Senate bill cuts 179D, makes small business deduction permanent without rate hike
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The Senate Finance Committee released its version of the “Big Beautiful Bill,” incorporating many small business-friendly provisions from the House version while taking sharp departures in several key areas. Most notably, the Senate proposal eliminates long-standing energy-efficiency tax incentives, including the 179D deduction for commercial buildings—previously untouched by the House version.
The bill makes the Section 199A small business deduction permanent and includes enhanced bonus depreciation rules, though it stops short of raising the deduction rate to 23% as the House had proposed. This mixed approach delivers major wins and substantial setbacks for HVACR contractors.
ACCA urges contractors to let their Senators and Representatives know why they should preserve energy efficiency tax credits by participating in our action alert here.
Below is a breakdown of the most consequential changes for HVACR contractors and the broader industry.
Energy efficiency incentives face complete elimination
Contrary to expectations that the Senate might restore or extend key tax credits for energy efficiency, the Finance Committee proposal accelerates their phaseout. Four major incentives would be terminated:
- Section 25C (Energy Efficient Home Improvement Credit) would expire 180 days after enactment. This includes credits for qualified HVACR installations, insulation, and home energy audits.
- Section 45L (New Energy Efficient Home Credit) would end 12 months after enactment for homes acquired after that date.
- Section 179D (Energy Efficient Commercial Buildings Deduction) would no longer apply to projects that begin construction more than 12 months after enactment.
- Section 25D (Residential Clean Energy Credit), which currently supports rooftop solar, geothermal heat pumps, and battery storage, would also sunset 180 days after enactment.
Taken together, these rollbacks would mark the most significant federal retreat from promoting high-efficiency HVACR and building envelope upgrades in over a decade.
Small business deduction becomes permanent with enhanced thresholds
The bill would make the Section 199A deduction for Qualified Business Income permanent. It also raises the phase-out threshold from $50,000 to $75,000 for individuals (from $100,000 to $150,000 for joint filers).
Additionally, any business owner with at least $1,000 in qualified income from active business participation would receive a guaranteed minimum deduction of $400. However, unlike the House proposal, the Senate version does not raise the deduction rate from 20% to 23%.
Bonus depreciation gets permanent restoration
Under current law, bonus depreciation is set to phase out by 2027, gradually declining from 100% to 0% over the next few years. However, the proposed provision would reverse this phase-down and permanently restore 100% bonus depreciation for qualified property placed in service on or after January 19, 2025.
This means businesses could immediately deduct the full cost of eligible equipment, machinery, and other qualifying assets in the year they’re placed in service, rather than depreciating them over time. By making this powerful incentive permanent, the proposal aims to stimulate long-term private investment in manufacturing, construction, and other capital-intensive sectors.
Overtime pay gains new deduction with limitations
A new income tax deduction would be introduced for qualified overtime pay. Workers earning mandatory overtime under the Fair Labor Standards Act could deduct those wages from taxable income, up to $12,500 per year ($25,000 for joint returns). However, a phase-out applies beginning at $150,000 in adjusted gross income ($300,000 for joint returns). This provision expires after 2028 and includes new employer reporting rules.
Additional business and education provisions
- Enhanced equipment expensing limits – The Section 179 expensing cap would be raised from $1 million to $2.5 million and the phase-out threshold would be raised from $2.5 million to $4 million. These limits will now adjust for inflation starting in 2025. The change applies to property placed in service in tax years beginning after December 31, 2024, giving contractors more room to invest in vehicles, tools, and equipment.
- Estate and gift tax relief – The lifetime estate and gift tax exemption would be increased from $5 million to $15 million, beginning for decedents dying or gifts made after December 31, 2025. The base year for inflation adjustments is updated to 2025, helping to preserve the higher exemption levels going forward.
- Expanded education savings opportunities – The bill also builds on recent expansions to Section 529 plans by further broadening eligible expenses. It would allow 529 funds to be used for credentialing programs recognized under WIOA, military COOL directories, WEAMS, or designated by the Secretaries of Treasury and Labor. This opens new pathways for skilled trades training and certification.
The path forward
While the Senate tax bill contains some important wins for contractors—such as a permanent 199A deduction and improved expensing rules—it also delivers major setbacks. The elimination of 25C, 179D, and other energy-efficiency credits will limit the ability of commercial and residential customers to offset the costs of high-efficiency upgrades.
ACCA will continue to advocate for restoring these incentives and will keep contractors updated on the progress of the “Big Beautiful Bill”.
But the contractor voice is critical in the fight to save energy efficiency tax incentives. Participate in ACCA’s action alert to tell your Senators and Representatives in Congress why they should preserve the energy efficiency tax credits.
Posted In: Energy Policy, Government, Regulation Reform
