On May 22, 2025, the U.S. House of Representatives narrowly passed H.R. 1, the “One Big Beautiful Bill Act,” by a vote of 215–214–1. This comprehensive legislation encompasses significant tax reforms, adjustments to Medicaid, and modifications to clean energy incentives, among other provisions. Below is a detailed overview focusing on full expensing, Section 163(j), clean energy tax credits (particularly for electric vehicles), the state and local tax (SALT) deduction, and Medicaid funding.
Full Expensing and Section 163(j)
Full Expensing:
The bill reinstates 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, and before January 1, 2030. This provision allows businesses to immediately deduct the full cost of eligible investments, such as machinery and equipment, thereby encouraging capital expenditures and potentially stimulating economic growth.
Section 163(j) – Business Interest Deduction Limitation:
H.R. 1 modifies the limitation on the deductibility of business interest expense under Section 163(j). Specifically, it reinstates the addback for depreciation and amortization in the calculation of adjusted taxable income (ATI) for tax years beginning after December 31, 2024, and before January 1, 2030. This change effectively increases the amount of interest expense that businesses can deduct, particularly benefiting capital-intensive industries.
Clean Energy Tax Credits and Electric Vehicles (EVs)
The legislation significantly curtails clean energy tax incentives established under the Inflation Reduction Act (IRA), with notable impacts on electric vehicles:
Alternative Fuel Refueling Property Credit: The 30% credit for alternative fuel vehicle refueling property, including EV charging stations, will expire at the end of 2025.
New EV Tax Credit: The $7,500 credit for new clean vehicles is set to expire on December 31, 2025. However, manufacturers that have sold fewer than 200,000 qualifying vehicles by that date may continue to offer the credit for one additional year.
Used EV Tax Credit: The $4,000 credit for previously owned clean vehicles will also terminate at the end of 2025.
Commercial Clean Vehicle Credit: The credit for commercial clean vehicles is scheduled to end on December 31, 2025. However, vehicles acquired under a binding contract entered into before May 12, 2025, may still qualify.
These changes are expected to reduce incentives for EV adoption and could impact the growth trajectory of the clean energy sector.
State and Local Tax (SALT) Deduction
To address concerns from lawmakers in high-tax states, the bill raises the SALT deduction cap from $10,000 to $40,000 for individuals with incomes up to $500,000. This increased cap will phase down for higher-income taxpayers and is set to adjust upward by 1% annually over the next decade.
Medicaid Funding and Work Requirements
H.R. 1 introduces substantial changes to Medicaid, aiming to reduce federal expenditures by approximately $700 billion over ten years:
- Work Requirements: Starting December 31, 2026, able-bodied adults without dependents will be required to engage in at least 80 hours per month of work, education, or community service to maintain Medicaid eligibility.
- Eligibility Verification: Beneficiaries will need to verify their eligibility twice annually, up from the current annual requirement.
- State Cost-Sharing: States will assume 5% of Medicaid benefit costs beginning in fiscal year 2028, along with 75% of administrative costs, shifting a significant financial burden from the federal government to the states.
The “One Big Beautiful Bill Act” now advances to the Senate, where it is expected to undergo further scrutiny and potential modifications. Stakeholders across various sectors are closely monitoring the bill’s progress, given its far-reaching implications for taxation, healthcare, and energy policy.