2025 tax bill vs. current law: child tax credit, SALT deduction and more

In the early hours of May 22, the House passed the legislative text of the Republican-led tax proposal, which extends numerous expiring provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and temporarily enhances popular provisions such as the child tax credit and the State and Local Income Tax (SALT) deduction.

For your convenience, we've summarized key provisions that are likely to pass the Senate and be signed into law by the President.

Proposed changes to existing Tax Cuts and Jobs Act provisions:

1. Child tax credit (CTC) 

Current law: $2,000 per child; expires after 2025

Proposed changes: Temporarily increase the credit to $2,500 per child for tax years 2025-2028, and revert to $2,000 thereafter; full SSN requirements added

2. Estate and gift tax exemption

Current law: increased $13,990,000 exemption (expiring after 2025)

Proposed changes: permanent increase of exemption to $15 million, indexed for inflation

3. §199A pass-through deduction 

Current law: 20% deduction based on qualified business income, wages and assets for pass-through entities and sole proprietors

Proposed changes: permanent deduction increased to 23% of the net amount of qualified items of income, gain, deduction and loss from a qualified trade or business

4. SALT deduction cap

Current law: capped at $10,000, expires after 2025

Proposed changes: permanent increase to $40,000 ($20,000 for MFS) subject to phaseout when a taxpayer’s MAGI exceeds $500,000 ($250,000 for MFS); additionally, both the $40,000 SALT cap and the $500,000 income phaseout would increase by 1% per year from 2026 through 2033

5. Bonus depreciation

Current law: phases out by Dec. 31, 2026

Proposed changes: extended and restored to 100% immediate deduction for qualified property placed in service after Jan. 19, 2025, and before Dec. 31, 2029; certain property extended through Dec. 31, 2030.

6. R&D expenditures

Current law: expenditures required to be amortized over a five-year period (domestic) for tax years after 2021

Proposed changes: immediate expensing restored for tax years after Dec. 31, 2024, with an election to amortize the expenses over five years; optional ten-year write-off under section §59(e)(2) preserved; effective for research or expenditures made after Dec. 31, 2024, and before Jan. 1, 2030.

New tax provisions included in the Bill

1. No tax on qualified tip income  

The proposed changes include a deduction for qualified tips earned in occupations that customarily receive cash tips. These tips must be reported on specific forms, such as Form W-2, Wage and Tax Statement, or Form 1099-NEC, Nonemployee Compensation.

To qualify, the business must not be classified as a specified trade or business under §199A for the purposes of the qualified business income deduction. Highly compensated individuals, as defined under §414(q)(1), are not eligible for this deduction. This provision is temporary and would apply for tax years 2025 through 2028.

2. No tax on qualified overtime compensation 

The proposed changes introduce a temporary, 3-year deduction for qualified overtime compensation, defined as overtime payments required under Section 7 of the Fair Labor Standards Act (FLSA), calculated as the excess over an employee’s regular rate of pay. This overtime compensation must be reported on Form W-2. The deduction is available as an above-the-line deduction for taxpayers who claim the standard deduction.

3. Bonus additional deduction for seniors

The proposed changes provide seniors with a temporary, additional standard deduction of $4,000 instead of exempting Social Security benefits from taxation. This additional deduction phases out for taxpayers with incomes above $75,000 for single filers and $150,000 for married couples filing jointly. The provision is temporary and applies for tax years 2025 through 2028.

4. Car loan interest exclusion 

The proposed changes introduce a temporary deduction for interest paid on personal vehicle loans where final assembly occurs in the U.S. This deduction is capped at $10,000 annually and phases out for high-income earners, beginning at $100,000 for single filers and $200,000 for married couples filing jointly. This provision applies temporarily for tax years 2025 through 2028.

Current tax law credits to be repealed under the proposed legislation:

1. Clean vehicle credit (§30D) for vehicles acquired after Dec. 31, 2026. Vehicles purchased in 2026 must meet the manufacturer limits (less than 200,000 vehicles sold).

2. Previously owned clean vehicle credit (§25E), applicable for vehicles acquired after Dec. 31, 2025.

3. Energy efficient home improvement credit (§25C), applicable for property placed in service after Dec. 31, 2025.

4. Residential clean energy credit (§25D), applicable for property placed in service after Dec. 31, 2025.