The Senate Finance Committee on Monday released its tax and Medicaid provisions for the GOP budget reconciliation bill, extending expiring 2017 tax cuts and expanding some other provisions of the law.

Like the House’s One Big Beautiful Bill passed in May, the Finance Committee provisions also would extend the 45Z tax credit for clean fuels that was created in the Inflation Reduction Act, passed by a Democratic Congress in 2022.

The Senate tax package would keep the Section 199A deduction for pass-through business income at 20% and make it permanent. The House bill would raise the deduction to 23%.

Under the 2017 Tax Cuts and Jobs Act, the deduction would end this year.  The deduction was intended to keep small business tax rates in line with the corporate tax rate, which was lower in that law. 

The Senate version mirrors the House bill by increasing the estate tax exemption to $15 million, or $30 million for a couple, and indexing the limit to inflation. The exemption was doubled in the 2017 law but that increase is set to expire after this year.

The Senate bill would increase Section 179 expensing limits that were made permanent in the 2017 law. As with the House bill, the amount a business can expense would be raised to $2.5 million and reduced by the amount the investment exceeds $4 million.

Also mirroring the House bill, the Senate bill would restore full bonus depreciation. Under the 2017 tax law, bonus depreciation was being phased out over time, dropping from 60% last year to 40% this year.

The Senate legislation “delivers additional tax relief to middle-class families still recovering from record inflation under the Biden Administration,” Finance Chairman Mike Crapo, R-Idaho, said in a press release. “It powers the economy by permanently extending critical pro-growth provisions and introduces new incentives for domestic investment, providing certainty for American job creators to spur domestic economic activity and invest in their workers.”

Both versions of the bill would extend the 45Z credit through 2031 and exclude any emissions associated with indirect land use change (ILUC) from being used in calculating eligibility for the credit.

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However, the Senate version does not include language from the House bill terminating transferability after 2027. Some biofuel groups argued that restricting transferability would limit smaller producers.

The Senate version also takes a slightly different approach to incentivize domestically produced feedstocks. The House bill would prevent the credit from applying to fuels made with feedstocks outside the United States, Canada or Mexico.

Senators instead propose cutting the value of the credit for fuels made with feedstocks grown outside the United States by 20%.

Under the Senate proposal, the credit value for sustainable aviation fuel would drop. Currently, SAF has the potential to qualify for a $1.75 credit, while other fuels can qualify for up to $1. The Senate proposal would equalize the credit value for all eligible fuel types.

The Senate measure would also effectively extend the 40B tax credit, which applied to SAF, for a brief window. The credit expired at the end of 2024, along with other biofuel credits like 40A. In the absence of concrete guidance on 45Z, some renewable fuel groups had called for an extension to the existing suite of credits. The Senate version would extend the credit value of 40B for SAF to apply to fuels sold between Dec. 31, 2024 and the end of this coming September.

Similar to the House bill, the Senate proposal would end or phase-out other IRA credits, including the clean electricity investment, clean electricity production and clean hydrogen production credits. 

Under the Senate version, credits for electric vehicles would expire between 90 to 180 days after the bill is enacted. The clean hydrogen credit would no longer apply to facilities that begin construction after this year. It also phases out and sets restrictions on the clean electricity investment and production credits.

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