Breaking Update: The 2025 Tax Act is Passed!

We bring you our “top ten” provisions that may impact you most.

Episode Transcript

(00:16):
Welcome, everyone, to a very special edition
of Tackling Tax.
The 2025 tax bill is now law and there is a lot to unpack.
Forvis Mazars will be going through this bill
and its implications in the weeks and months to come,
but for right now, we wanted to give you a quick overview of
what made it into the final version of the Act.

(00:37):
Yep. So we are gonna go through
what we're calling our Top 10 Topics
that may have the most impact to you and your business.
So, without further ado, let's get started.
First, let's talk about section 174.
So, in a move aimed at stimulating domestic investment,

(00:57):
the act permanently reinstates the deduction
of domestic research and experimental expenditures,
or R&E, in the year incurred while still capitalizing
and amortizing foreign sourced R&E. To ease the transition.
For companies that have been amortizing these expenses since
the TCJA changes, the Act allows them
to accelerate remaining deductions over one or two years.

(01:20):
There will also be some changes for small business taxpayers
with average annual gross receipts of 31 million or less,
who can retroactively apply this immediate deduction
to expenses from tax years beginning
after December 31st, 2021.
Next, we have a hundred percent bonus depreciation
for property acquired
after January 19th, 2025,

(01:42):
which is President Trump's inauguration day.
Also in the bill there is a hundred percent bonus
depreciation available for manufacturing companies
who have non-residential real property.
So there are some requirements there to what property can be
eligible for that a hundred percent bonus. It has
to be an integral part of your manufacturing business

(02:05):
and it you have to use it,
it has to be original use to you, the taxpayer,
unless that property was not previously used
for a manufacturing purpose.
Rounding out what we're calling the big three,
the Act reinstates the EBITDA-based limitation
for business interest deductions under Section 163J
starting in 2025.

(02:25):
So this change will allow businesses
to calculate their interest deduction cap without factoring
in depreciation, amorization,
or depletion, potentially increasing the deductible amount.
Additionally, the bill broadens the
definition of motor vehicles.
It'll include certain trailers and campers
and making interest on floor plan
financing fully deductible.
So it's got some changes there as well.

(02:45):
Thinking through the Tax Cuts
and Jobs Act, Section 199A,
which is the Qualified Business Interest deduction,
is made permanent at the same rate of 20%.
This therefore maintains the attractiveness
to flow-through entities.
And then there were also some changes to phase
and amounts with this legislation.

(03:07):
The act made a number of changes
to international tax provisions.
So starting with BEAT, the Act increases the current BEAT
rate from 10 to 10.5% effective for tax years beginning
after 12/31 of 2025.
And the Act also maintains its current methods
for utilizing credits
in the calculation. As for GILTI,
there were a slew of changes.

(03:27):
The act increases the current GILTI rate of 10.5% to 14%
and it also increases the current FDII rate
of 13.125% to 14%.
Further, it requires any U.S. shareholder on any day
during the controlled foreign corp's year
to include an income, their pro rata share of Subpart F

(03:47):
or GILTI income for such year.
It also eliminates the tangible income return of 10%
that is required in the FDII and GILTI calculations
Also in TCJA were a slew of individual, related topics
and those have largely been made permanent by the Act.
So we're used to those rules as they currently are

(04:09):
and they will continue forward.
Some examples there,
I think one of the most notable is the estate
and gift tax exclusion that's been raised to 15 million,
and then there's also things like the increased standard
deduction, but also excluding miscellaneous
itemized deductions
moving forward. One

(04:31):
of the most debated provisions in the Act is
around the SALT cap.
So where we ended up there is
that the SALT cap was at a $40,000 amount
and then this is implemented for 2025.
Then moving forward, it's a 1% increase through 2029,
at which point in 2030 the SALT cap reverts permanently

(04:53):
to a $10,000 amount.
There is a phase-out provision for modified AGI
starting in 2025 of $500,000.
This also increase increases 1% through 2029,
and then again that's $10,000 amount,
2030 onwards.

(05:15):
The Act also incorporates a couple
of Trump's campaign promises on no tax on tips and overtime.
So these are both above-the-line
deductions for individuals on their forms
1040. The maximum deduction for tips is $25,000,
and the maximum deduction for overtime would be $12,500.
Do note that both of these are subject to phase outs.

(05:37):
Next, we have clean energy credits.
Most of the electric vehicle
and residential clean energy credits are now repealed.
Those EV credits generally terminate around
that September 30th, 2025 date, so
that's pretty soon upcoming.
The next big impactful change for clean energy is
around solar and wind.
The investment and the production tax credit for solar

(05:59):
and wind will be terminated by 12/31/27.
Also included in clean energy changes are foreign
entity of concern.
So if you are claiming a clean energy credit,
be sure you are considering those new rules.
And last but not least is what we're calling our potpourri of changes.

(06:20):
So, these sort of don't fall in a big category,
but are worth mentioning that they made it into the bill.
First we have section 179.
That max amount was increased as is the phaseout.
The New Markets Tax Credit was made permanent.
The low-income housing tax credit was adjusted.
Adjustments were also made to section 1202 stock

(06:41):
for asset threshold and changes to exclusion amounts.
Nonprofit changes including excise tax on certain colleges
and universities were included as part of the pay fors
for the Act. A 1% floor on corporate charitable
deductions was also included.
Opportunity zones were made permanent.
The Act defines an ERTC promoter

(07:04):
and penalties for those looking at
the employee retention credit.
And also there's a provision related to REITs
where it addressed the subsidiary asset test
that was raised 25%.
And thank you for tuning into the special
edition of Tackling Tax.
Please keep an eye out for our next edition of the show.
Normally these come out on Tuesdays,

(07:24):
but this next one will be on Wednesday, July 9th.
We will welcome George Lagarias, Chief Economist
of Forvis Mazars
to take a broader look at the economic impact of the bill
and all the goings on in D.C.