Wealth Planning Commentary – May 12, 2025

Preliminary Insights into House Tax Bill

This weekend, the House of Representatives Ways and Means Committee released an initial draft of its proposed tax legislation. The primary focus of this draft is to address the provisions of the Tax Cuts and Jobs Act (TCJA) that expire at the end of this year. This proposal is a preliminary draft; the final legislation could change significantly.

The current draft proposes an extension of several current income tax provisions, including the standard deduction. The income tax brackets will remain the same. The draft sets the estate and gift tax exemption at $15 million for 2026, adjusts for inflation in the future, and does not expire. This development is noteworthy, as many anticipated a temporary extension of the larger exemption amount. While there is discussion about potentially repealing the estate tax altogether, its elimination remains uncertain. Even though a relatively small percentage of taxpayers are subject to the federal estate tax, it is projected to contribute approximately $37 billion in revenue this year.

Additionally, the favorable AMT rules are set to become permanent. This would continue to benefit many high-income individuals and families. For context, before the TCJA, roughly 5 million taxpayers were subject to the AMT, compared to approximately 250,000 afterwards. Finally, the draft includes a modest increase in the QBI deduction rate from 20% to 22%. While any increase is worth noting, this change is not expected to be a substantial shift for most taxpayers, as an extension of the existing deduction was widely anticipated.

Many of the legislative changes were expected, but their duration was not. Most thought the TCJA's significant provisions would extend. However, the current draft makes them permanent.

The current draft of the legislation does not address several important areas, including the State and Local Tax (SALT) deduction cap, the taxation of Social Security benefits, the potential for tax-free treatment of tips or overtime wages, or any new provisions regarding bonus depreciation.

President Trump recently suggested raising the top income tax rate from 37% back to the pre-TCJA level of 39.6% for those with an annual income of $2.5 million or more. According to the Tax Foundation, this change could generate approximately $59.3 billion in revenue over the next decade and affect 150,000 to 200,000 households. The likelihood of the President’s proposal gaining traction will depend significantly on political dynamics in Congress, and it is not included in the current House Ways and Means Committee draft.

We will closely monitor the progress of this tax legislation and keep you informed of any significant developments. Please contact your Wealth Manager with questions.