Senate Finance Committee Bill Includes Win for OZs but Differs From House on SALT and QBI Provisions
The Senate Finance Committee released its portion of text for that chamber’s version of the reconciliation tax legislation that was approved by the U.S. House of Representatives in May. The measure includes provisions to enhance opportunity zones incentives and slash Green New Deal spending established under the Inflation Reduction Act of 2022.
For the alternative investment sector, key provisions include permanently renewing and enhancing the OZ program, which the White House Council of Economic Advisers said will drive more than $100 billion of investment to rural and distressed communities.
The provision creates rolling, 10-year OZ designations beginning on Jan. 1, 2027. This provision maintains the OZ designation process from the Tax Cuts and Jobs Act of 2017 and strengthens the eligibility requirements by updating the definition of a low-income community – a census tract that has a poverty rate of at least 20% or a median family income that does not exceed 80% of the area median income – and eliminating the ability for contiguous tracts that are not low-income communities to be designated as OZs.
Additionally, the legislation retained most of the provisions in the House bill that drastically reduces clean energy tax incentive provisions – ending the electric vehicle tax credit and nixing penalizations of the fossil fuel industry – while providing some longer runways for phaseouts and providing some flexibility on adhering to foreign entity of concern restrictions. For example, the Senate proposal introduces a “safe harbor” formula regarding the amount of Chinese-sourced material that can still allow a project to receive a tax credit. Beyond that, projects beginning after Dec. 31, 2025, would not receive tax credits if they involve foreign entities.
Regarding electric vehicle tax credits, the House version of the bill terminated tax credits for new, used, and leased EVs and provided a one-year extension for automakers who had not yet sold 200,000 eligible vehicles. The Senate Finance Committee version also terminates tax credits for new, used, and leased EVs but proposes to simply end the program 180 days after the bill’s passage. The latter could be more favorable to established EV automakers who were set to lose eligibility earlier under the House text.
Changes from the bill that passed the House in May 2025 also included:
State and Local Tax
To gain support from House Republicans in high-tax states like California and New York, the cap on the SALT deduction was raised from $10,000 to $40,000 for households earning under $500,000 in the House bill. This adjustment secured votes from centrist Republicans, who had previously demanded a cap of $124,000 for married filers and $62,000 for singles. This cap and the income thresholds were also set to increase by 1% each year until 2033 and then remain permanent. The House bill also included restrictions on the use of pass-through entity tax workarounds.
The Senate Finance Committee’s proposal substantially rolled back the House version, maintaining the current $10,000 SALT limitation and making it permanent. While it does include limitations on how pass-through entity elective taxes are treated, the core cap remains at $10,000.
Qualified Business Income Deductions
The House version of the bill permanently increased the Section 199A deduction for QBI to 23% with eligibility extended to business development companies, which was a notable win for direct lending platforms and interval funds.
The Senate Finance Committee version also makes the QBI deduction permanent but it retains the current 20% deduction cap. It also included a minimum deduction for small businesses.
Bonus Depreciation and Legacy Planning
The House-passed version of the legislation reinstates 100% bonus depreciation for qualified property placed in service through 2029 and raises the estate tax exemption to $15 million per individual.
The Senate Finance Committee’s proposal goes a step further by making 100% bonus depreciation permanent. This is a notable difference, providing greater long-term certainty for businesses investing in equipment and other eligible assets. The Senate committee’s version also makes the estate tax exemption permanent.
According to the Congressional Budget Office, the legislation would increase the federal deficit by approximately $2.4 trillion to $3.8 trillion over 10 years. The bill disproportionately benefits high-income households through tax cuts, while reducing funding for Medicaid and other social safety-net programs. According to the CBO, the House bill will cut Medicaid by nearly $800 billion over a decade. Healthcare advocates and organizations say the Senate Finance Committee’s cuts are significantly deeper. The proposal of the bill notably tightens work requirements for Medicaid – exempting only caregivers of those age 14 and younger or disabled – and lowers the maximum allowable hospital/provider tax rate from 6% to 3.5% in states that have expanded Medicaid.
Budget reconciliation rules allow for the passage of a proposed bill with a simple majority. If the reconciliation bill legislation passes the Senate, the House may decide to consider the Senate-approved version for final passage. Alternatively, the House and Senate may need to reconcile their differences and then approve the reconciled version before sending the bill to the president.
For a full breakdown of how these tax changes affect the alternative investment space, revisit our initial analysis.
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