equity loans and mortgage insurance premiums.  

• Consider estate and gift planning strategies, especially if your estate may approach the proposed $15 million/$30 million exemption threshold.

If you have questions about how the bill’s provisions might affect you or your business, contact your Kaufman Rossin tax advisor.