Breaking Down the April Budget Resolution and the House-Passed Reconciliation

02 Jun 2025 Breaking Down the April Budget Resolution and the House-Passed Reconciliation

On May 22, 2025, the U.S. House of Representatives narrowly passed a comprehensive budget reconciliation package that now moves to the Senate. This legislation builds upon the fiscal framework established by the April 2025 budget resolution, which enables the Senate to advance the bill with a simple majority vote under reconciliation rules. That makes it possible for major tax changes to move forward with limited bipartisan support.

While nothing is set in stone yet, we now have clues about which tax provisions lawmakers are likely to extend, revise, or phase out – changes that could affect your tax planning.

Key provisions in the House-passed bill

An extensive overview of every tax provision is premature, given the likelihood of debate and challenges in the Senate. However, these provisions seem like some of the main ones to keep an eye on, given their current momentum:

TCJA and QBI

The bill seeks to make permanent several provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that are set to expire at the end of 2025. Notably, it proposes to extend the lower individual tax brackets and enhance the Qualified Business Income (QBI) deduction under Section 199A. The QBI deduction rate would increase from 20% to 23% starting in tax year 2026, with modifications to income thresholds and business type limitations.

Bonus depreciation

The House-passed bill aims to restore 100% bonus depreciation for qualified property, retroactive to January 1, 2025, and extend it through 2029 or 2030.

Right now, it’s in a scheduled phase-down, currently at 40% for 2025, and will disappear entirely by 2027. Restoring 100% bonus depreciation could provide a meaningful boost for capital-intensive businesses, especially those planning major equipment purchases or expansions.

Section 174: R&D expensing

Since 2022, businesses have had to amortize R&D expenses instead of deducting them immediately. There’s now bipartisan momentum to bring back full, immediate expensing under Section 174. The House bill proposes to reinstate immediate expensing retroactive to the beginning of 2025 and extend it through 2029 or 2030.

Section 179

Section 179 expensing – used for things like equipment, machinery, software, and certain building improvements – was made permanent under prior legislation. Now, there’s talk of raising the annual deduction limits. For small and mid-sized businesses, this could mean more flexibility to write off capital purchases up front instead of depreciating them over time.

While it’s not as broad as bonus depreciation, Section 179 may be more appealing to smaller entities, especially those structured as pass-throughs.

State and local tax (SALT) deduction cap

The SALT deduction cap would increase from $10,000 to $40,000 per household ($20,000 for married taxpayers filing separately) starting in 2025. The deduction would phase out for taxpayers with modified adjusted gross income over $500,000 ($250,000 for married taxpayers filing separately).

Child tax credit enhancement

The bill includes a provision to temporarily increase the child tax credit from $2,000 to $2,500 per child for tax years 2025 through 2028. After 2028, the credit reverts to $2,000, with adjustments for inflation using 2024 as the base year.

Interest deductibility

Under current rules, interest is limited based on a business’s adjusted taxable income (ATI). The legislation proposes reverting to the more generous EBITDA standard for calculating the limit on business interest deductions, providing additional flexibility for leveraged businesses.

Estate tax exemption

The estate tax exemption would increase to $15 million (up from $10 million in 2017 dollars) beginning in tax year 2026, with indexing for inflation thereafter.

Budget scoring & the path ahead

One of the more technical, but critically important, elements in the budget process is how the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) calculate the cost of tax changes. This process, known as “budget scoring,” helps determine whether new tax cuts or spending provisions comply with the broader budget framework.

As part of that framework, Congress sets two key targets: first, it establishes the expected baseline deficits over the next decade, based on current policies and projections. Second, it authorizes how much additional deficit lawmakers can create through new legislation passed under reconciliation. The second figure, the additional deficit allowance, isn’t the total deficit – it’s the extra budgetary room lawmakers are giving themselves to make changes to the tax code.

Typically, budget analysts use what’s called a “current law” baseline, which assumes that temporary tax provisions (like many from the TCJA) will expire as scheduled. Under that framework, extending temporary tax incentives means they show up as new costs, potentially adding trillions to the deficit on paper.

However, the April 2025 budget resolution broke with that approach. It supported a “current policy” baseline instead. This method assumes that temporary provisions were always going to be extended, so keeping them in place appears to cost little or nothing in the official score. While this concept has occasionally appeared in long-range forecasts or policy debates, this is the first time Congress has written it into the rules governing tax legislation. It’s a meaningful departure from how lawmakers have historically measured the fiscal impact of tax policy.

It matters because it reshapes what lawmakers can do, effectively giving more headroom to expand deductions or introduce new incentives. But this approach also opens the door to significantly higher deficit spending – changes of this scale will likely face intense scrutiny and debate in the Senate before anything becomes law.

Byrd rule

Another constraint, known as the Byrd Rule, requires each provision in a reconciliation bill to have a “non-incidental” impact on the federal budget. If a provision is deemed to have only a minor or incidental budget effect on a broader policy goal, it can be stripped out of the bill. Without this guardrail, lawmakers could use reconciliation bills to slip in non-budgetary provisions, effectively dodging normal procedures to push unrelated or low-priority policy changes.

This is where the new scoring baseline might become a double-edged sword. If lawmakers use a current policy baseline, certain extensions may appear to have little or no new budget impact on paper. That could trigger a Byrd rule challenge.

So, while this change in scoring might sound like an arcane detail, it could dramatically influence which tax provisions make it across the finish line – and how they’re structured when they do.

Why this matters

From a policy perspective, this is as much about optics and maneuvering as it is about substance. Using a current policy baseline can make large tax cuts look budget-neutral, even if they have the same long-term cost as under current law. It’s a strategic choice that allows legislators to package more tax relief into reconciliation without formally violating deficit limits.

But it also invites criticism, procedural challenges, and last-minute rewrites. Just because a tax break is included in the House bill doesn’t guarantee it survives to final passage, especially if it gets flagged as incidental or too costly. Negotiations might be lengthy, and final legislative language may not arrive until late in the year. And the details will matter.

Implications for taxpayers

For taxpayers, now’s the time to start scenario planning. There’s a real chance that bonus depreciation gets restored, R&D expensing comes back, and that key TCJA provisions are extended, possibly even permanently.

Financial modeling becomes critically important here. Section 174 changes may retroactively relieve burdens from mandatory amortization, but any final legislation could offer various start dates, phase-ins, or grandfather clauses.

Taxpayers should also keep an eye on potential changes to the SALT cap, QBI deduction, or interest limitations. These items could shift your projected liability in ways that materially affect tax strategy.

Strategize now

The April budget resolution and May’s House-passed reconciliation are just steps in the legislative process, but they’re critical. It clears a procedural path for what could be the biggest tax rewrite in years. How the process plays out remains yet to be seen, but the foundation for sweeping revisions is in place.

If you have major financial moves planned, like an acquisition, a large capital investment, or a succession plan, now’s the time to check in with your tax advisor. Getting ahead of the curve can position you to act quickly once the details emerge.

As always, we’re keeping a close eye on how the reconciliation plays out. We’ll continue sharing updates as bills are passed and the tax landscape takes shape.

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