On May 22, 2025, the House of Representatives passed H.R. 1, also known as the "One Big Beautiful Bill Act," by a narrow vote of 215–214. The bill was hotly debated – over 20 hours in the House Rules Committee – before making it to the full House for a final vote. While many of the original provisions from the House Ways and Means Committee remained intact, a few key changes were made before it cleared the House. See our previous article for key items contained in the House Ways and Means tax package.

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Here’s what you need to know:

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SALT Deduction Cap Gets a Lift – With a Catch

The state and local tax (SALT) deduction cap would increase to $40,000 for most filers ($20,000 for married individuals filing separately). But there's a phase-out built in: for those earning more than $500,000 in modified adjusted gross income (MAGI) ($250,000 for married filing separately), the cap would begin to phase down by 30% of the amount over the threshold. Eventually, it would bottom out at $10,000 ($5,000 separately).

Starting in 2026 and running through 2033, both the cap and the income threshold would rise by 1% per year, then freeze at 2033 levels going forward. This is a shift from earlier proposals, which set the cap lower and phased it out at lower income thresholds.

‍One note for business owners: The bill would not allow pass-through entities that are classified as specified service trades or businesses (SSTBs) to deduct state and local income taxes at the entity level. These taxes would flow through to the individual owners and count toward their SALT cap – this piece remained unchanged from the original draft.

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Itemized Deduction Limitations – More Carveouts for High Earners

The prior version of the bill would have removed the overall limitation on itemized deductions while adding a cap for top earners – those in the 37% bracket – so that deductions couldn’t reduce tax liability beyond the equivalent of a 35% tax rate. In the final House-approved version, that cap on itemized deductions remains, but an additional limitation on SALT deductions in particular has been included for taxpayers in the 37% bracket.

For everyone else: the full removal of the itemized deduction limitation would now be permanent.

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Clean Energy Tax Credits Scaled Back and Sped Up

The House Ways and Means version proposed a gradual, seven-year phase-out starting in 2029 for both the Clean Electricity Production Credit and Clean Investment Tax Credit, while repealing the ability to transfer those credits. The final bill would accelerate those changes. Now, to qualify for the credits, construction would have to begin within 60 days of the bill becoming law, and projects would have to be placed in service by the end of 2028. Wind and solar leasing arrangements would be excluded from eligibility, and the repeal of transferability would remain in place.

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Next Stop: The Senate

The legislation now moves to the Senate, with lawmakers targeting July 4, 2025, as the date to get it over the finish line. As always, we’re watching closely and will provide updates as the bill moves through the legislative process. If you’re wondering how these changes might impact your tax situation or your business, we’re here to help. Let’s schedule a time to talk.

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