After months of speculation, the U.S. House of Representatives has released a ‘proposed’ tax and spending package. The bill aims to extend and enhance a number of business-friendly tax credits. It also seeks to lock in favorable provisions from the 2017 Tax Cuts and Jobs Act.

Pinion tax advisors have analyzed the proposed legislation to uncover the provisions that could have the most impact on financial institutions. Below is a breakdown of key elements:

Key Takeaways for Financial Institutions

The proposed tax legislation in the House bill would allow qualified lenders to exclude from their taxable income 25% of their interest earned on qualified real estate loans made before January 1, 2029, that are secured by rural or agricultural property.

A qualified loan must be issued after the date the bill is signed into law and before January 1, 2029. The loan must be secured by rural or agricultural real estate or a leasehold mortgage on the property. Rural or agricultural real estate includes land used for farming, fishing, seafood processing, or aquaculture (within the U.S. or its territories).  As written, it would not include refinanced loans, residential mortgages and there is some language related to Section 265 and the disallowance of interest expense.

“This bill is a long time coming for community banks and is a step in the right direction,” said Sandy Sporleder, lead advisor for Financial Institutions at Pinion.

 “This would help level the playing field with non-tax paying financial institutions and give agriculture customers more options and more competitive interest rates.  I would encourage you to continue to talk to your senators about this provision.”

Other key items from the bill:

    • Making Permanent the Qualified Business Income Deduction: The proposal would permanently extend the deduction for qualified business income and increase the deduction from 20% to 23%.
    • Permanently Extending Higher Estate and Gift Exemptions: The proposal permanently increases the estate and gift tax exclusion amount to $15M per person, beginning in 2026.
    • 100% Bonus Depreciation Through 2029: The bill extends 100% bonus depreciation for property in service between January 20, 2025 and December 31, 2029. For property placed in service after 2029, the bonus depreciation percentage is zero.
    • Increased First-Year Expensing Limits: The bill would increase the Section 179 expensing limits, allowing a maximum deduction of $2.5M, with a phase-out limit of $4M.
    • Changes to the State and Local Tax (SALT) Deduction Cap: The proposed bill makes two big changes.
      • Increased Deduction Limit: The proposal increases the deduction limitation to $30,000 ($15,000 if MFS) for taxpayers with income below $400,000, with a phase-out down to the original $10,000 cap for high-income individuals.
      • Banning Deductibility of PTE Taxes: The proposal prevents the use of state elective pass-through entity taxes to deduct more than the new threshold by deducting those taxes at the entity level. Instead, those taxes must be passed out to owners and used in computing the owner’s personal deduction limitation.

Possible Credit Union Changes Ahead

While the House proposal does not include any changes to the tax-exempt status of credit unions, industry analysts have noted that the Senate may introduce such provisions. There is speculation that future versions of the legislation could consider taxing larger credit unions or limiting their current exemptions.

Pinion is actively monitoring these developments and will provide updates should this issue gain traction in the next phase of negotiations.

Next Steps

While the House’s tax bill lays groundwork for sweeping tax reform, there are significant hurdles to overcome before it moves to the Senate.

“The key word here is ‘proposed’,” notes Brian Kuehl, Pinion’s Director of Government and Public Affairs.

“There are contentious elements that will need to be negotiated before the package can move forward to the Senate. With a target of Memorial Day for House passage and a July 4 goal for Senate approval, expect further revisions.”

Republican leaders are aiming to bring the bill to the floor for a vote quickly. The House Budget Committee approved the bill, which will face review from the House Rules Committee.

Speaker Mike Johnson has pushed to pass tax legislation by Memorial Day and the White House has expressed a desire to see passage by July 4. House Ways and Means Chair Jason Smith (R-Mo.) is less bullish on a quick timeline, saying that he would like to pass a bipartisan tax package before the end of the year.

Pinion’s tax and government and public affairs team will continue to monitor the proposed tax bill and its impact on banking.

Impacts on Other Industries

Pinion’s tax advisors have also provided an overview of how the proposed tax provisions will impact businesses in agriculture, biofuels, manufacturing, and other industries:

Reach out to a Pinion advisor with questions or concerns around your financial institutions tax strategy.