On July 11, 2024, Pennsylvania passed S.B. 654, a tax omnibus bill, as part of its 2024–2025 budget. The bill contains several important tax changes.
First, the cap on net operating losses is being increased over the next four years. Currently at 40%, the cap will be raised by 10% every year until it reaches 80% in 2028. The increased cap will apply to losses incurred in taxable years beginning January 1, 2025. The change will bring the state into alignment with federal law.
Second, the bill clarifies related-party expense disallowance rules to avoid double taxation. Under the new rules, an affiliated entity with an intangible expense or cost, or an interest expense or cost, may elect to exclude that income as long as the related taxpayer adds it back. Previous rules prevented this treatment, resulting in both the affiliate and the taxpayer paying tax.
Third, the bill expands the availability of Pennsylvania’s Historic Preservation Tax Credit, increasing the program’s annual award limit from $5,000,000 to $20,000,000. The credit helps offset 25–30% of qualified expenditures to restore historic structures into income-producing properties. The increase brings Pennsylvania closer into alignment with nearby states offering similar credits.
The bill also includes expense deductions for medical cannabis businesses, a tax credit for employers helping employees with childcare costs, and a student loan interest deduction. Several proposed changes were rejected. One rejected change was an election to allow pass-through entities to be taxed at the entity level as a workaround to the federal cap on state and local tax deductions. Also rejected were changes to the state’s tax appeals process, which would have expanded procedural options for taxpayers at the Board of Finance and Revenue, an independent administrative tax tribunal. The Department of Revenue opposed both measures. Governor Josh Shapiro praised the 2024–2025 budget, highlighting investments in education and economic development while cutting costs and reducing taxes.
If you have questions about how this legislation or other tax matters will impact your Pennsylvania business, reach out to the Ryan tax experts listed below.
TECHNICAL INFORMATION CONTACTS:
Argi O’Leary
Principal
Ryan
212.871.3901
argi.oleary@ryan.com
Jonathan Geiger
Manager
Ryan
425.440.2333
jonathan.geiger@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.