House Ways and Means Committee Tax Bill | A Summary of Key Provisions

Overview

The House Ways and Means Committee recently approved a tax package that extends and modifies many provisions of the Tax Cut and Jobs Act (TCJA). It also includes several new provisions that affect individuals as well as changes affecting private colleges and universities.

Below are overviews of the changes for both individuals and private higher educational institutions.

Individuals

TCJA EXTENSION AND MODIFICATION

• Tax brackets on ordinary income – The TCJA lowered the tax rates and adjusted each bracket so more of a taxpayer’s taxable income was subject to a lower rate. The current tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. This bill will make these permanent.
• Standard deduction and personal exemptions – The TCJA doubled the standard deduction and removed personal exemptions. Both provisions will be permanently extended. In addition, there will be a small temporary increase to the standard deduction for the 2025 through 2028 tax years.
• Excess business loss limitations – The amount of business losses you can deduct against nonbusiness income is currently limited to $313,000 ($626,000 for married taxpayers filing jointly). This was set to expire at the end of 2028, but the bill would extend it permanently.
• Qualified business income (QBI) deduction – The QBI deduction will be extended permanently and increased from 20% to 23% of your qualified business income.
• State and local taxes (SALT) limitation – The SALT cap will be increased from $10,000 to $30,000 and subject to a phaseout for taxpayers with adjusted gross income exceeding $400,000. The bill also eliminates the ability for professional services (e.g. doctors, attorneys, lawyers, and accountants) and investment companies to deduct state passthrough entity taxes. These payments will now be subject to the SALT cap.
  • There is a current proposal to further increase the SALT cap to $40,000.
• Mortgage interest deduction – Interest paid on a mortgage is currently deductible for loans up to $750,000. This will be permanently extended.
• Miscellaneous itemized deductions – The deduction for miscellaneous expenses, including tax preparation and investment fees, will be permanently repealed.
• Limitation on itemized deductions – The TCJA temporarily removed the overall limitation on itemized deductions. This will be reinstated and modified to only impact taxpayers in the top 37% tax bracket.
• Alternative Minimum Tax (AMT) – The increased exemption and phase-out thresholds will be made permanent.
• Child Tax Credit – The $2,000 increased child tax credit will be made permanent, with a temporary increase of $500 for the 2025 through 2028 tax years. The $500 tax credit for other dependents will also be permanent.

NEW TAX CHANGES

• No tax on tips and overtime pay – Taxpayers will be able to deduct qualified tips and overtime pay from their income, regardless of whether they itemize or take the standard deduction. This will expire at the end of 2028.
• Enhanced deduction for seniors – Individuals aged 65 or older would be eligible for an additional deduction of up to $4,000 per individual for 2025 through 2028. This deduction will be phased out for taxpayers with $75,000 of income ($150,000 for married filing jointly).
• Charitable contributions – A deduction for charitable contributions of up to $150 ($350 if married filing jointly) will be allowed for taxpayers who do not itemize.
• Scholarship tax credit – A nonrefundable credit will be available for taxpayers who contribute to certain charitable organizations that provide scholarships for elementary and secondary education. This credit is limited to the greater of $5,000 or 10% of your gross income. Credits will be available from 2026 through 2029.
• 529 plans – Expand the definition of qualified education expenses to include certain costs of elementary and secondary schools.
• MAGA accounts – This bill will create Money Accounts for Growth and Advancement (MAGA accounts), which are a tax advantaged savings account for children. Qualified distributions from these accounts will be taxed as long-term capital gains.
• Bonus depreciation – Business property placed in service after January 19, 2025 and before January 1, 2030 will be eligible for 100% bonus depreciation.
• Renewable energy tax credits – Many of the tax credits implemented by the Inflation Reduction Act will be eliminated for tax years after 2025, including the credits for energy efficient improvements to your home.
• Qualified opportunity zones – Taxpayers who deferred capital gains by investing in qualified opportunity zones are required to recognize these gains in 2027. This bill will extend this until 2029. It will also allow for additional opportunity zones to be designated through 2033.

Educational Institutions with Large Endowments

IMPACT TO TAX OBLIGATIONS

The provisions in the tax package could significantly alter tax obligations for institutions with large endowments.

Under current law, an excise tax is imposed on educational institutions equal to 1.4% of their net investment income for that year. This will be replaced with a tiered system based on an institution’s student-adjusted endowment (see table below). For purposes of this calculation, only students who are citizens, nationals, or permanent residents of the United States are included. This means that institutions with high numbers of international students will be more likely to be impacted.

TIERED EXCISE TAX SYSTEM

Additionally, student loan interest and certain royalties will be included in an institution’s net investment income. So not only will the institution be subject to a higher tax rate, but the amount of income subject to tax will also increase.

These provisions also include a new exclusion for qualified religious institutions established after July 4, 1776 that have continuously maintained affiliation with a church. Also, the institution’s published mission must include religious tenets, beliefs, or teachings.

Summary

To summarize, the House Ways and Means tax package is a sweeping legislative effort that seeks to permanently extend many of the Tax Cuts and Jobs Act provisions, while making additional changes to the tax code. As the package moves forward in the legislative process, further debate and revision should be expected.

Clearstead’s tax department continues to monitor this bill and proactively plans for these tax provisions in clients’ financial plans. Contact us today with questions or to help you review your financial plan and tax strategy.

Disclosures: The information provided is general in nature, is provided for informational purposes only, and should not be construed as financial, tax, or legal advice. The views expressed by the author are based upon the data available at the time the article was written. Any such views are subject to change at any time. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All financial decisions must be evaluated as to whether it is consistent with your objectives and financial situation. You should consult with a financial, tax or legal professional before making any decisions.