In Senate Committee·Last action 337 days ago

Tax rule changes make it easier to pass down, invest in, and run S corporations

Officially: S Corporation Modernization Act of 2025

This bill modernizes S corporation tax rules by creating deductions for inherited stock, letting foreign individuals and retirement accounts become shareholders, and raising limits on investment income. It also repeals complex deferred compensation rules and makes it easier for companies with many employee-owners to keep their S corp status.

Where it stands

Sitting in Finance

No vote scheduled. Constituent contact is what moves bills out of committee.

What this bill actually does

Creates a new tax code section allowing heirs to claim a 15-year amortization deduction for built-in gains in inherited S corporation stock, with faster deductions if the company sells the assets sooner
If someone used this new deduction and later sells the stock or certain assets, some of the gain must be reclassified and taxed as ordinary income instead of capital gains
Raises the allowable ratio of passive investment income from 25% to 60% of total receipts and removes the rule that could automatically end a company's S corporation status for earning too much investment income

↓ Why your message matters here

This bill is sitting in committee with no scheduled vote — which means a small number of constituent messages can decide whether it moves forward or quietly dies.

Where your representatives stand

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The debate

What people are saying about this bill

✓Arguments in support

Eases estate planning for family businesses: Helps families avoid selling assets to pay taxes after a shareholder's death.
Expands investor access via IRAs: Allows more people to invest in S corporations, potentially increasing available capital.
Reduces involuntary S corp terminations: Prevents businesses from losing their S corporation status due to passive income limits.

✕Arguments against

Revenue loss for Treasury: Changes could lead to a decrease in tax revenue, impacting government budgets.
Abuse potential for IRAs: New rules might allow for transactions that avoid certain taxes, leading to potential abuses.
Favors wealthy/passive owners: Benefits may primarily help investment-heavy businesses rather than active small businesses.

Where this bill is in the process

Legislative timeline

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Introduced

Introduced in Senate

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Senate Committee

Under Senate committee consideration

Latest: Read twice and referred to the Committee on Finance. (6/10/2025)

JUN 10

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Senate Floor Vote

Voted on by Senate

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Passed Senate

Approved by Senate

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House Review

Sent to House for consideration

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Passed Both Chambers

Approved by both House and Senate

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Signed into Law

Signed by the President

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Tax rule changes make it easier to pass down, invest in, and run S corporations

Where your representatives stand

What people are saying about this bill

Legislative timeline

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