How health care organizations can prepare for tax changes under Trump in 2025

Debt-financed transactions

As health care deal activity and strategic partnerships continue to increase, the unfavorable limit for deducting interest expense makes consolidation more expensive, undercuts organizations’ ability to make necessary improvements, and may subject some investors to taxable income they do not expect.

The tax policy crossroads

The business interest deduction limitation under section 163(j) became less favorable in 2022, as part of the Tax Cuts and Jobs Act. The current limitation does not expire.

There is some Republican support for a more favorable deduction limit, but it was not a top priority for either party in negotiations that produced the ill-fated Tax Relief for American Families and Workers Act early in 2024. It remains to be seen whether Republican support is strong enough to result in a change. The cost of more favorable tax treatment will factor heavily in what Congress does.

Health care organizations should consider:

• How more favorable expensing of business interest would affect their debt and equity mix in approaching transactions.
• Tax distribution language in their partnership agreements, flexibility in paying those distributions and expectations of their partners where there is a lack of cash to do so.
• Cash flow management tactics where substantial ordinary income and limited interest deductions are both present.

Cost of capital

Health care organizations are upgrading facilities, equipment and technology to enhance the quality and consistency of patient care. When it comes to acquiring fixed assets and placing them into service, more favorable deductions can make these types of improvements more affordable.

The tax policy crossroads

Companies’ ability to deduct the entire cost of qualified assets the year they were acquired and placed in service—a provision known as bonus depreciation—began to phase out in 2023, under the TCJA. Trump and congressional Republicans support restoring this notion of bonus cost recovery as a tax incentive for capital expenditures that drive infrastructure and business growth.

However, the nonpartisan Congressional Budget Office estimated in May that reinstating full bonus depreciation retroactively to 2023 would cost the federal government $378 billion through 2034. That estimate would likely invoke a broader discussion around the need for revenue raisers.

Bonus depreciation

Current law

• 60% bonus depreciation for 2024
• 40% for 2025
• 20% for 2026
• 0% beginning in 2027​

Trump/Republican agenda

• Reinstate 100% bonus depreciation​

Health care organizations should consider:

• Accelerating capital expenditures to take advantage of bonus depreciation before it phases out completely. Such scenario planning should factor in the possibility that 100% bonus depreciation could be reinstated, and the extent to which the organization would regret having accelerated capital expenditures in that scenario.
• Changing their internal capitalization policy to allow the expensing of more assets that would otherwise be capitalized. For example, an organization may expense laptops and other small single item assets that are below their book capitalization limit and that limit is respected for tax.

Income

Although many for-profit health care organizations are structured as pass-throughs, most physicians, nurses, dentists and other health care professionals who provide services are ineligible for the 20% deduction for qualified business income. For service providers who are also owners, eligibility would increase their after-tax income, which could encourage investments in patient care and support the recruitment and retention of skilled workers.

The tax policy crossroads

Health care is considered a specified service trade or business (SSTB) under section 199A, which makes most health care professionals ineligible for the 20% deduction. Neither Trump nor congressional Republicans have proposed making health care service providers eligible; however, keep an eye on any proposed changes to the list of SSTBs as policy negotiations evolve.

Deduction for qualified business income

Current law

20% deduction for qualified business income (expires Dec. 31, 2025)

Trump/Republican agenda

Extend the deduction​

Health care organizations should consider:

• Engaging in the legislative process. This may include informing lawmakers directly of their preference for health care service providers to be eligible for the deduction. It may include getting involved with professional organizations that advocate on behalf of health care organizations.