Federal Tax Reform 2025
GFOA is monitoring the impact of tax reform proposals on state and local governments
Federal tax reform is taking center stage as key provisions of the 2017 Tax Cuts and Jobs Act near expiration. Lawmakers are considering significant changes that could reshape individual, corporate, and municipal tax policy. GFOA continues to monitor these developments to assess potential impacts on local governments and the public finance community.
Please visit the Ways and Means website to find text of the reconciliation bill and to view a livestream of the full committee markup from May 13.
The House voted on May 22 to pass the FY26 Reconciliation Bill. The legislation is expected to see changes during Senate deliberation. Congress must pass the reconciliation package by July 4 to avoid a default. See the table below for ongoing updates and developments.
Impact | Ways and Means Text | House Action | What This Means | Senate Action |
|---|---|---|---|---|
Expanding the Low Income Housing Tax Credit and housing private activity bonds cap | Sec. 111109: Modifications to Low-Income Housing Credit (p. 197) | Expands tax-exempt bonds and boosts low-income housing tax credits Aims to facilitate the development and preservation of affordable housing by making it easier to use private activity bonds to finance these projects | ||
Expanding the use of proceeds for Small Issuer Exclusion | Sec. 111002: Deduction of Domestic Research and Experimental Expenditures (p. 145) | |||
Raising the SALT ceiling | Sec. 112018: Limitation on Individual Deductions for Certain State and Local Taxes, etc. (p. 255) | House voted to pass a $40,000 SALT cap, up from $30,000 proposed in Ways and Means version | Raises the SALT cap from current level of $10,000 to $40,000 for joint filers | |
Making various amendments to the Inflation Reduction Act | Subtitle C (p. 216) | Eliminates certain EV, charging, and clean energy, credits Phases out of certain credits under elective pay, which reduces its effectiveness |
- Restore the 12.5 percent increase to the 9 percent House Credit, for years 2026-2029
- Lower the 50% threshold test for 4 percent bond financed properties to 25%, as long as the bonds financing the project are issued before January 1, 2030.
- Creates a new 30% basis boost for properties in rural areas and another 30% basis boost for properties in Native communities. Applies to buildings put in service between 2026 and 2029.
- Eliminates EV & Charging Credits after 2025
- Repeals Residential Clean Energy & Efficiency Credits after 2025
- Accelerates Phase-Out of Tech-Neutral Credits (45Y/48E) beginning in 2029 with stricter "placed in service" rules
- Imposes Foreign Entity of Concern (FEOC) Restrictions
- Ends Transferability of Clean Energy Credits after 2027