Question: Jim has a home office. Jim is self-employed and files Schedule C (Form 1040), Profit or Loss From Business. The home is not a residential rental property. It is 3,100 square feet, and the home office portion is 450 square feet. He installed a new HVAC system in January of 2025, which cost $12,000 and serves the entire home, not just the office. Can a portion of the HVAC cost be deducted as a home office expense?

Answer: Yes, if Jim claims actual expenses for the home office instead of using the simplified method, Jim may deduct a portion of the HVAC system as part of their home office expense deduction.

Because the HVAC system benefits the entire home, it is considered an indirect expense. Indirect expenses are allocable to the home office using the square footage method (or other reasonable method). As provided above, 450 square feet of the home is used for the home office. The percentage of square feet allocated to the home office is 14.52 percent (450/3,100). The amount that can be allocated to the home office portion of the residence is $1,742. ($12,000 x 14.52%)

Generally, an HVAC system is a capital improvement that must be depreciated. Since the home is not used as a rental, but for personal and business purposes, Jim may depreciate this cost over 39 years as nonresidential real property. Thus, Jim may claim a depreciation deduction of $43 in 2025 (year one) ($1,742 x 2.461%) and $45 ($1,742 x 2.564%) in each subsequent year on Form 8829, Expenses for Business Use of Your Home. Section 179 expense is allowed for an HVAC system (as it is qualified real property), if the business use is more than 50%. The business use is only 14.52%, so it does not qualify for Section 179.

In the early hours of May 22, the House passed the legislative text of the Republican-led House Ways and Means Committee’s tax proposal, a key component of the anticipated One Big Beautiful Bill, by a narrow 215-214 vote.

Earlier in the week, on May 18, the House Budget Committee approved this legislation, which extends numerous expiring provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and temporarily enhances popular provisions such as the child tax credit and the SALT deduction.

Tax professionals should now prepare for potential changes as the legislation advances to the Senate for further deliberation.

Proposed changes to existing Tax Cuts and Jobs Act provisions under One Big Beautiful Bill

1. Child tax credit (CTC) 

Current law: $2,000 per child; expires after 2025

Proposed changes: Temporarily increase the credit to $2,500 per child for tax years 2025-2028, and revert to $2,000 thereafter; full SSN requirements added

2. Estate and gift tax exemption

Current law: increased $13,990,000 exemption (expiring after 2025)

Proposed changes: permanent increase of exemption to $15 million, indexed for inflation

3. §199A pass-through deduction 

Current law: 20% deduction based on qualified business income, wages and assets for pass-through entities and sole proprietors

Proposed changes: permanent deduction increased to 23% of the net amount of qualified items of income, gain, deduction and loss from a qualified trade or business

4. SALT deduction cap

Current law: capped at $10,000, expires after 2025

Proposed changes: permanent increase to $40,000 ($20,000 for MFS) subject to phaseout when a taxpayer’s MAGI exceeds $500,000 ($250,000 for MFS); additionally, both the $40,000 SALT cap and the $500,000 income phaseout would increase by 1% per year from 2026 through 2033

Note: The tax legislation, would eliminate the pass-through entity tax (PTET) deduction, which allows eligible pass-through entities to avoid the cap on the state and local tax (SALT) deduction. Instead, specified service trades or businesses (SSTBs) like accountants, dentists, doctors, nurses, veterinarians and lawyers would be subject to the new $40,000 ($20,000 MFS) federal, state and local tax deduction limit.

5. Bonus depreciation

Current law: phases out by Dec. 31, 2026

Proposed changes: extended and restored to 100% immediate deduction for qualified property placed in service after Jan. 19, 2025, and before Dec. 31, 2029; certain property extended through Dec. 31, 2030.

6. R&D expenditures

Current law: expenditures required to be amortized over a five-year period (domestic) for tax years after 2021

Proposed changes: immediate expensing restored for tax years after Dec. 31, 2024, with an election to amortize the expenses over five years; optional ten-year write-off under section §59(e)(2) preserved; effective for research or expenditures made after Dec. 31, 2024, and before Jan. 1, 2030.

New tax provisions included in One Big Beautiful Bill

1. No tax on qualified tip income  

The proposed changes include a deduction for qualified tips earned in occupations that customarily receive cash tips. These tips must be reported on specific forms, such as Form W-2, Wage and Tax Statement, or Form 1099-NEC, Nonemployee Compensation.

To qualify, the business must not be classified as a specified trade or business under §199A for the purposes of the qualified business income deduction. Highly compensated individuals, as defined under §414(q)(1), are not eligible for this deduction. This provision is temporary and would apply for tax years 2025 through 2028.

2. No tax on qualified overtime compensation 

The proposed changes introduce a deduction for qualified overtime compensation, defined as overtime payments required under Section 7 of the Fair Labor Standards Act (FLSA), calculated as the excess over an employee’s regular rate of pay. This overtime compensation must be reported on Form W-2. The deduction is available as an above-the-line deduction for taxpayers who claim the standard deduction.

However, highly compensated employees are ineligible for this benefit. This provision is temporary and applies for tax years 2025 through 2028.

3. Bonus additional deduction for seniors

The proposed changes provide seniors with a temporary, additional standard deduction of $4,000 instead of exempting Social Security benefits from taxation. This additional deduction phases out for taxpayers with incomes above $75,000 for single filers and $150,000 for married couples filing jointly. The provision is temporary and applies for tax years 2025 through 2028.

4. Car loan interest exclusion 

The proposed changes introduce a temporary deduction for interest paid on personal vehicle loans where final assembly occurs in the U.S. This deduction is capped at $10,000 annually and phases out for high-income earners, beginning at $100,000 for single filers and $200,000 for married couples filing jointly. This provision applies temporarily for tax years 2025 through 2028.

Current tax law credits to be repealed under One Big Beautiful Bill

1. Clean vehicle credit (§30D) for vehicles acquired after Dec. 31, 2026. Vehicles purchased in 2026 must meet the manufacturer limits (less than 200,000 vehicles sold).

2. Previously owned clean vehicle credit (§25E), applicable for vehicles acquired after Dec. 31, 2025.

3. Energy efficient home improvement credit (§25C), applicable for property placed in service after Dec. 31, 2025.

4. Residential clean energy credit (§25D), applicable for property placed in service after Dec. 31, 2025.

Health savings accounts (HSAs) are powerful tools for managing health care costs and planning for the future. Understanding how HSAs work and why the IRS gives them such favorable tax treatment can make a massive difference for your clients. So, whether you have self-employed individuals managing their coverage or clients planning for future medical expenses, finding ways to save them money is an added value for your practice.

What is an HSA?

HSAs are tax-advantaged savings accounts for individuals enrolled in a high-deductible health plan (HDHP). Funds can pay for the account owner’s qualified medical expenses and those of their dependents. Neither the employer nor the insurance company owns the account; only the individual does. Unlike flexible spending accounts (FSAs), HSA funds roll over year to year and remain with you even if you change jobs or retire. In essence, HSAs offer a long-term approach to saving for health-related expenses.

To be eligible, an individual must:

• Be covered under a high-deductible health plan (HDHP) on the first day of the month
• Have no other health coverage (with some exceptions),
• Not be enrolled in Medicare, and
• Not be claimed as a dependent on someone else’s tax return.

The triple tax advantage of HSAs

What truly sets HSAs apart is what tax and financial planners often call the “triple tax advantage.” Here’s what that means:

1. Tax-deductible contributions

The money your client contributes to their HSA is generally tax-deductible, even if they don’t itemize any deductions on Schedule A, Itemized Deductions. Contributions to the account are made pre-tax through their employer but can be made by the account owner, their employer or anyone else on their behalf. For 2025, the contribution limits are:

• $4,350 for self-only coverage
• $8,750 for family coverage
• An additional $1,000 catch-up contribution if you’re age 55 or older

HSA contributions reduce your client’s taxable income, potentially lowering their overall tax bill. You can calculate their tax savings and explain how the funds can remain in the account beyond employment.

2. Tax-free growth

HSA funds can be invested, and any interest or earnings on those investments grow tax-free. This feature makes HSAs a powerful tool for short-term medical expenses and long-term savings that can be used in retirement. Most HSA accounts require a minimum balance before investing the remaining funds. If your clients can pay for their current medical expenses with other funds, their HSA contributions will grow tax-free yearly.

3. Tax-free withdrawals for qualified medical expenses

HSA funds can pay for qualified medical expenses, like copayments, dental care, vision needs and prescriptions. Qualified withdrawals are completely tax-free. This applies to expenses for the account owner, spouse and eligible dependents.

After age 65, clients can withdraw HSA funds for non-medical expenses without penalty, and only pay regular income tax, much like a traditional IRA.

HSAs as a financial strategy

• Portability: HSAs stay with the owner, even if they change jobs.
• No “use-it-or-lose-it” rule: Unused funds roll over year after year.
• Flexibility: Funds can be used for current expenses or saved for future healthcare costs, even in retirement.
• Estate planning potential: An HSA can transfer to a named beneficiary upon death.

Health savings accounts aren’t just a medical savings tool. They’re a powerful, tax-efficient way to plan for current and future healthcare expenses. If eligible, opening and contributing to an HSA could be one of your client’s most financially savvy decisions this year. For more information on HSAs, check out this NATP webinar or refer to IRS Publication 969, Health Savings Accounts and other Tax- Favored Health Plans.