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Thoughts from our CSO: Tax Credit Updates from DC - March 2025

Here is what we know: The Tax Cuts and Jobs Act, which became the law on January 1, 2018, is set to expire on December 31, 2025. This means that many of its provisions, including the lowered corporate tax rates and certain individual tax cuts, will no longer apply unless Congress takes action. The Trump administration has made it a priority to extend these tax credits, and Congress is working through the process to make that happen.

One of the key processes that Congress is using to extend these credits is called "reconciliation." This is tied to the federal budget process, which allows certain types of legislation to pass with a simple majority in the Senate, bypassing the usual 60-vote threshold needed to overcome a filibuster. Reconciliation has become a popular method for passing major tax-related reforms because it speeds up the legislative process and allows for a simple majority vote.

The Senate is considering a two-bill strategy for extending the tax credits. The first bill would focus on border security and immigration reform, while the second bill would concentrate on extending the tax credits. There is also some chatter among certain lawmakers about making the 2017 tax cuts permanent. This would eliminate the need for future extensions and provide businesses and individuals with more long-term tax stability.

The House of Representatives has opted for a different approach: a one-bill solution. They’ve already passed their version of the budget, which encompasses all areas of concern, including border security, immigration, and the extension of tax credits.

At this point, the country is waiting for one of the bodies to pass the other bodies’ budget bill. There are some concerns in the Senate that the House may not be able to collect the necessary support, especially given the varied interests and priorities of different lawmakers. Until the House resolves its own internal vote issues, the Senate seems hesitant to vote on the House’s budget bill which would be used as the framework legislation to eventually pass the tax credit extension.

As discussions about the tax bill continue, there are a few key items being considered for inclusion:

  • Corporate Tax Rate: The current corporate tax rate stands at 21%. Some lawmakers are pushing for this rate to remain at 21%, while others suggest that it could be lowered further—potentially in the range of 11-15%. The Trump Administration believes that lowering the corporate tax rate would result in more companies being domiciled in the United States versus elsewhere in the world.
  • SALT Cap Increase: The current cap on the State and Local Tax (SALT) deduction is limited to $10,000. There is talk of raising this cap, although the increase amount varies widely. Raising the SALT deduction is being led by representatives from high-tax states like California, New York, and New Jersey, who live in states with high income tax rates.
  • Rural Historic Tax Credit Improvement Act: U.S. Senators Shelley Moore Capito (R-W.Va.) and Mark Warner (D-Va.) along with U.S. Rep Mike Carey (R-Ohio-15) have reintroduced this act to incentivize the revitalization of rural areas.
  • Makes historic tax credit projects in rural areas eligible for an increased credit from the current 20% to 30%.
  • Allows small rural projects to claim the credit in the first year of use.
  • Allows transferability of the credit to a third-party.
  • Eliminates basis adjustment to simplify credit transaction. 

 

Stay tuned for updates as Congress works through these important issues—one thing’s for sure: the outcome of these negotiations could have a lasting impact on your clients’, corporation’s, or personal financial planning.

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