Tax Reform Update EOD 11/10/17
Individual
State & local tax deduction
- House – Repeal income & sales tax, $10,000 cap on property tax
- Senate – Repeal entire deduction
Medical expense deduction
- House – Repeal
- Senate – Maintain
Mortgage Interest Deduction
- House – Cap at $500,000, limit to single residence
- Senate – Maintain current $1,000,000 cap and second homes
Standard Deduction
- House – $12,000 individuals, $24,000 couples (MFJ)
- Senate – Same
Adoption Tax Credit
- House – Maintain
- Senate – Same
Income Tax Brackets
- House – Four brackets 12% – 25% – 35% – 39.5% [MFJ upper limit thresholds at 90K, 260K, and 1M+, subject to chained CPI adjustments]
- Senate – Seven brackets 10% – 12% – 22.5% – 25% – 32.5% – 35% – 38.5% [Thresholds not available]
Wealth Transfer
Estate and Generation-Skipping Transfer Tax
- House – Current $5.49 million exemption for individuals is doubled, tax ends after 2023
- Senate – Same doubling of individual exemption, but estate & GST tax is preserved
Gift Tax
- House – Gift tax is preserved but maximum rate is reduced from 40% to 35%
- Senate – Same
Retirement Plans / 401(k)
- House – Maintain existing contribution limits and no changes to qualified plans
- Senate – Generally same limits but several restrictions added – no catch-up for >500K earners; eliminating catch-up rules for 403(b) and gov’t 457 plans; early w’d’l penalty for gov’t 457 plans.
Non-qualified Deferred Compensation
- House – No change to current law regarding deferrals, vesting, and inclusion [409(a) retained]
- Senate – Includes provisions similar to original Section 3801 House provisions, which would cause current income taxation of any deferrals not subject to substantial risk of forfeiture (solely defined as performance of future services) and eliminate planning with NQ deferral plans, stock options, and severance plans.
Business
Corporate Taxation (“C”)
- House – 20% rate, effective 2018
- Senate – 20% rate, delayed effective 2019
Pass-Through Businesses (“S” Corp, LLC, Partnerships
- House – 25% rate, with 30% of income defined as business, and 70% as ordinary income wages [unless where demonstrated differently for capital-intensive businesses]
- Senate – Same
Business Deductions
- House – Immediate expensing of capital equipment, disallowance of interest [except for heavy inventory financing industries, e.g. auto dealers]
- Senate – Same
