Reconciliation Bill Update: House Passes Tax Package
After months of negotiation, the House of Representatives has passed a reconciliation bill containing significant tax provisions. For high-net-worth individuals and business owners, the bill addresses several TCJA sunset provisions scheduled to expire December 31, 2025. Here is what passed the House and what to expect in Senate deliberations.
Estate Tax Exemption Extension
The House bill extends the elevated federal estate and gift tax exemption of $13.61 million per individual (adjusted for inflation; $27.22 million for married couples) through 2034. Without action, the exemption is scheduled to revert to approximately $7 million per individual (indexed for inflation) on January 1, 2026.1
This is a critical victory for estate planners. Families who anticipated a "use it or lose it" rush to implement gifting strategies and irrevocable trusts in late 2024 and early 2025 now have a longer planning window. However, uncertainty remains: the Senate may modify this provision, and Congress may revisit the sunset date in future sessions. For now, individuals with estates under $13.61 million have reduced urgency for immediate estate freeze transactions, though portability elections and planning to minimize state estate taxes remain advisable.
Section 199A (Qualified Business Income Deduction)
The House bill makes the 20% § 199A deduction permanent, rather than allowing it to expire December 31, 2025. This deduction permits owners of pass-through entities (partnerships, S Corporations, LLCs) to deduct up to 20% of qualified business income, subject to W-2 wage and unadjusted basis of qualified property (UBQP) limitations for high-income taxpayers.2
Making the deduction permanent eliminates tax planning complexity driven by the sunset: businesses will no longer need to scramble to restructure or time transactions to maximize QBI before the expiration. However, the Senate may narrow the deduction (for instance, by tightening SSTB definitions or lowering the income thresholds for the W-2 wage limitation) to offset revenue costs.
Capital Gains and Dividend Tax Rates
The House bill maintains the current capital gains and qualified dividend tax rates enacted in 2017 (0%, 15%, and 20% at the individual level, depending on income). These rates are also scheduled to expire December 31, 2025; absent action, rates would revert to the pre-TCJA structure (10%, 20%, and 25%). The House extension provides welcome certainty for investors and business owners planning exits or managing investment portfolios.
Corporate Tax Rate
The 21% corporate income tax rate (also enacted in 2017) remains in place under the House bill. The Senate has indicated interest in exploring alternative revenue sources (such as minimum corporate tax or international taxation changes) rather than raising the corporate rate, so this is likely to survive Senate negotiation.
Other Provisions: AMT, Deductions, and New Provisions
The House bill includes several other measures: the individual alternative minimum tax (AMT) exemption adjustment; the student loan interest deduction; and the child and dependent care credit all continue. The bill also explores new provisions targeting tax avoidance structures, including enhanced reporting requirements for certain transactions and potential limitations on deductions for certain insurance and straddle arrangements.
Senate Outlook
The Senate is expected to modify the House bill significantly. Key areas of contention include the breadth of the § 199A deduction (Senate Democrats may seek to narrow it to exclude high-income service businesses or to impose stricter wage limitations), the estate tax exemption (some Senate members advocate for a lower sunset threshold), and the overall revenue impact. A final bill is expected in the fall of 2025, before year-end.
Practical Takeaway
If you have been deferring tax planning decisions pending the reconciliation bill outcome, the House passage of estate tax exemption extension and § 199A permanence provides meaningful guidance. However, assume the Senate will negotiate: do not assume all provisions will survive. If your plan depends on a specific provision (such as a particular estate tax exemption level), have contingency plans. Consult with your tax and estate advisor to model scenarios and ensure your strategy remains sound regardless of final bill language.