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.

On July 1, the Senate passed the reconciliation bill 51-50, breaking the record for the biggest vote-a-rama in Senate history. On July 4, the "One Big Beautiful Bill Act" was signed into law.

Impact	Ways and Means Text	House Action	Senate Finance Text	Senate Action	Enacted
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	Permanently increases state allocation to 12% and lowers bond test threshold to 25% starting in 2026
Raising 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)	Increases SALT cap to $40,000 from 2025 to 2030, reverting back to $10,000 in 2030
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 Child Tax Credit (CTC)	Sec. 110004: Extension of Increased Child Tax Credit and Temporary Enhancement	Increases CTC to $2,500 from 2025 to 2028, reverting back to $2,000 in 2028	Sec. 70104: Extension and Enhancement of Increased Child Tax Credit	Raises CTC to $2,200 permanently starting in 2025
Preserving federal income tax exemption on municipal bonds			Sec. 70309: Spaceports are Treated Like Airports Under Exempt Facility Bond Rules.	Expands tax exempt financing to spaceports (launch and landing infrastructure, spaceport manufacturing facilities)
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)

Impact on Low-Income Housing

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% 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.

Impact on Clean Energy

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

Share now!