Senate Details Tax Provisions in Its Version of The One Big Beautiful Bill

The One, Big, Beautiful Bill (TOBBB) made more progress this past week as the Senate Finance Committee released its draft tax provisions to be included in the bill. While the Senate’s version is similar to the House version passed in May, key distinctions and certain provisions are still being negotiated to ensure enough support for the bill in both chambers of Congress. As a result, changes to various provisions are still likely.

However, while we continue to monitor progress and speak with clients about these changes and their potential impact, below is a high-level look at where many of the key tax provisions stand today.

What Tax Provisions are Included in the Senate’s Version of The One Big Beautiful Bill (TOBBB)?

1. Individual Tax Extenders & Tip/Overtime Income
   • Permanent extension of many of the individual income tax provisions from the Tax Cuts and Jobs Act (TCJA) set to expire after 2025. Some of the modifications included in the Senate version would include:
     • Treating certain mortgage insurance premiums as qualified residence interest.
     • Itemizing deductions for unreimbursed educator expenses.
     • Providing a $6,000 deduction, subject to phase out, for seniors age 65 and older for tax years beginning after 2024 and before 2029.
   • Above-the-line deduction for certain tips (capped at $25,000) and overtime (capped at $12,500) income. Both are subject to phase out once modified adjusted gross income exceeds threshold amounts.
2. Estate Tax
   • Increased estate tax exclusion amount: $15 million for decedents passing away in 2026.
   • Exclusion amount adjusted for inflation starting in 2027.
3. State and Local Tax Cap
   • General state and local tax deduction for individuals would remain at $10,000; however, this provision is still part of ongoing negotiations.
     • Given the slim majority in the House and a contingent of House Republicans who want an increase in the current $10,000, it is likely this amount will increase.
     • The House version includes a phase out of the increase general deduction limit once modified adjusted gross income exceeded certain thresholds. A similar provision could be incorporated in the Senate version if the limitation is increased above $10,000.
   • Limits the benefit of pass-through entity tax to any unused portion of the general $10,000, plus the greater of $40,000 or 50% of the pass-through entity taxes of the taxpayer.
4. Depreciation and Expensing
   • 100% bonus depreciation made permanent for qualified property acquired on or after January 19, 2025.
   • Enhancements to Section 179 deduction limitations for property placed in service in taxable years beginning after December 31, 2024.
   • Deduction for 100% of the cost of qualified production property for property placed in service after enactment. Rules for qualified production property are very nuanced, so taxpayers must exercise due diligence to confirm they are eligible.
5. Business Interest Expense Limitation Change to Adjusted Taxable Income Calculation
   • Adjusted taxable income (ATI) would revert to being computed without taking into account depreciation, amortization and depletion deductions for taxable years beginning after December 31, 2024 — thus potentially increasing a taxpayer's allowable interest expense deduction.
   • Foreign income inclusions would be excluded from the definition of adjusted taxable income.
   • The business interest expense limitation would be calculated prior to the application of interest expense capitalization provisions, with limited exceptions for interest required to be capitalized under Sections 263(g) and 263A(f).
6. Domestic R&D Expenses
   • Would make permanent the allowance for immediate expensing of domestic research and development (R&D) expenses for taxable years beginning after December 31, 2024.
   • Would give small taxpayers an option to make the expensing election retroactive to 2022.
7. Section 199A Qualified Business Income Deduction
   • Qualified business income deduction would become permanent.
   • Deduction percentage would remain at 20% — unlike the House version, which would increase the percentage to 23% and includes changes to the phase out calculation and wage and investment limitations.
8. Excess Business Loss Limitation
   • Business loss limitation would become permanent.
   • Would change carryforward treatment of any losses that were disallowed in taxable years beginning after December 31, 2024.
9. Clean Energy Tax Credits
   • Would eliminate and/or accelerate phase out of numerous tax credits for green energy and clean energy production.
   • The timeline for termination of these credits varies from the House version, with some occurring sooner and others delayed further into the future.
10. Qualified Opportunity Zone Investment
    • Would initiate a second round of Qualified Opportunity Zone (QOZ) investments, beginning in 2027.
    • Changes would likely expand availability of the program to rural areas.
    • Would significantly change the existing Opportunity Zone program.
    • Rolling 10-year OZ designations would begin January 1, 2027.
    • Would remove opportunity for census tracts to be included in program based solely on fact that they are adjacent to a qualifying census tract. This means fewer non-rural census tracts would be eligible.
    • Would allow for an additional step-up in basis that phases in over a seven-year period (totaling 10%), with income required to be recognized in the seventh year of the investment, reduced by such basis increases.
    • For qualified rural opportunity funds, basis step-up would be tripled and substantial improvement threshold would be reduced from 100% to 50%.
11. International Provisions
    • Would change computations related to global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) by modifying the Section 250 deduction to 40% for GILTI and 33.334% for FDII, and eliminating deemed tangible income return (DTIR) in computing both GILTI and FDII.
    • The pro-rata share rule for purposes of GILTI and Subpart F inclusions would be updated to eliminate the requirement that U.S. shareholders must hold the CFC stock on the last day of the year.
    • Would introduce Section 899, similar to the House bill, which subjects certain applicable persons resident in foreign countries with “unfair foreign taxes” to additional U.S. withholding or income tax. Notable modifications from the House version include:
      • Limiting the increase in tax to 15% over the statutory rate (instead of 20% in the House bill), and
      • Providing exclusions for original issue discount, portfolio interest and certain interest-related dividends.
    • Would modify the base erosion anti-abuse tax by increasing the base erosion minimum tax amount (BEMTA) rate to 14%.
12. Other Differences Included in the Senate Version of TOBBB
    • Low-income housing and new market tax credits would be made permanent.
    • Would expand the gain exclusion for qualified small business stock (Sec. 1202) by increasing the $10 million per-issuer cap to $15 million and providing for a phase in of the gain exclusion percentage starting after three years. The provision would be effective for stock issued or acquired on or after the date of enactment.

As mentioned, these changes to tax provisions in the TOBBB likely won’t be the last before the bill becomes final. Issues such as the cap on state and local tax deductions and other non-tax related items will remain high areas of contention up until finalization. As the reconciliation process between the House and Senate version takes place, continue talking with your tax advisers to begin anticipating impact to you and your business.

Contact Robert Venables, James Kaptur or a member of your service team to discuss this topic further.

In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.