House tax bill enhances small business deductions, eliminates efficiency tax credits
Posted on:
As Congress debates the next major tax package, House Republicans have released a sweeping proposal that would reshape the tax landscape for contractors, homeowners, and skilled workers alike. The newly released plan combines permanent tax relief for small businesses with significant rollbacks of clean energy and energy efficiency credits that were expanded under the Inflation Reduction Act (IRA). While this is a major development, it is just one of many in a battle that will continue to play out in the coming months. The Senate still has its say—and negotiations are far from over—but contractors should note what’s at stake.
Eliminates residential tax credits: 25C, 45L, and 25D
Three important energy efficiency tax credits that support energy-efficient HVACR systems, home performance upgrades, and clean energy technologies are cut under the proposal. These credits, previously extended through 2032 by the IRA, would now end December 31, 2025.
The bill eliminates the Section 25C Energy Efficient Home Improvement Credit, which gives homeowners up to $3,200 per year for qualifying improvements, including high-efficiency HVACR systems, insulation, windows, and electrical panel upgrades.
It also repeals the Section 45L New Energy Efficient Home Credit for homes acquired after December 31, 2025, with limited exceptions. This change would remove incentives for builders constructing homes that meet the Department of Energy’s Zero Energy Ready Home program or other high-performance benchmarks.
Finally, the proposal sunsets the Section 25D Residential Clean Energy Credit, which offers a 30% tax credit for investments in solar, ground source heat pumps, battery storage, and other clean energy technologies.
We need your voice in the fight against these terminations that would dramatically reduce federal support for fuel-neutral high-performance HVACR systems and energy upgrades in homes. Please take a moment to send an email to your Congress members through our convenient Action Alert.
The House bill preserves the 17D deduction for commercial energy efficiency improvements, which ACCA succeeded in making permanent in 2021—we are increasingly optimistic it will survive this year’s budget process.
Secures 199A small business deduction permanently with improvements
The House tax proposal includes a major win for small businesses by making the Section 199A deduction permanent and increasing its value. Currently set to expire after 2025, this deduction allows pass-through entities, including S corporations, LLCs, and sole proprietors, to deduct a portion of their qualified business income. The new legislation would eliminate the sunset clause and increase the deduction from 20% to 23%, delivering additional savings to qualifying contractors and small business owners.
The bill also streamlines eligibility rules near income thresholds. Businesses under the limit maintain full deduction access, while those above benefit from a simplified phase-in formula for more predictable tax treatment. Additionally, the inflation adjustment baseline shifts from 2018 to 2025, creating a more realistic income benchmark.
These changes would promote tax parity, enhance planning flexibility, and ensure continued relief for pass-through businesses that reinvest in equipment, training, and their workforce.
Expands 529 accounts to cover industry certifications, licensing, and apprenticeships
A newly proposed provision expands 529 education savings account uses to include a wide range of career-focused credentials and training programs—a major step forward for workforce development and the skilled trades. Families could use these accounts to pay for expenses related to industry-recognized certifications, professional licensing, continuing education, and registered apprenticeships.
The new “qualified postsecondary credentialing expenses” include tuition, fees, testing, books, and required supplies tied to participation in a recognized credentialing program. These programs must be listed under state Workforce Innovation and Opportunity Act (WIOA) directories, military COOL directories, Department of Veterans Affairs listings, or be approved by nationally recognized accreditation bodies such as ANSI or the Institute for Credentialing Excellence.
For HVACR contractors and others in the skilled trades, the bill makes 529 funds available for apprenticeship completion certificates, occupational licenses, and professional certifications. This move cuts out-of-pocket training costs for the next generation of HVACR professionals while empowering more families to invest early in career education outside of a traditional college path.
The change would apply to 529 distributions made after the date of enactment, providing immediate benefit to students and workers pursuing high-demand credentials in HVACR, plumbing, electrical, and other essential trades.
Removes tax on overtime
A newly proposed federal tax provision creates a first-of-its-kind deduction for overtime compensation. At ACCA’s recent Contractor Town Hall Breakfast, some attendees suggested that this could help address workforce challenges by encouraging their most skilled technicians and seasoned salespeople to put in extra hours. The proposal allows employees to deduct the full amount of their federally required overtime wages from their taxable income. For many hardworking employees, this would mean paying no federal income tax on their overtime earnings.
The deduction covers workers earning under $150,000 who receive overtime under the Fair Labor Standards Act. As an above-the-line deduction, it benefits all eligible taxpayers whether they itemize or not, directly helping W-2 employees across the trades.
Employers must report overtime wages on W-2 forms, with Treasury adjusting withholding tables so workers see immediate benefits in their paychecks rather than waiting for tax season.
The deduction only applies from tax year 2025 through 2028 unless extended by Congress. Even as a temporary measure, it demonstrates strong bipartisan interest in rewarding work, cutting taxes for hourly employees, and recognizing the value of skilled workers who regularly work long hours during seasonal surges.
Restores 100% bonus depreciation through 2029
The proposed House tax bill would reinstate 100% bonus depreciation for qualified business property, which contractors have used to invest in vehicles, tools, technology, and equipment. Under current law, the special depreciation allowance (Section 168(k)) is phasing down annually and is set to expire by 2027. This bill reverses that schedule, extending full expensing for newly acquired property through 2029.
Importantly, the bill reestablishes 100% bonus depreciation for equipment placed in service after January 19, 2025, provided it meets standard requirements, such as a written binding contract. For contractors and small businesses, this provision allows immediate write-offs for business purchases instead of depreciation over several years. The accelerated expensing directly offsets upfront costs when acquiring vehicles, tools, and equipment—especially valuable during business expansion or fleet upgrades. With full expensing guaranteed through 2029, contractors gain meaningful financial planning certainty, enabling more confident investment decisions over the next five years.
Increases death tax exemptions
The latest House tax proposal includes a permanent extension of the increased estate and gift tax exemption levels—a provision that would deliver certainty and potential long-term planning advantages for contractors who own family businesses or intend to pass wealth to the next generation. Under current law, the enhanced exemption amount is set at roughly $13.6 million per individual in 2024 and is scheduled to expire at the end of 2025, reverting to pre-2018 levels of $5 million (indexed for inflation).
This bill locks in a new permanent exemption baseline of $15 million per individual, adjusted for inflation going forward. That would more than double the exemption amount compared to what would happen under current law, allowing business owners to transfer significantly more wealth without triggering estate or gift tax liabilities.
By striking the sunset provision and updating the calculation base to reflect post-2025 inflation indexing, the proposal promotes greater stability and predictability for long-term succession planning. For HVACR contractors who operate family-owned businesses, this change could help preserve generational ownership, avoid disruptive asset sales, and support business continuity.
What’s next?
The release of this House tax proposal marks the start of an important debate—not just over numbers on a page, but over what kind of economy we want to build. For ACCA members, that means staying vigilant. The permanent expansion of Section 199A and new incentives for skilled trades training are real wins, and we’ll continue pushing to make sure they become law. But the proposed repeal of Sections 25C, 45L, and 25D after 2025 would cut short tax credits that help your team sell high performance equipment and more comprehensive home upgrades.
ACCA will remain fully engaged as the Senate weighs in and the reconciliation process unfolds. We encourage every contractor to stay informed and speak up. If you haven’t already, please take a moment to contact your senators and representative today contact. Our voice matters in these negotiations, and the outcome will directly shape our industry’s future.
Posted In: Taxes, Top Priorities
