Tax Reform

The One Big Beautiful Bill Act (H.R. 1) — sweeping tax and domestic policy legislation that includes several important housing and business provisions that will benefit small businesses, real estate and our members — was passed on July 3.

NAHB secured several key victories in this landmark legislation:

Individual Provisions

• The Tax Cuts and Jobs Act’s key provisions will be made permanent, including the tax rate structure and increased exemptions for the Alternative Minimum Tax. This blocks a $4 trillion tax increase set to take effect next year.
• The estate tax exemption will increase to $15 million, made permanent and be indexed for inflation.
• Current mortgage interest deduction rules will be made permanent and mortgage insurance premiums will now be allowed to be deducted.
• The Pease limitation on itemized deductions will be permanently repealed. In its place is a new limitation that reduces the value of itemized deductions for taxpayers in the top bracket from 37 cents to 35 cents, but excludes 199A deductions for this limitation.
• No tax on overtime establishes a new above-the-line tax deduction for qualified employees. This deduction is temporary, expiring after 2028. Eligible employees may deduct up to $12,500 in qualified overtime pay as a single filer or $25,000 as a joint filer. The deduction phases out for taxpayers with income exceeding $150,000 ($300,000 in the case of a joint return). Taxpayers do not have to itemize to claim the deduction.
• No tax on tips provides an above-the-line deduction up to $25,000 for tipped workers. The deduction phases out for taxpayers with income exceeding $150,000 ($300,000 in the case of a joint return). Taxpayers do not have to itemize to claim the deduction. This deduction is temporary, expiring after 2028.

Business Provisions

• The Section 199A Qualified Business Income Deduction, which helps provide tax parity for pass-through entities, will be made permanent at 20%.
• The Low-Income Housing Tax Credit will be expanded permanently with a 12% increase in 9% credit allocations along with reducing the 4% bond test to 25%, which will expand resources in bond-constrained states.
• 100% bonus depreciation will be restored and made permanent.
• Section 179 business expensing limits will be increased for small businesses.
• Opportunity Zones will be made permanent.
• The 1099 reporting threshold will be increased permanently to $2,000 and indexed for inflation starting for 2025.
• The Section 460(e) Completed Contract rules will be expanded to include condominiums, in addition to single-family homes. This is a key tax accounting provision that ensures that home builders are not taxed on deposits paid by a buyer during construction of a single-family home, but rather the home is taxed when sold. This bill extends the same tax treatment to deposits paid by condominium buyers during the construction phase, which is a change NAHB advocated for.

State and Local Tax Deduction for Individuals and Pass-Through Businesses

• The SALT cap will increase to $40,000, but only on a temporary basis. The increase will take effect for 2025 and remain in force through 2029, with a 1% inflation adjustment after 2025. The cap increase for households with incomes above $500,000 will be phased down, but not below a $10,000 cap. The SALT cap would revert back to $10,000 in 2030, which means debate over limiting SALT deductions will continue in the coming years.
• The state income taxes a pass-through business can deduct will be limited. NAHB members will not face a business SALT tax increase.

Energy Tax Credits

The one negative in the tax title of H.R. 1 is the early termination of the energy tax credits, including several credits used in the housing industry:

• Section 45L New Energy Efficient Home Tax Credit will be eliminated after June 30, 2026 (previously ran through 2032).
• Section 25D Residential Clean Energy Credit will be eliminated after Dec. 31, 2025 (previously ran through 2032).
• Section 48E Clean Electricity Tax Credit will be eliminated for eligible property that is not placed in service by Dec. 31, 2027. However, based on an NAHB recommendation, solar leasing arrangements will continue to benefit from the 48E tax credit. These arrangements eliminate the upfront costs of installing a solar system on a home and allow home owners to benefit from reduced utility costs.

Over their history, these energy tax credits have been subject to starts and stops as Congress has allowed them to expire. This history suggests that this is not the final word on these tax credits, and NAHB will look for future opportunities to revive them.

Other Key Provisions in the Tax Bill

In addition to the huge tax package, the legislation also includes other provisions of interest to the housing community:

• Regulatory Reform: The legislation contains strong regulatory reform provisions, including the requirement for federal agencies to consider both direct and indirect costs associated with any new regulation, as well as requiring congressional approval for major rules. NAHB has been a strong proponent for this regulatory reform measure.
• Workforce Development: The legislation provides for a new Workforce Pell grant program that will help prepare students for high-paying, sustainable jobs in the country’s most in-demand industries, including the residential construction sector.
• Timber Production: The United States does not produce sufficient lumber to meet the housing industry’s demand, requiring costly imports. The legislation would boost domestic production of timber from both U.S. Forest Service and Bureau of Land Management lands. NAHB believes increasing domestic lumber production from federal lands represents a win-win for housing affordability and the resilience of our national forests.

Long-Term Solution

NAHB began preparing for this tax fight shortly after the Tax Cuts and Jobs Act was signed into law in 2017, recognizing that the temporary tax cuts in that 2017 law would set up a tax cliff and force Congress to re-examine the entire tax code in 2025. Because of our years of preparation, passage of this bill brings NAHB members a permanent tax code that retains, and in some cases expands, key tax provisions that support the industry.

Disclaimer: NAHB is providing this information for general guidance only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action on this information, you should consult a qualified professional adviser to whom you have provided all of the facts applicable to your particular situation or question. None of this tax information is intended to be used nor can it be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.