The House early this morning narrowly passed a reconciliation budget package with several tax provisions supported by the American Bankers Association. The legislation next heads to the Senate, which is likely to make substantive changes.
The bill passed by a 215-214 vote, with one member voting present. The provisions backed by ABA would:
- Implement a modified version of the Access to Credit for our Rural Economy, or ACRE, Act. Banks would be permitted to exclude from gross income 25% of interest income derived from certain qualified real estate loans.
- Make permanent the Section 199A passthrough business deduction, with a permanent increase in the 20% deduction to 23%.
- Make permanent increased estate tax and gift tax exemption amounts, with an increase in unified estate and gift tax exemption to an inflation-adjusted $15 million effective for tax years beginning after Dec. 31, 2025.
- Strengthen the Low-Income Housing Tax Credit by increasing the state housing credit ceiling for calendar years 2026, 2027, 2028 and 2029; by modifying the tax-exempt bond financing requirement to allow additional buildings financed with tax-exempt bonds to qualify for housing credits without receiving a credit allocation from the state housing credit ceiling; and by providing a temporary increase in housing credit by expanding the definition of difficult development areas.
In addition, the bill would decrease the Section 250 deduction for foreign-derived intangible income (FDII) from the current rate of 37.5% to 36.5% and decrease the Section 250 deduction for global intangible low-taxed income (GILTI) from 50% to 49.2%. Barring congressional action, however, the Section 250 deduction for FDII would decrease from 37.5% to 21.875% and the deduction for GILTI would decrease from 50% to 37.5% for tax years beginning after Dec. 31, 2025.
The bill also would change the base erosion and anti-abuse tax (BEAT) rate to 10.1% beginning next year. Currently the rate is 10%, though it is scheduled to go to 12.5% for tax years beginning after Dec. 31, 2025.
One proposed change that ABA did not comment on was a new funding formula for the Consumer Financial Protection Bureau. The CFPB is unique among federal agencies in that its funding comes directly from the Federal Reserve based on a request from the bureau’s director. Currently, annual transfers to the CFPB may not exceed an amount equal to 12% of the Fed’s operating expenses. The budget bill would reduce that amount to 5%.
