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.
The Senate Finance Committee released reconciliation text on June 16. Please visit the Senate Finance Committee website to find the reconciliation bill text and overview. See the table below for ongoing updates and developments.
Impact | Ways and Means Text | House Action | Senate Finance Text | 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 | Sec. 70422: Permanent Enhancement of Low-Income Housing Tax Credit (p. 230) | Provides permanent expansion to housing credits and reduces the bond test threshold |
Changes to the SALT ceiling | Sec. 112018: Limitation on Individual Deductions for Certain State and Local Taxes, etc. (p. 255) | Raises the SALT cap from current level of $10,000 to $40,000 for joint filers House voted to pass a $40,000 SALT cap, up from $30,000 proposed in Ways and Means version | Sec. 70601: Limitation on Individual Deductions for Certain State and Local Taxes, etc. and Addressing SALT Workarounds (p. 349) | Maintain current SALT cap of $10,000 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 | Sec. 70512: Phase-Out and Restrictions on Clean Electricity Investment | Eliminates exceptions to domestic content requirements for elective pay |
Expanding the use of proceeds for Small Issuer Exclusion | Sec. 111002: Deduction of Domestic Research and Experimental Expenditures (p. 145) | Sec. 70302: Full Expensing of Domestic Research and Experimental Expenditures (p. 79) |
*See bullet points below for more information
House Proposal:
- Restores the 12.5% increase to the 9% House Credit, for years 2026-2029
- Lowers 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 American communities. Applies to buildings put in service between 2026 and 2029.
Senate Proposal:
- Restores the 12.5 percent increase to the House Credit permanently
- Lowers the bond financing threshold to 25% for 4 percent bond financed properties permanently and lowers the bond financing test to 25% on a temporary basis, applying to properties financed with bonds between December 31, 2025 and January 1, 2030.
- Removes House provisions for basis boost in rural areas and Native American communities.
House Proposal:
- 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
Senate Proposal:
- Eliminates exceptions to domestic content requirements for elective pay, making projects falling short of domestic content rules ineligible for elective pay tax credits