Larry's Tax Law

In this ninth installment of my multi-part series on the One Big Beautiful Bill Act (the “Act”), I discuss provisions of the Act that may permit individual taxpayers to deduct the interest incurred with respect to their automobile loan.^[1]  While the concept appears straightforward, its application is replete with intricate rules.

Background

In accordance with Code Section 163(h)(1), subject to certain exceptions, “[i]n the case of a taxpayer other than a corporation, no deduction shall be allowed under this chapter for personal interest paid or accrued during the taxable year.”

Section 70203 of the Act temporarily amends Code Section 163(h) and provides that, for purposes of Code Section 163(h), personal interest does not include “qualified passenger vehicle loan interest.”  

The Act

To qualify for the new deduction on vehicle loan interest, several requirements must be satisfied.

In this fourth installment of my multi-part series on the One Big Beautiful Bill Act (the “Act”), Steve Nofziger and I discuss a provision of the Act that impacts pass-through business entities and their owners, Code Section 199A.[1]

Background

Code Section 199A, commonly referred to as the Qualified Business Income (“QBI”) deduction, was enacted during President Trump’s first term in office as part of the Tax Cuts and Jobs Act (“TCJA”).  As you may recall, the TCJA changed the C corporation tax rate landscape that came with a top tax rate of 35% to a flat rate structure pegged at 21%.  Meanwhile, pass-through entities (S corporations, partnerships and sole proprietorships), which are predominately owned by individuals, were left with a graduated tax rate structure that quickly rises to a rate of 37%.  

To create more of an even playing field between pass-through entities and C corporations, the TCJA created a new deduction for pass-through entities with the enactment of Code Section 199A.  This provision allows owners of certain pass-through entities a 20% deduction of “qualified business income” (“QBI”).

Like many provisions of the TCJA, Code Section 199A was scheduled to sunset at the end of 2025.  The Act, signed into law by President Trump on July 4, 2025, made Code Section 199A a so-called permanent provision.  It also made several changes to its deduction framework.

In this third installment of my multi-part series on the One Big Beautiful Bill Act (the “Act”), I discuss a provision of the Act that may not impact a large segment of the population, but which is interesting and worthy of coverage.

Section 70114 of the Act only impacts gamblers.  It amends Code Section 165(d). 

Background

Over the years, I authored numerous articles about the taxation of gambling.  In 1987, I authored a lengthy law review article, The Evolution of the Phrase Trade or Business: Flint v. Stone Trace Company to Commissioner v. Groetzinger – An Analysis with Respect to the Full-Time Gambler and the Investor, 23 Gonzaga Law Review 513 (1987/1988).   In that article, I examined, in part, whether a full-time gambler, for tax purposes, is in the trade or business of gambling.  If the answer to that question is yes, two results follow (one result that is good and one result that is not so good):  (1) the gambler is able to deduct under Section 162 of the Code all of the ordinary, necessary and reasonable expenses incurred in carrying on the business; and (2) the net income of the gambler, if any, is subject to self-employment tax under Section 1401 of the Code. 

In 2014, on this blog, I provided a discussion about the taxation of a full-time gambler.  In that article, I provided some updates and additional insights on that topic.   

A brief overview of the applicable law is necessary for this discussion.  Code Section 162(a) generally allows a deduction for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".  Code Section 165(d), originally enacted as Section 23(g) of the Revenue Act of 1934, however, provides that "[l]osses from wagering transactions shall be allowed only to the extent of the gains from such transactions."

In this second installment of our multi-part series on the One Big Beautiful Bill Act (the “Act”), my colleague David Knutson and I discuss the changes made by the Act to the federal estate and gift tax regime.

Background

The federal government taxes wealth transfers in three ways:

1. Estate tax is imposed on the value of estates at death;
2. Gift tax is imposed on the value of gifts made during life; and
3. Generation-skipping tax is imposed on the value of a bequest/gift made to a person two or more generations younger than the taxpayer.

No tax is due on the above wealth transfers until the value of the aggregate gifts/bequests exceeds an applicable exemption.  This basic structure has been in place for decades.  The exemption amounts and the tax rates, however, have changed over the years.

On July 1, 2025, the One Big Beautiful Bill Act, H.R.1 – 199^th Congress (2025-2026) (the “Act”) was passed in the U.S. Senate (“Senate”).  On July 3, 2025, it was passed in the U.S. House of Representatives (“House”) and presented to President Trump to be signed into law.  On July 4, 2025, the President signed the Act into law.

I intend to present several installments on my blog featuring some of the most important tax provisions of the Act, allowing us to break down these provisions in detail.  This first installment is a continuation of my coverage of the SALT deduction provision of the Act.

As reported on May 16, 2025, the SALT cap proposal contained in the legislation that was pending in the U.S. House of Representatives (“House”) aimed at, among other things, dealing with the expiring provisions of the Tax Cuts and Jobs Act (“TCJA”) was not well received by lawmakers from high-income tax states such as Oregon, New York, Hawaii and California.  That proposal increased the SALT cap from $10,000 to $30,000, but it contained a downward adjustment for taxpayers with “modified adjusted gross income” over $400,000.  For this purpose, modified adjusted gross income is adjusted gross income plus any amounts excluded from income under Code Sections 911, 931 and 933.  Under that proposal, the $30,000 cap is reduced by 20% of a taxpayer’s modified adjusted gross income to the extent it exceeds $400,000 ($200,000 in the case of a married taxpayer filing separately).  However, the SALT cap cannot be reduced below $10,000 ($5,000 in the case of a married taxpayer filing separately).

It appears the SALT cap proposal may have been the last item holding up the passage of the bill by members of the House.  After hours of debate and discussion, the proposal was modified, and the House passed the bill on May 22, 2025.  It now sits in the U.S. Senate (“Senate”), where it is expected this provision of the bill, among others, will face fierce debate.

Background

Prior to the Tax Cuts and Jobs Act (“TCJA”), there was no direct limitation on an individual taxpayer’s deduction of his or her state and local taxes (“SALT”) on the federal individual income tax return.  Of course, for high-income taxpayers, the SALT deduction often triggered the alternative minimum tax.

As of 2018, as a result of the TCJA, the SALT deduction for individuals was capped at $10,000 per year for both single and married taxpayers filing jointly ($5,000 for married taxpayers filing separately).  Hence, the cap contains an inherent “marriage penalty.” 

The SALT cap was added to the TCJA, in part, as a compromise for an increase in the standard deduction (almost doubling it from pre-TCJA days). It is, however, set to sunset at the end of this year.

With the Corporate Transparency Act hopefully in our rearview mirrors, I decided to take a brief break from my ongoing series on Subchapter S and report on a different topic. In the last few weeks, the Magistrate Division of the Oregon Tax Court issued two important decisions,[i] both of which center on a singular issue – whether the taxpayer had engaged in an activity for profit and was thus able to deduct its losses under IRC Section 162.  These battles, commonly referred to as “hobby-loss” cases, have existed among the Internal Revenue Service and/or the state departments of revenue, and taxpayers for decades.  I suspect, with the anticipated significant reduction in staffing at the Internal Revenue Service, we will see more audit activity at the state level throughout the United States.  Among the audit activity may be hobby-loss cases.

In Oregon, the department of revenue (the “ODOR”) has recently made the hobby-loss issue a mainstay in its audits of activities where losses result.  I suspect it is not earth shattering that activities such as horse breeding, racing and training; wineries and vineyards; automobile racing; airplane rentals; and llama breeding and sales have been under fire by the ODOR as hobbies rather than activities engaged in for profit.  Interestingly, the ODOR appears to have added other activities to the list, expanding its hobby-loss exams to include traditional farming and other related activities.

On April 5, 2023, Commissioner Daniel I. Werfel issued the Internal Revenue Service Inflation Reduction Act Strategic Operating Plan (“Plan”).  The Plan, which spans over 145 pages, is a roadmap to how the Service will deploy over the next decade the approximately $80 billion in supplemental funding it will receive as a result of the Inflation Reduction Act enacted by Congress last year (“IRA”).

In the Plan, Commissioner Werfel sums up the strategic goals for the IRS as follows:

“We will make it easier for taxpayers to meet their tax responsibilities and receive tax incentives for which they are eligible. We will adopt a customer-centric approach that dedicates more resources to helping taxpayers get it right the first time, while addressing issues in the simplest ways appropriate. We will address noncompliance, using data and analytics to expand enforcement in certain segments. We will become an employer of choice across government and industry. These changes will enable us to serve all taxpayers more equitably and in the ways they want to be served.”

On August 23, 2022, the Regular Division of the Oregon Tax Court issued its opinion in Santa Fe Natural Tobacco Co. v. Department of Revenue, State of Oregon.  The court determined that the taxpayer in that case is subject to the corporate excise tax. 

The taxpayer, Santa Fe Natural Tobacco Co., required that its wholesale customers located in Oregon accept and process returned goods.  In addition, the taxpayer’s in-state sales representatives, who did not maintain inventory, routinely confirmed and processed purchase orders between Oregon retailers and wholesalers.