The House Draft Bill is primarily focused on expanding and making permanent certain key provisions of the Tax Cuts and Jobs Act of 2017, Pub. L. 115-97 (TCJA), including the increased deduction for foreign derived intangible income (FDII) and global intangible low-taxed income (GILTI) under section 250 of the Code, the reduced rate of tax under the Base Erosion and Anti-Abuse Tax (BEAT) under section 59A of the Code, and the deduction for “qualified business income” under section 199A of the Code, which are currently set to expire on December 31, 2025.
However, notably absent from the House Draft Bill are provisions:
(i) Modifying the business interest expense limitation calculation under section 163(j) of the Code so such calculation is based on earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than EBIT.
(ii) Restoring 100% bonus depreciation under section 168(k) of the Code.
(iii) Reinstating immediate expensing for research and development costs under section 174 of the Code.
(iv) Extending or raising the cap on the deduction for state and local taxes paid by individuals under section 164(b)(6) of the Code (the cap is currently scheduled to expire for tax years beginning after December 31, 2025).
(v) Excluding tips, overtime, or social security benefits from a taxpayer’s gross income.
(vi) Taxing the receipt of carried interest as ordinary income.
(vii) Restoring the prohibition on downward attribution from non-U.S. persons under section 958(b)(4) of the Code.
(viii) Providing for an increased rate of U.S. tax on U.S.-source income received by non-U.S. entities or individuals that are tax residents of jurisdictions that have enacted extraterritorial or discriminatory taxes.
The House Ways and Means Committee is scheduled to mark up the House Draft Bill on May 13, 2025. If the House Draft Bill is approved by the House, the Senate would then consider the legislation, with the goal among Congressional Republicans to have a final version ready for President Trump’s signature prior to Congress leaving for the July 4 recess.
Below is a summary of the key individual and business tax provisions of the House Draft Bill.
Some of the key individual provisions
- Individual tax rates (Section 1(j) of the Code): The House Draft Bill makes permanent the reduced individual tax rates provided under the TCJA (reducing the top marginal individual tax rate from 39.6% to 37%), which are set to expire for tax years beginning after December 31, 2025.
- Standard deduction increase (Section 63 of the Code): The House Draft Bill (i) permanently extends the inflation-adjusted increased standard deduction, and (ii) temporarily increases certain standard deductions for tax years beginning before January 1, 2029.
- Estate and gift tax exemption (Section 2010 of the Code): The House Draft Bill provides for a permanent estate and gift tax exemption of USD15 million (inflation-adjusted) for tax years beginning after December 31, 2025. Such exemption is currently USD10m and is currently scheduled to be reduced to USD5m for estates of decedents dying or gifts made on or after January 1, 2026.
- Alternative minimum tax (AMT) (Section 55 of the Code): The House Draft Bill makes permanent the higher AMT exemption and phase-out thresholds for tax years beginning after December 31, 2025.
- Deduction for personal exemptions (Section 151 of the Code) and other deductions: The House Draft Bill permanently: (i) eliminates the deduction for personal exemptions and (ii) extends limitations on certain amounts, such as itemized deductions for mortgage interest, casualty losses, the overall limitation on itemized deductions, and miscellaneous itemized deductions for tax years beginning after December 31, 2025.
Business tax provisions
- Deduction for qualified business income (Section 199A of the Code): The House Draft Bill (i) makes permanent the deduction for qualified business income under section 199A of the Code, (ii) increases the deduction from 20% to 22% for tax years beginning after December 31, 2025, and (iii) treats as “qualified business income” 22% of any dividends received from an electing business development company provided that such dividends are attributable to net interest income of such business development company, which is properly allocable to a qualified trade or business of such business development company.
- Deduction for FDII and GILTI (Section 250 of the Code): The House Draft Bill permanently extends the current deduction for U.S. corporations (and, in respect of GILTI, individuals making the election under section 962 of the Code) of their FDII (37.5%) and GILTI (50%), including the corresponding gross-up amount under section 78 of the Code. The FDII and GILTI deductions are currently scheduled to be reduced to 21.875% (FDII) and 37.5% (GILTI) for tax years beginning after December 31, 2025.
- The extension of the current FDII and GILTI deductions ensure that foreign-source intangible income recognized by a U.S. corporation, either directly (in the case of FDII) or indirectly through a controlled foreign corporation (in the case of GILTI), continues to be taxed, in principle, at the same 13.125% effective rate of tax.
- The permanent reduction to the effective rate of tax on U.S. corporations’ foreign-derived intangible income would be expected to make the United States a far more attractive jurisdiction for holding companies, as the 13.125% rate is lower than the 15% rate imposed under the Income Inclusion Rule (IIR) of Pillar Two and may become even more advantageous if the Undertaxed Profits Rule (UTPR) is eliminated or modified. Furthermore, such a permanent reduction to the FDII rate may reduce the incentive for U.S. taxpayers to move IP offshore and perhaps even encourage taxpayers that have been waiting for clarity about the future of FDII to repatriate IP to the United States. However, even with these positive developments should the House Draft Bill, as drafted, become law, we acknowledge that there is still some risk that a future Congress could alter the baseline corporate tax rate or eliminate FDII entirely.
- In that regard, with the House Draft Bill’s permanent reduction to the GILTI rate, along with the possibility of Pillar Two changes to treat GILTI as a qualified IIR, U.S.-parented groups that keep their IP offshore may still expect a noteworthy effective tax rate benefit (if they fall outside of the U.S.’s own book minimum tax). Indeed, these companies could face a lower U.S. tax burden on foreign earnings without needing to repatriate IP and, if GILTI is recognized as a qualified IIR, may avoid additional foreign top-up taxes under Pillar Two. This would further enhance the United States’ appeal for multinationals, even if FDII is eventually repealed, and is worth considering in long-term tax planning.
BEAT (Section 59A of the Code): The House Draft Bill makes permanent the current BEAT rates of 10% (or 11% for certain banks and security dealers). These rates are currently scheduled to increase to 12.5% (or 13.5% for certain banks and security dealers) for tax years beginning after December 31, 2025. The House Draft Bill also repeals provisions that, in computing a taxpayer’s base erosion minimum tax amount, would reduce regular tax liability by the taxpayer’s income tax credits, thus causing a taxpayer’s regular tax liability to be higher for BEAT comparison purposes and, consequently, making it less likely that the taxpayer’s BEAT liability will exceed the regular tax liability.
