Senate tax measure contains provisions on ACRE, pass-through business deduction

The Senate Finance Committee this week released its reconciliation tax text that contains several differences from the version passed by the House, including changes to provisions related to the Access to Credit for our Rural Economy, or ACRE, Act and the Section 199A pass-through business deduction.

The House last month passed a budget package that contained significant changes in tax policy sought by the Republican majority. The Senate Finance Committee text retains many of those provisions but with substantial tweaks in several cases. If the committee text clears the Senate, the two chambers must agree on a compromise budget package before it can be signed into law.

Among the provisions:

• The Senate version incorporates language from the ACRE Act to permit banks to exclude from gross income 25% of interest income derived from certain qualified real estate loans without a sunset date. The House version includes a sunset date of 2028.
• The Senate version would maintain the current Section 199A deduction rate of 20%. It also would expand the deduction limit phase-in range by increasing the $50,000 (non-joint returns) and $100,000 (joint returns) amounts to $75,000 and $150,000, respectively. The House version would increase the deduction to 23%. Both the Senate and House versions make the deduction permanent.
• The Senate version would impose a 3.5% excise tax on certain remittance transfers. However, remittances sent from accounts held by most banks would generally be exempt from the remittance tax.
• The Senate version would permanently increase the state housing credit ceiling and lower the bond-financing threshold to 25% for projects financed by bonds starting in 2026. The House legislation would increase the state housing credit ceiling every year for three years starting in 2026.
• The Senate version would permanently extend the New Markets Tax Credit program while the House legislation would not extend the program.
• The Senate version includes a permanent extension of 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.
• The Senate version would generally implement effective tax rates of 14% for both foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI). The FDII that a domestic corporation can deduct under Section 250(a) would decrease from 37.5% to 33.34%. The GILTI deduction would decrease from 50% to 40%.
• The base erosion and anti-abuse tax (BEAT) rate would change to 14% beginning next year.