The “Big, Beautiful Bill” Starts to Come into Focus: U.S. Ways & Means Committee Releases Proposed 2025 Federal Income Tax Legislation

The peek into what is to come provided by the Ways & Means bill shows only modest changes to the U.S. Tax Code. We expect more changes and detail shortly. The provisions that are included are expected to cost $4.9 trillion, and cost offsets are still not final. No changes to the $10,000 cap on state and local tax (SALT) were included in the initial draft, but late-breaking news indicates that House Republican leadership has proposed raising the cap to $30,000 for families with income of $400,000 or less, which “SALT state” Republicans may not be willing to accept. Statements from House of Representative Republicans suggest that substantial scale-backs to energy tax credits enacted during President Biden’s administration are under consideration, but as of this time, no legislative language is publicly available. Additionally, at this time, the investment management community can breathe easy—no changes have been proposed to the carried interest rules.

Unless otherwise specified, all changes discussed below would apply beginning in 2026.

1. Make American Workers and Families Thrive Again (Provisions Affecting Individuals)

   This title includes the provisions of the bill that would directly affect individuals. Here is a look at some of the provisions we expect to be of the most interest.

   Individual Tax Rates. The bill would make permanent the rate structure adopted by the TCJA, thus keeping the top marginal rate at 37%. The bill would also tweak the threshold at which the 37% rate become applicable, setting the threshold at $767,150 for married individuals filing joint returns for 2026. President Trump’s musings on setting the rate at 39.6% for households with incomes over $2.5 million is not included in the Ways & Means version of the bill. The bill would also make permanent the elimination of the personal exemption and the increased thresholds for the alternative minimum tax (AMT).

   Qualified Business Income and REIT Dividends. The TCJA included a 20% deduction for qualified business income, REIT dividends and income from qualified publicly traded partnership (PTPs), which was set to expire at the end of 2025. The bill would make this deduction permanent and increase the deduction to 22%. The bill would change the limitation on the deduction with a two-step calculation that ultimately will limit the deduction to 75% of taxable income over a threshold amount. The deduction would be expanded to include interest dividends paid by business development corporations (BDCs).

   Estate and Gift Tax Exemptions. The $15 million estate and gift tax exclusion would be extended to apply to taxable years beginning after 2025 and would be indexed for inflation beginning in 2027.

   Mortgage Interest. The Ways & Means proposal would make permanent the cap of indebtedness that can generate interest expense that can qualify for the home mortgage deduction to $750,000.

   Casualty Losses. The bill would make permanent the limitation on casualty loss deductions to the extent of casualty gains.

   Expenses Incurred in For-Profit Activities/Miscellaneous Itemized Deductions. The TCJA made expenses incurred in for-profit activities that do not rise to the level of a trade or business non-deductible through 2025. This rule prevents investors in many private funds from deducting the management fees charged to such funds. The Ways & Means bill would make this limitation permanent. The permanent limitation would also apply to other miscellaneous itemized deductions. The bill would also make permanent the repeal of the limitations of itemized deductions not treated as miscellaneous itemized deductions.

2. Make Rural America and Main Street Grow Again (Business Provisions)

   Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII). GILTI is a complex tax scheme that subjects 10% (and greater) shareholders of controlled foreign corporations (CFCs) to current tax on CFC earnings that are not otherwise taxed to such shareholders under the subpart F rules. FDII is a likewise complex tax scheme that provides a deduction for U.S. corporations that use (or are deemed to use) intangibles in the conduct of a trade or business outside of the United States. Without any action, beginning in 2026, U.S. corporations that derive GILTI through non-U.S. corporations would be entitled to deduct 37.5% of such income and U.S. corporations would be entitled to claim a deduction for 21.875% of their FDII. The Ways & Means bill would make permanent current the deductions for GILTI and FDII at their current levels of 50% and 37.5%, respectively.

   Base Erosion Anti-Abuse Tax (BEAT). The BEAT is a complex minimum tax that applies to corporations with average gross receipts of at least $500 million and make payments to foreign-related parties that exceed 3% of their total deductions. The BEAT tax rate is 10% but was scheduled to increase to 12.5% beginning in 2026. In addition, beginning in 2026, corporations, in determining if their BEAT liability exceeded their regular tax liability, would have been required to reduce their regular tax liability by all tax credits instead of only selected credits. Both of these proposed modifications are repealed, thus leaving the BEAT rate at 10% and not requiring affected taxpayers to reduce their regular tax liability by all tax credits.

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The tax team at Pillsbury is closely following these proposals. Please do not hesitate to contact any member of our team to discuss any of these proposals in more detail.

^{[1] The Ways & Means version of the bill was accompanied by a Joint Committee of Taxation Report, JCX-18-25 (May 9, 2025).}