With the holidays and end of 2025 rapidly approaching, our December issue takes stock of the past year in tax policy. We expected dramatics coming into the year, with the Tax Cuts and Jobs Act (TCJA) set to expire at the end of the year and a significant legislative process to be undertaken. But Congress was far from the only source of tax policy developments, as we saw the Trump administration and the courts continually engaged on tax matters throughout the year.
Read on for a round-up on some of the most significant recent tax policy developments.
- 2025: The tax year in review
- Whatever happened to the Corporate Transparency Act?
- OBBB review: Campaign promises vs. final legislation
2025: The tax year in review
Tax developments were driven by Congress, the White House, and the courts throughout 2025. Here’s a rundown of the biggest storylines.
The One, Big, Beautiful Bill: An ambitious timeline eliminates year-end challenges
The headline tax policy story of the year was always going to involve tax legislation. The primary driver was the fact that the bulk of the Tax Cuts and Jobs Act (TCJA), enacted during the first Trump administration, was set to expire at the end of 2025. In the absence of congressional action, that would’ve resulted in significant challenges with tax brackets resetting, favorable deductions expiring, and recently forgotten rules springing back into existence. Fortunately, the One, Big, Beautiful Bill (OBBB) was enacted in early July, providing clarity about federal income tax rules for at least the next several years.
The stage for what eventually became the OBBB was set in November 2024 as the election cycle was completed. In January, that meant President Trump moved back into the White House for his second discontinuous term, and Republican lawmakers began a new congressional session with majority control of both the House and the Senate. However, completing legislation under unified government is still a challenging endeavor, so many questions about such legislation persisted at the beginning of the year.
Republican leadership was substantially focused on a permanent extension of the TCJA as well as other tax changes that were proposed on the campaign trail, while other forms of legislation also garnered considerable attention. This led to an early divide within the Republican party. Those in the Senate favored multiple bills, which would allow for tax changes to be separated from other policy goals. However, Republicans in the House were more aligned with Trump’s favored single bill approach that would consolidate as many proposals as possible. As early days thawed into spring, it became clear that a one-bill approach would carry the day.
Republicans in Congress set an ambitious timeline for themselves: get tax legislation to the president’s desk for signature by July 4. Deliberations began behind the scenes in early 2025 and were marked by the introduction of many legislative proposals in Congress. However, the process began in earnest in May when the House advanced its version of what would become the OBBB. That step provided the first concrete insight into what tax policy items might actually be included in the final reconciliation package. A face-paced iterative process followed, culminating in an intense few days as the calendar changed from June to July. Following final passage, Trump signed the bill into law on July 4.
The OBBB doesn’t contain much that’s new conceptually, relative to the TCJA. But it does contain a lot. The tax portion of the legislation alone is hundreds of pages long, and that length is chock-full of nuance and spread across the Tax Code. Those rules are summarized below, including comparisons with their original campaign proposals.
A very different IRS?
The Trump administration worked to reshape the federal government and its workforce throughout 2025. That endeavor included a significant focus on the Internal Revenue Service (IRS) and an overall reduction in headcount. Many leadership changes were also pursued and went all the way to the top of the IRS, with multiple people holding the role of commissioner throughout the year. As 2025 comes to a close, the IRS is much different than it was before. Although operations continue, the full impact of recent changes continues to develop.
The IRS will face numerous challenges moving into 2026. Those begin with the implementation of the OBBB, which requires publication of considerable technical guidance. Administrative actions will also be required in order to accept tax returns in early 2026 that include items modified by the legislation.
Tariffs continue to evolve
Another signature policy effort of the Trump administration was the imposition of new and enhanced tariffs. These were announced early in the year but continued to evolve weekly due to pauses, new announcements (both increasing and decreasing tariffs), and the continuation of global trade negotiations. This dynamic added considerable challenges for businesses seeking to mitigate the impact of current tariffs while rethinking their supply chains.
What does it all mean? This is still very much a work in progress as some tariffs await constitutional review in the Supreme Court and global trade negotiations lead to shifting rules. As such, businesses are still coming to terms with the tariffs and await confirmation of their future.
Whatever happened to the Corporate Transparency Act?
The Corporate Transparency Act (CTA) made plenty of headlines in early 2025, though it was enacted back in 2021. The CTA requires certain entities to report beneficial ownership information with FinCEN, which is part of Treasury, without an exemption. There were three sets of staggered reporting due dates, but in general, reporting for some entities began last year, and for many, reporting was to start at the beginning of this year.
The CTA was subject to any number of challenges, and for a long time, these challenges largely fell flat. There was one challenge that was successful, but it stood on its own for most of 2024. Then at roughly this time last year, another challenge broke through and resulted in a preliminary nationwide injunction. That injunction, in hindsight, was the beginning of the de facto end of the CTA. The injunction was lifted on appeal and then reinstated before being stayed by the U.S. Supreme Court. But by then, there was another challenge that resulted in a nationwide stay of the reporting rule.
In the immediate wake of this litigation, FinCEN announced it would stop enforcement of the CTA. But after the second case’s pause was lifted, FinCEN restored the filing obligation effective March 21, 2025. The on-again, off-again story left many uncertain about what to do until FinCEN announced it wouldn’t be enforcing the CTA until it issued interim final rules. Those interim rules removed all beneficial ownership reporting obligations under the CTA for U.S. companies and individuals.
That remains the state of play. There have been no final rules, so the interim rules remain in effect. Given the roller coaster ride of events related to the CTA, and given the law is still on the books, it’s too early to say we have seen the definitive end of the CTA. The policy removing requirements for U.S. companies and individuals seems aligned with the current administration’s priorities, and it’s likely that any meaningful resurfacing of the CTA may be a relatively long time coming.
OBBB review: Campaign promises vs. final legislation
Given the looming expiration of the TCJA, tax policy was present throughout the 2024 campaign season. While much of the early discussion was on the extension of the TCJA in order to prevent sizable tax increases that would’ve occurred beginning in 2026, the candidates went further by proposing a variety of new changes. Trump was a primary source for many of these proposals, especially those involving income exclusions for various types of income. So how does the OBBB stack up against campaign proposals? Please see below for a summary of several key items.
The corporate tax rate
A significant tax change included in the TCJA was the dramatic reduction of the corporate tax rate from 35% down to 21%. Before taking office again, Trump campaigned on lowering the corporate rate even further to 15%, at least for companies that do their manufacturing domestically.
The OBBB didn’t directly change the corporate tax rate, but a new deduction for certain manufacturing facilities (so-called qualified production property (QPP)) has the effect of lowering corporate taxes. This new deduction, in the form of accelerated depreciation, is also available to pass-through businesses. So, the OBBB carried out the campaign proposal to provide an incentive for domestic manufacturing but did so through a depreciation deduction rather than a tax rate change.
The end of carried interest?
At various points, Trump has stated his support for changes to the tax treatment of carried interest. Such support was translated into the Tax Code in 2017 when a new three-year holding period was imposed by the TCJA under Section 1061. In the intervening years, the carried interest rules have been the subject of periodic proposals by Democratic lawmakers. However, those never materially advanced in Congress. Heading into the OBBB legislative process, a key question was whether Congressional Republicans would undertake any further changes. In the end, no changes were made to the existing Section 1061 rules, so the status quo was maintained.
Income exclusions for many
The Tax Code is littered with examples of income and gains being subject to preferential rules — either through favorable rates, deferral, or even outright exclusion from tax. The standard deduction and graduated tax rates also serve to exclude or reduce the tax burden on the initial dollars of taxable income received by individuals. This concept was refreshed during the 2024 campaign season as competing proposals were promoted to exclude many types of income from taxation. Trump was at the center of this initiative, but many other candidates joined the chorus. By election day, income exclusion proposals included tips, overtime pay, police and firefighter income, active duty military and veteran income, Social Security benefits, and interest on auto loans.
The OBBB addressed some of the income exclusions while omitting others. These exclusions also took the form of deductions, not direct exclusions, and were subjected to income-based phaseouts. In the end, at least some version of campaign promises related to tips, overtime pay, income of seniors, and interest on auto loans were enacted.
Restoration of the business tax deduction trifecta
The TCJA included deferred implementation of three changes to business tax deductions. The first, required capitalization and amortization of research and experimentation (R&E) expenses under Section 174, took effect in 2022. The second, tightening of the business interest expense limitation under Section 163(j), also took effect in 2022 by eliminating the addback for depreciation, amortization, and depletion. The third, elimination of 100% bonus depreciation, began in 2023 and reduced the deduction percentage by 20% annually. Taken together, such automatic changes reduced business tax deductions considerably beginning in 2022. Numerous bipartisan legislative attempts were also undertaken in recent years, but never fully advanced.
These three key business deductions were consistently highlighted during the 2024 election cycle. Thus, it wasn’t surprising when the OBBB included key modifications to all of them. The simplest changes related to depreciation, with 100% bonus being restored, Section 179 expensing being increased, and the new 100% QPP deduction being created. The Section 163(j) calculation was restored to its original form with respect to depreciation, amortization, and depletion, although technical adjustments for international tax items and capitalized interest complicated matters. Finally, domestic R&E expense deductions were restored, but foreign expenses continue to be subject to 15-year amortization.
Elimination of the SALT cap
The TCJA first imposed the $10,000 annual limitation on state and local tax deductions (the SALT cap) beginning in 2018. Such limitation reduced the overall tax cost to the government of that legislation but was immediately the subject of outcry in higher taxed states. The impact of the SALT cap was moderated in recent years following the publication of Notice 2020-75. That guidance established the parameters under which taxes imposed on pass-through entities by states would generate federal income tax deductions at the entity level. The majority of states subsequently adopted such pass-through entity tax (PTET) regimes. Individuals who didn’t own pass-through entities remained fully subject to the SALT cap and continued to lobby for changes. Notably, the SALT cap was a persistent topic for candidates running for Congress from higher taxed states.
The OBBB could have addressed the SALT cap in several different ways, and prior versions in Congress did take alternative views. In the end, the OBBB increased the SALT cap on a temporary basis through 2029 ($40,000 in 2025; $40,400 in 2026; and increasing 1% through 2029). An income-based phaseout was also instituted, which reduces the increased deduction, but not below $10,000, as income increases. The legislation didn’t impose any further modifications on state PTET deductions despite various proposals. Thus, the SALT cap situation is largely the same as it was before the OBBB albeit with an increased deduction available for five years.
Elimination of green energy credits
The Inflation Reduction Act (IRA) significantly modified and expanded tax credits related to electric vehicles, renewable energy, and the production of corresponding equipment. Some aspects of that legislation were new, but many expanded tax credits that had existed for years. However, as a signature tax bill of the Biden administration, the IRA was the subject of considerable attention on the campaign trail. Much of the focus was on electric vehicles but wholesale elimination of the IRA was also proposed.
The OBBB generally accelerated the expiration of IRA-based tax credits while imposing some new requirements. The most immediate expiration dates related to electric vehicles and charging equipment, with Sept. 30, 2025 being the first critical date. More complexity is found in the case of investment tax credits and production tax credits for renewable energy projects. The OBBB ultimately imposed changes to be effective over a series of dates. Taxpayers meeting the respective beginning of construction requirements will have several years to complete installation before claiming their available tax credits.
