Pending Tax Reform 2017: What You Need to Know

BREAKING NEWS: On Friday, December 15, 2017 the Tax Cuts and Jobs Act (H.R. 1) was signed by House-Senate Conference Committee. The bill will now move forward to be voted on next week by the entire House of Representatives and Senate.  We will continue to make updates, so please continue to watch www.blalockwalters.com for more news and information on the pending tax reform.

For more information about Tax Cuts and Jobs Act (H.R. 1), please visit: https://waysandmeans.house.gov/tax-cuts-jobs-act-moves-forward-house-senate-floor-full-vote/

 

As of December 8, 2017

Table of Contents:
Business. 2
Individuals. 8
Estate/ Gift Tax. 16
Charitable Contributions/ Non Profits. 17
Other. 19
Real Estate. 19
Depreciation. 20
Bonds. 21

 

2017 Tax Reform Moves Forward:

On November 16, 2017, the US House of Representatives passed H.R.1 – Tax Cuts and Jobs Act with a vote of 227 “yea” to 205 “nay.”

On December 02, 2017, after the US Senate made numerous amendments and revisions, the Senate passed its own version of the H.R.1 – Tax Cuts and Jobs Act, with a vote of 51“yea” to 49 “nay.”
Two versions of the tax bill now exist, so what happens next?

  • A conference committee will be appointed where senior leaders from the House of Representatives and the Senate will try to negotiate an agreed upon version of the bill, usually resulting in a conference report representing the compromised bill.
  • Once a compromised bill is agreed upon by the conference committee, both the House of Representatives and the Senate will have to pass the revised bill again without any amendment.
  • If the bill is passed by both chambers, a final bill will be sent to the President to be signed into law. Republicans have indicated they are aiming to send a tax bill to the President by the end of 2017.

To receive the latest updates on tax reform visit our website or sign up for our email blasts at Blalockwalters.com/newsletters.

Business

  • Pass-Through Tax Treatment
    • House Bill:  After 2017, 25% maximum tax rate on the portion of pass-through entity net income distributions treated as business income with the remaining portion of distributions being treated as wage income subject to individual income tax rates. Business income is distinguished from wage income as follows: (A) owners or shareholders receiving distributions from active business activities would be able to elect to: (1) treat 30% as business income and 70% as wage income, or (2) determine ratio of business income to wage income based on capital investment; and (B) owners or shareholders receiving distributions from passive business activities would be able to treat 100% as business income. Certain personal businesses (e.g., businesses involving the performance of services in the fields of law, accounting, consulting, engineering, financial services, or performing arts) would not be eligible for the pass-through rate. Transition rules would apply.
    • Senate Bill: After 2017, would allow a new deduction of 23% for taxpayers who have domestic “qualified business income” (QBI) from a partnership, S corporation, or sole proprietorship.  QBI would be defined as all domestic business income other than investment income (e.g., dividends), investment interest income, short-term capital gains, long-term capital gains, commodities gains, foreign currency gains, etc. Deduction would generally be limited to 50% of the taxpayer’s allocable or pro rata share of “W-2 wages” paid by the partnership or S corporation, or 50% of the “W-2 wages” of the sole proprietorship.  “W-2 wages” of a partnership, S corporation, or sole proprietorship would be the sum of wages subject to wage withholding, elective deferrals, and deferred compensation paid by the business during the calendar year ending during the taxable year. Thus, if the partnership, S corporation, or sole proprietorship does not pay “W-2 wages,” the owner or taxpayer’s deduction would be zero. The “W-2 wage” limit would not apply to a taxpayer with taxable income not exceeding $500,000 (for married individuals filing jointly) or $250,000 (for other individuals), and the application of the “W-2 wage” limit would be phased in for individuals with taxable income exceeding these amounts. Deduction would apply to taxpayers with income from specified service businesses whose taxable income does not exceed $500,000 for married individuals filing jointly or $250,000 for other individuals (indexed for inflation). Special income phase-out rules would apply. The deduction would expire after December 31, 2025.
  • Contributions to Capital to Corporations
    • House Bill: Beginning on the date of enactment, contributions to a corporation of capital are included in a corporation’s gross income, unless the contribution is in exchange for stock. Contributions received by a corporation which are in excess of fair market value of stock issued would be included in gross income. The Corporation’s basis in property contributed would be greater of either: (1) the basis of transferor increased by gain recognized, or (2) the amount included in gross income.
    • Senate Bill: No Provision.
  • Contributions to Capital for Partnerships
    • House Bill: Beginning on the date of enactment, contributions to a partnership of capital are included in partnership’s gross income, unless the contribution is in exchange for an interest in partnership. Contributions received by a partnership in excess of the fair market value of the partnership interest exchanged would be included in gross income.
    • Senate Bill: No provision. 
  • Alternative Minimum Tax for Corporations(AMT)
    • House Bill: After 2017, corporate AMT is repealed; however, prior year minimum tax credits are allowed to offset the taxpayer’s regular tax liability for any tax year. For tax years beginning after 2018 through tax years beginning before 2023, the prior year minimum tax credit would be refundable equal to 50% (or 100% after 2022) of the excess of the credit for the tax year over the amount of the credit allowable for the year against regular tax liability
    • Senate Bill: After 2017, corporate repeals AMT; however, prior year minimum tax credit are allowed to offset the taxpayer’s regular tax liability for any tax year. For tax years beginning after 2017 through tax years beginning before 2022, the prior year minimum tax credit would be refundable in an amount equal to 50% (100% starting in 2021) of the excess of the credit for the tax year over the amount of the credit allowable for the year against regular tax liability.
  • Technical Termination of Partnership
    • House Bill: After 2017, the technical termination rule is repealed and a partnership would continue, without election, even if more than 50% of the total capital and profit interest of partnership were sold or exchanged.
    • Senate Bill: No provision.
  • Corporate Tax Rate
    • House Bill: After 2017, rate decreased to a 20% flat corporate tax rate and a 25% flat rate for personal service corporations. After 2017, the dividends received deduction would be reduced to 65% (from 80%) and 50% (from 70%), preserving the current laws effective tax rates on income from such dividends.
    • Senate Bill: After 2018, rate decreased to a 20% flat corporate tax rate; which would also apply to personal service corporations. After 2018, dividends received deduction would be reduced to 65% (from 80%) and 50% (from 70%). The maximum corporate tax rate on net capital gain is repealed.
  • Expansion of Qualifying Beneficiaries of an Electing Small Business Trust (ESBT)
    • House Bill: No provision.
    • Senate Bill: Effective Jan. 1, 2018, a nonresident alien could be a potential current beneficiary of an ESBT.
  • Basis Limitation on Partner Losses
    • House Bill: No provision.
    • Senate Bill: After 2017, the basis limitation on the deductibility of partner losses would also apply to a partner’s distributive share of charitable contributions and foreign taxes (which are currently exempted). However, basis limitation would not apply to the excess of fair market value over adjusted basis on charitable contributions of appreciated property.
  • Substantial Built-in Loss
    • House Bill: No provision.
    • Senate Bill: Expands the ability for a partnership to adjust the basis of partnership property following the transfer of a partnership where the partnership has a substantial built-in loss immediately after the transfer. Currently, a substantial built-in loss exists if the partnership’s adjusted basis in its property is greater than $250,000 of the fair market value of the partnership property. Under the new law a substantial built-in loss would also include, if immediately after the transfer of the partnership interest, the transferee would be allocated a net loss in excess of $250,000 upon a hypothetical disposition by the partnership of all partnership’s assets in a fully taxable transaction in exchange for cash equaling fair market value of the partnership’s assets.
  • Expensing Costs of Replanting Citrus Plants
    • House Bill: No Provision.
    • Senate Bill: Allows a minority co-owner to deduct the replanting costs for citrus plants lost or damaged due to freezing temperatures, pests, disease, droughts, or casualty if certain requirements are satisfied.
  • Limitation on Business Interest Expense Deduction
    • House Bill: Limits the deduction for net interest expenses incurred by a business (with average annual gross receipts greater than $25 million) in excess of 30% of the business’s adjusted taxable income for tax years beginning after 2017.
    • Senate Bill: Limits the deduction for net interest expenses incurred by a business (with average annual gross receipts greater than $15 million) in excess of 30% of the business’s adjusted taxable income. Interest disallowed could be carried forward indefinitely.
  • Net Operating Loss (“NOL”) Deduction 
    • House Bill: Taxpayers can deduct a NOL carryover or carryback of up to 90% of the taxpayer’s taxable income and NOL carryforwards could be carried forward indefinitely (compared to a limitation of 20 currently). However, the bill will also generally repeal the allowance of all carrybacks except for a 1-year carryback related to certain small businesses and farms.
    • Senate Bill: Taxpayers can generally deduct a NOL of 90% (80% after December, 31, 2022) of the taxpayer’s taxable income and amounts carried back or forward to other years are adjusted to account for the limitation for losses arising in tax years beginning after December 31, 2017. The bill would generally repeal the allowance of carrybacks, except for farming NOLs and NOLs could be carried forward indefinitely. The lower 80% limit, which begins after December 31, 2022, would be repealed, for tax years beginning after December 31, 2025, if certain revenue targets are met by September 30, 2026.
  • Unused Business Credits
    • House Bill: For tax years beginning after December 31, 2017, the deduction for any unused business credits that remain after they are carried back one year and forward 20 years is repealed.
    • Senate Bill: For tax years beginning after December 31, 2017, the deduction for any unused business credits that remain after they are carried back one year and forward 20 years is repealed.
  • Employer Credit for Paid Family and Medical Leave 
    • House Bill: No provision.
    • Senate Bill: For wages paid in tax years beginning after December 31, 2017, eligible employers (which allow qualifying full-time employees at least two weeks of annual paid family and medical leave and a pro-rata amount of leave for part-time employees) can claim a business credit for 12.5% of the wages paid to qualifying employees during the leave period if the payment equals 50% of the wages normally paid to an employee. The credit is increased by 0.25 percent (but not above 25%) for each percentage point the payment to the employee exceeds 50% of normal wages.
  • Employer-Provided Child Care Credit
    • House Bill: Repeals the employer-provided child care credit (which currently allows employers to claim a credit of up to $150,000 equal to 25% of qualified expenses for employee child care and 10% of qualified expenses for child-care resource and referral services).
    • Senate Bill: No provision.
  • Rehabilitation Credit
    • House Bill: Repeals the rehabilitation tax credit, which is currently an incentive for rehabilitation of certain real property, and provides a transition rule for expenditures incurred through the end of a 24-month period that would begin within 180 days after Jan. 1, 2018.
    • Senate Bill: A 20% credit (claimed ratably over a five-year time period beginning in the tax year the structure is placed in service) for qualified rehabilitation expenditures for amounts paid or incurred after Dec. 31, 2017 and a transition rule for certain expenses incurred.
  • S Corporation Conversion to C Corporation
    • House Bill: Effective for S corporations which revoke their S corporation elections during the two-year period beginning on the enactment date which have the same owners on both the enactment date and the revocation date. Distributions from a terminated
      S corporation are treated as paid from its accumulated adjustment account and from its earnings and profits.  Section 481(a) adjustments are accounted for over a six-year period.
    • Senate Bill: No provision.
  • Carried Interest
    • House Bill: After 2017, transfers of applicable partnership interests held for less than three years are treated as a short-term capital gain; however, certain equity interests would be exempt.
    • Senate Bill: Same as House bill.
  • Conformity of Contribution Limits for Employer Sponsored Retirement Plans
    • House Bill: No provision.
    • Senate Bill: Effective for plan years and taxable years beginning after December 31, 2017, a single aggregate limit is applied to contributions to governmental plans and elective deferrals for the same employee under a §401(k) plan or §403(b) plan of the same employer, repealing rules allowing additional elective deferrals and catch-up contributions under §403(b) plans and governmental §457(b) plans. 
  • Entertainment, etc. Expenses
    • House Bill: Disallows deductions paid or incurred after 2017 for entertainment, amusement, or recreation activities, as well as other fringe benefits such as transportation under all circumstances.
    • Senate Bill: Generally, for amounts incurred after December 31, 2017, no deduction allowed for entertainment, amusement, or recreation; membership dues for a club organized for business, pleasure, recreation, or other social purposes; and no deduction allowed for entertainment, amusement, or recreation that is directly related to the taxpayer’s trade or business.  The deduction for 50% of food and beverage expenses related to a taxpayer’s trade or business is generally retained.
  • Local Lobbying Expenses 
    • House Bill: For expenses paid or incurred after 2017 no deduction allowed for lobbying expenses regarding legislation before local government bodies.
    • Senate Bill: Same provision as the House bill; however, the effective date is on or after the date of enactment.
  • Dividends Paid Deduction and Reporting 
    • House Bill: No Provision.
    • Senate Bill: After 2018, while corporations are not allowed to deduct dividends paid in computing their taxable income, dividends paid are taxed at a 0% percent rate.  Corporation are also required to report the total dividends paid during the tax year and first 3 ½ months of the next tax year (if the corporation elects to treat the dividend as paid during the reporting year). Failure to file the information return results in daily penalty of $1,000 not to exceed $250,000.
  • Accounting for Long Term Contracts
    • House Bill: For contracts entered into after 2017, increases the average gross receipts exception to $25 million (currently $10 million) for using the percentage-of-completion accounting method for long-term contracts to be completed within two years.
    • Senate Bill: For contracts entered into after 2017, increases the average gross receipts exception to $15 million (currently $10 million) for using the percentage-of-completion accounting method for long-term contracts to be completed within two years.
  • Other Accounting Methods
    • House Bill:  No Provision.
    • Senate Bill: Effective for tax years beginning after December 31, 2017, requires a taxpayer to recognize income no later than the tax year in which such income is taken into account as income on the taxpayer’s financial statement, with an exception for long-term contract income, and codify the current deferral method of accounting for advance payments for goods and services provided under Rev. Proc. 2004-34.

 

 

Individuals

 

  • Alternative Minimum Tax for Individuals
    • House Bill: Repeals existing individual AMT; however, continues to allow prior year minimum tax credit to offset the taxpayer’s regular tax.
    • Senate Bill: For individuals, suspends the AMT for tax years beginning after December 31, 2017, and before January 1, 2026; and continues to allow the prior year minimum tax credit to offset the taxpayer’s regular tax. 
  • Recharacterization of Certain IRA and Roth IRA Contributions
    • House Bill: Effective for tax years beginning after December 31, 2017, repeals §408A(d)(6), which permits taxpayers to recharacterize a contribution to a traditional IRA as a contribution to a Roth IRA, or vice versa, and permits taxpayers to recharacterize a conversion of a traditional IRA to a Roth IRA.
    • Senate Bill: Same as House bill.
  • Standard Deduction
    • House Bill: Effective for tax years beginning after 2017, increases the standard deduction to: $24,400 (joint return or a surviving spouse); $18,300 (unmarried individual with at least one qualifying child); $12,200 (for single filers).
    • Senate Bill: Effective for tax years beginning after December 31, 2017, increases the standard deduction to: $24,000 (joint return or a surviving spouse); $18,000 (unmarried individual with at least one qualifying child); $12,000 (for single filers).  The increased standard deduction amounts would expire after December 31, 2025.
  • Personal Exemptions 
    • House Bill: Repeals the deduction for personal exemptions, effective for tax years beginning after December 31, 2017.
    • Senate Bill: Suspends the deduction for personal exemptions for tax years beginning after December 31, 2017, and before January 1, 2026.
  • Miscellaneous Itemized Deductions – 2 Percent Floor
    • House Bill: Denies a deduction for expenses attributable to the trade or business of performing services as an employee, except, for reimbursed expenses included in an employee’s income.
    • Senate Bill: Suspends all miscellaneous itemized deductions that are subject to the 2% floor under the current law for tax years beginning after December 31, 2017, and before January 1, 2026.
  • Limitation on Itemized Deductions
    • House Bill: Eliminates the overall limitation on itemized deductions based on a taxpayer’s adjusted gross income.
    • Senate Bill: Suspends the overall limitation on itemized deductions for tax years beginning after December 31, 2017, and before January 1, 2026.
  • Charitable Contributions
    • House Bill:  Increases the AGI limitation on cash contributions from 50% to 60% retaining the five-year carryover and repeals the current 80% deduction for contributions made for university athletic seating rights. Also, the standard mileage rate for charitable use of an automobile would now take into account the variable cost of operating an automobile (currently mileage is calculated at 14 cents per mile). Requires a contemporaneous written acknowledgment (i.e., a receipt) for contributions of less than $250 made in tax years beginning after 2017 by repealing the exception currently allowed.
    • Senate Bill: For contributions made inyears beginning after 2017 and before 2026, increases the AGI limitation on cash contributions from 50% to 60%, and repeals the current 80% deduction for contributions made for university athletic seating rights. Requires a contemporaneous written acknowledgement (i.e., a receipt) for contributions of less than $250, effective for contributions made in tax years beginning after December 31, 2016.
  • State and Local Tax Deduction
    • House Bill: Eliminates the itemized deduction for state and local income and sales tax, the deduction for state and local personal property tax, and the deduction for foreign real property tax, paid by individuals; except for taxes paid or accrued in carrying on a trade or business or income-producing activity. Individuals would be allowed to deduct up to $10,000 ($5,000 for married taxpayers filing separately) in state and local real property tax.
    • Senate Bill: Suspends (from 2018 through 2025) the itemized deduction for state and local income and state, local, and foreign personal property tax paid by individuals; except for taxes paid or accrued in carrying on a trade or business or income-producing activity. Individuals would be allowed to deduct up to $10,000 ($5,000 for married taxpayers filing separately) in state and local real property tax.
  • Affordable Care Act Individual Mandate
    • House Bill: No provision.
    • Senate Bill: Effective for months beginning after December 31, 2018, reduces the amount of the individual shared responsibility payment enacted as part of the Affordable Care Act to zero.
  • Medical Expense Deduction
    • House Bill: Eliminates the itemized deduction (currently a deduction allowed for our of pocket expenses that exceed 10% of AGI) for medical expenses for tax years beginning after 2017.
    • Senate Bill: Preserves current medical expense deduction.
  • Alimony Payments Deduction
    • House Bill: Effective for divorce decrees, separation agreements and certain other modifications entered into after 2017, eliminates the current above-the-line deduction for alimony payments and does not require the payee receiving alimony payments to include alimony payments into income.
    • Senate Bill: No provision.
  • Dependent Care Assistance Programs
    • House Bill: Sunsets the dependent care assistance exclusion available to employees for amounts paid or incurred by an employer (rather than appealing them as planned). The sunset would apply as to tax years beginning after December 31, 2022.
    • Senate Bill: No provision.
  • Limitation on Losses for Taxpayers Other than Corporations
    • House Bill: No provision.
    • Senate Bill: For tax years beginning in 2017, for taxpayers other than C corporations, an excess business loss is disallowed. However, an excess business loss could be treated as part of the taxpayer’s net operating loss carryover to the following year. An excess business loss for the tax year is defined as equaling the excess of aggregate deductions of the taxpayer attributable to the trade or business of the taxpayer, over the sum of aggregate gross income or gain of the taxpayer plus a defined threshold amount (generally, $500,000 for married taxpayers filing jointly or $250,000 for all other taxpayers). The limitation applies at the partner or S corporation shareholder level and expires after December 31, 2025. 
  • Earned Income Tax Credit 
    • House Bill: Preserves the earned income credit and updates social security identification requirements.
    • Senate Bill: Preserves the earned income credit and lowers the threshold from $3,000 to $2,500.
  • Personal Casualty Losses Deduction
    • House Bill: Repeals the personal casualty loss itemized deduction for property losses (which are not used in connection with a trade or business) incurred from fire, storm, shipwreck, or other casualty, and theft (however, preserves the above-the-line casualty loss deduction for personal casualty losses incurred under the 2017 disaster relief legislation).
    • Senate Bill: Limits the personal casualty loss itemized deduction for property losses (not used in connection with a trade or business) to apply only to losses incurred as a result of federally-declared disasters. Applies to losses incurred in tax years beginning after December 31, 2017, and before January 1, 2026.
  • Tax Preparation Services Deduction
    • House Bill: Eliminates the itemized deduction for tax preparation services for tax years beginning after 2017.
    • Senate Bill: Suspends all miscellaneous itemized deductions that are subject to the 2% floor under §67 under present law for tax years beginning after December 31, 2017, and before January 1, 2026, which includes the deduction for tax preparation services.
  • Moving Expenses Deduction
    • House Bill: Effective for tax years beginning after December 31, 2017, generally eliminates the deduction available for moving expenses incurred when starting a new job with an exception for members of the armed forces.
    • Senate Bill: Generally, suspends the deduction for moving expenses for tax years beginning after December 31, 2017, and before January 1, 2026, with an exception for active duty members of the Armed Forces who move pursuant to a military order and incident to a permanent change of station.
  • Employer-provided Housing Exclusion
    • House Bill: Limits the exclusion for employer-provided housing to $50,000 ($25,000 for married individuals filing separately) limited to one residence and phasing out for highly compensated individuals.
    • Senate Bill: No provision.
  • Exclusion for Qualified Moving Expense Reimbursements
    • House Bill: After December 31, 2017 repeals the exclusion for qualified moving expense reimbursements (and include them in taxable income).
    • Senate Bill: For tax years beginning after December 31, 2017 and before January 1, 2026, suspends the exclusion from gross income for qualified moving expense reimbursements, with an exception for active duty members of the Armed Forces who move pursuant to a military order and incident to a permanent change of station.
  • Expenses Attributable to the Trade or Business of Being an Employee
    • House Bill: No deduction for expenses attributable to the trade or business of performing services as an employee and eliminates the above-the-line deductions for performing artists, government officials, and teachers.
    • Senate Bill: Suspends all miscellaneous itemized deductions that are subject to the 2% floor under present law, which includes expenses attributable to the trade or business of performing services as an employee.
  • Enhancement of Child Tax Credit and New Family Tax Credit
    • House Bill: Increases the credit for children under age 17 to $1,600. A credit of $300 would be allowed for children over age 17 and non-child dependents. A family flexibility credit of $300 would be allowed with respect to the taxpayer (each spouse in the case of a joint return) who is neither a child nor a non-child dependent and is effective for tax years ending before Jan. 1, 2023. The credit phase-out is at $230,000 (for joint filers), and $115,000 (for single filers).
    • Senate Bill: The child tax credit is increased to $2,000 and increases the age limit for a qualifying child to the age of under 18. A $500 nonrefundable credit is available for dependents other than qualifying children. The credits would begin to phase out to $500,000.
  • Reforms to Discharge of Certain Student Loan Indebtedness
    • House Bill: Any income resulting from the discharge of student debt on account of death or total disability of the student would be excluded from taxable income effective for discharges of indebtedness received after 2017 and amounts received in tax years beginning after 2017.
    • Senate Bill: Excludes from taxable income, income resulting from the discharge of certain student debt on account of the death or total and permanent disability of the student, effective for loans discharged after December 31, 2017.

 

Individual Tax Rates

Current 2017 Rates House Bill Senate Bill
  The bill would have four tax brackets: 12%, 25%, 35%, and 39.6%, in addition to an effective fifth bracket at zero percent in the form of the enhanced standard deduction. The bill would have seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%. These brackets would apply to tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026.
Married Filing Jointly (Surviving Spouses):

10% (Taxable income not over $18,550)

15% (Over $18,550 but not over $75,900)

25% (Over $75,900 but not over $153,100)

28% (Over $153,100 but not over $233,350)

33% (Over $233,350 but not over $416,700)

35% (Over $416,700 but not over 470,700)

39.6% (Over $470,701)

 

Married Filing Jointly (Surviving Spouses):

12% (Taxable income not over $90,000)

25% (Over $90,000 but not over $260,000)

35% (Over $260,000 but not over $1,000,000)

39.6% (Over $1,000,000)

Married Filing Jointly and Surviving Spouses:

10% (Taxable income not over $19,050)

12% (Over $19,050 but not over $77,400)

22% (Over $77,400 but not over $140,000)

24% (Over $140,000 but not over $320,000)

32% (Over $320,000 but not over $400,000)

35% (Over $400,000 but not over $1,000,000)

38.5% (Over $1,000,000)

Married Filing Separately:

10% (Taxable income not over $9,325)

15% (Over $9,325 but not over $37,950)

25% (Over $37,950 but not over $76,550)

28% (Over $76,550 but not over $116,675)

33% (Over $116,675 but not over $208,350)

35% (Over $208,350 but not over $235,350)

39.6% (Over $235,350)

Married Filing Separately:

12% (Taxable income not over $45,000)

25% (Over $45,000 but not over $130,000)

35% (Over $130,000 but not over $500,00)

39.6% (Over $500,000)

Married Filing Separately:  10% (Taxable income not over $9,525)

12% (Over $9,525 but not over $38,700)

22% (Over $38,700 but not over $70,000)

24% (Over $70,000 but not over $160,000)

32% (Over $160,000 but not over $200,000)

35% (Over $200,000 but not over $500,000)

38.5% (Over $500,000)

Head of Household:

10% (Taxable income not over $13,350)

15% (Over $13,350 but not over $50,800)

25% (Over $50,800 but not over $131,200)

28%(Over $131,200 but not over $212,500)

33% (Over $212,500 but not over $416,700)

35% (Over $416,700 but not over $444,550)

39.6% (Over $444,550)

Head of Household:

12% (Taxable income not over $67,500)

25% (Over $67,500 but not over $200,000)

35% (Over $200,000 but not over $500,000)

39.6% (Over $500,000

Head of Household:

10% (Taxable income not over $13,600)

12% (Over $13,600 but not over $51,800)

22% (Over $51,800 but not over $70,000)

24% (Over $70,000 but not over $160,000)

32% (Over $160,000 but not over $200,000)

35% (Over $200,000 but not over $500,000)

38.5% (Over $500,000)

 

Other Individuals:

10% (Taxable income not over $9,325)

15% (Over $9,325 but not over $37,950)

25% (Over $37,950 but not over $91,900)

28% (Over $91,900 but not over $191,650)

33% (Over $191,650 but not over $416,700)

35% (Over $416,700 but not over $418,400)

39.6% (Over $418,400)

Other Individuals:

12% (Taxable income not over $45,000)

25% (Over $45,000 but not over $200,000)

35% (Over $200,000 but not over $500,000)

39.6% (Over $500,000)

Single Individuals:

10% (Taxable income not over $9,525)

12% (Over $9,525 but not over $38,700)

22% (Over $38,700 but not over $70,000)

24% (Over $70,000 but not over $160,000)

32% (Over $160,000 but not over $200,000)

35% (Over $200,000 but not over $500,000)

38.5% (Over $500,000)

  The bill would, for high-income taxpayers, impose a phase-out of the tax benefit of the 12% bracket. It would impose an increase in tax at 6% of any excess of adjusted gross income over $1,200,000 for a joint return or surviving spouses, $600,000 in for a married individual filing separately, and $1,000,000 for any other individual. These amounts will be indexed for inflation using C-CPIU for tax years beginning after 2018. The income threshold amounts for each rate bracket would be indexed for inflation using CCPI-U in tax years beginning after Dec. 31, 2018.  Would simplify the “kiddie tax”

 

Capital Gains Tax Rates

House Bill Senate Bill
Under the zero percent capital gains bracket, the bill would amend the 25% rate to a 15% rate threshold. Under the 15% capital gains bracket, the bill would amend the 39.6% rate to 20% rate threshold. The rate thresholds would be as follows: Under the bill, the breakpoints between the 0% and 15% rates and between the 15% and 20% rates would be the same as under the present law. For tax years beginning in 2018, the rate thresholds would be as follows:
Married Filing Jointly (and Surviving Spouses):

15% Rate Threshold – $77,200

20% Rate Threshold – $479,000

Married Filing Jointly (and Surviving Spouses):

15% Rate Threshold – $77,200

20% Rate Threshold – $479,000

Married Filing Separately:

15% Rate Threshold – $38,600

20% Rate Threshold – $239,500

Married Filing Separately:

15% Rate Threshold – $38,600

20% Rate Threshold – $239,500

Head of Household:

15% Rate Threshold – $51,700

20% Rate Threshold – $452,40

Head of Household:

15% Rate Threshold – $51,700

20% Rate Threshold – $452,400

Other Individuals:

15% Rate Threshold – $38,600

20% Rate Threshold – $425,800

Other Individuals:

15% Rate Threshold – $38,600

20% Rate Threshold – $425,800

The above 15% and 20% threshold amounts would be indexed for inflation in tax years beginning after 2018.

 

The bill would make this provision effective for tax years beginning after 2017

The above 15% and 20% threshold amounts would apply to tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026. These amounts would be indexed for inflation using C-CPI-U in tax years beginning after Dec. 31, 2018. The requirement to index amounts for inflation using C-CPI-U would not expire.

 

 

Estate/ Gift Tax

  • Estate and Gift Taxes
    • House Bill: Increases the federal estate and gift tax unified credit exclusion amount to $10 million (with inflation adjustments), effective for decedents dying and gifts made after 2017. The federal estate tax would then be repealed, effective for decedents dying after 2024 (while retaining the provision allowing a “stepped-up” income tax basis at death). Lowers the federal gift tax rate from 40% to 35% for gifts made after 2024.
    • Senate Bill: Increases the federal estate and gift tax unified credit exclusion amount to $10 million (with inflation adjustments), effective for decedents dying and gifts made after 2017 and before 2026. No repeal of the estate tax.
  • Generation-Skipping Transfer Tax
    • House Bill: Increases the federal GST exemption amount to $10 million (with inflation adjustments), effective for generation-skipping transfers made after 2017 and repeals the federal generation-skipping transfer tax for generation-skipping transfers made after 2024.
    • Senate Bill: Increases the federal GST exemption amount to $10 million (with inflation adjustments), effective for generation-skipping transfers made after 2017 and before 2026.  No repeal of the generation-skipping transfer tax.
  • Consolidation of Education Savings Rules
    • House Bill: New contributions to Coverdell education savings accounts after 2017 (except rollover contributions) are prohibited; however, tax-free rollovers from Coverdell accounts into §529 plans are allowed.  Elementary and high school expenses of up to $10,000 per year are included as qualified expenses for §529 plans for contributions and distributions made after 2017.
    • Senate Bill: An unborn child may qualify as a designated beneficiary for §529 plans for contributions made after December 31, 2017.

 

Charitable Contributions/ Non Profits

  • Charitable Contribution Deduction for Electing Small Business Trusts (ESBT)
    • House Bill: No provision.
    • Senate Bill: Beginning after December 31, 2017, charitable deduction of an ESBT are no longer be determined by the rules generally applicable to trusts, individual rules apply. Therefore, the percentage limitations and carryforward provisions applicable to individuals would apply to charitable contributions made by the portion of an ESBT holding S corporation stock.
  • Charitable Contributions
    • House Bill:  Increases the AGI limitation on cash contributions from 50% to 60% retaining the five-year carryover and repeals the current 80% deduction for contributions made for university athletic seating rights. Also, the standard mileage rate for charitable use of an automobile would now take into account the variable cost of operating an automobile (currently mileage is calculated at 14 cents per mile). Requires a contemporaneous written acknowledgment (i.e., a receipt) for contributions of less than $250 made in tax years beginning after 2017 by repealing the exception currently allowed.
    • Senate Bill: For contributions made inyears beginning after 2017 and before 2026, increases the AGI limitation on cash contributions from 50% to 60%, and repeals the current 80% deduction for contributions made for university athletic seating rights. Requires a contemporaneous written acknowledgement (i.e., a receipt) for contributions of less than $250, effective for contributions made in tax years beginning after December 31, 2016. 
  • Elimination of Exemption for Professional Sports Leagues 
    • House Bill: No provision.
    • Senate Bill: Eliminates exemptions for professional sports leagues and expressly excluding them from the definition of a business league which is exempt from income tax under §501(c)(6).
  • Unrelated Business Taxable Income
    • House Bill: Increases unrelated business taxable income by the amount of certain fringe benefit expenses for which a deduction is disallowed.
    • Senate Bill: Fringe benefits not addressed. Requires income derived from the licensing of an organization’s name or logo be treated as derived from an unrelated trade or business income. Requires organizations that carry on more than one unrelated trade or businesses to separately calculate unrelated business taxable income for each trade or business, (effectively prohibiting using deductions relating to one trade or business to offset income from another separate trade or business). 
  • Modifications to Intermediate Sanctions Excise Tax on Excess Benefit Transactions
    • House Bill: No provision.
    • Senate Bill: Imposes an excise tax on a tax-exempt organization involved in an excess benefit transaction equal to 10% of the excess benefit unless the organization establishes that certain minimum due diligence standards are satisfied and eliminates the rebuttable presumption of reasonableness contained in IRS regulations. The changes apply to tax years beginning after 2017.
  • Excise Tax on Tax Exempt Organization Executive Compensation
    • House Bill: For tax years beginning after 2017, imposes a 20% excise tax on compensation in excess of $1 million paid to an applicable tax-exempt organization’s five highest-paid employees in a tax year, and also applies a 20% excise tax to any parachute payment exceeding the portion of the base that is allocated to the payment.
    • Senate Bill: Same as House bill.
  • Private Foundation Excise Tax on Investment Income
    • House Bill: The bill would simplify the private foundation excise tax on investment income and would reduce the rate from 2% to 1.4%, effective for tax years beginning after 2017.
    • Senate Bill: No provision.
  • Private Foundation Excise Tax on Failure to Distribute Income
    • House Bill: Generally, organizations operating art museums would be excluded from the private foundation excise tax on failure to distribute income.
    • Senate Bill: No provision.
  • Excise Tax on Investment Income of Private Colleges and Universities 
    • House Bill: Imposes a 1.4% excise tax on certain private colleges, universities, and related organizations and apply only to private institutions that have more than 500 students and assets of at least $250,000 per full-time student (not including assets used directly for educational purpose).
    • Senate Bill: Same as the House bill, except assets held and investment income earned by related uncontrolled organizations would be treated as the institution’s assets only if the assets and income are intended or available for the institution.
  • Exception From Excess Business Holding Tax for Independently operated Philanthropic Business Holdings
    • House Bill: Exempts certain private foundations (PFs) from the 10% excise tax for holding a 20% interest in a for-profit business and exempts certain foundation from the 200% excise tax if they do not divest the holding by the close of the subsequent tax year. To qualify for the exception, the PF would have to satisfy several requirements.
    • Senate Bill: Same as House bill.
  • 501(c)(3) Organizations Permitted to Make Statements Relating to Political Campaign in Ordinary Course of Activities
    • House Bill: For tax years beginning after December 31, 2018, 501(c)(3) organizations can make political statements in the ordinary course of activities in carrying out exempt purposes if the incremental expenses incurred are de minimis, and would sunset for tax years beginning after December 31, 2023.
    • Senate Bill: No provision.
  • Additional Reporting Requirements for Donor Advised Fund Sponsoring Organizations 
    • House Bill: Requires donor advised funds to annually disclose the average amount of grants made from their donor advised funds and the fund’s policies on inactive donor advised funds for frequency and minimum level of distributions.
    • Senate Bill: No provision.

Other

 

Real Estate

  • Like-Kind Exchanges of Real Property
    • House Bill: Only real property can have gain deferred in an exchange of like-kind property.
    • Senate Bill: Only real property not primarily held for sale can have gain deferred in an exchange of like-kind property. 
  • Gain from Sale of a Principal Residence Exclusion 
    • House Bill: Effective for exchanges after 2017, excludes from gross income up to $500,000 for joint filers ($250,000 for other filers) from the sale of a principal residence if the taxpayer owned and used the home as such for five out of the previous eight years. The exclusion would only be available once every five years and phase out by one dollar for every dollar by which the taxpayer’s gross income exceeds $250,000 ($500,000 for joint filers).
    • Senate Bill: Exclusion for gain realized on sale of principal residence allowed only if the taxpayer has owned and used the residence as a principal residence for at least five of the eight years ending with the date of the sale. Allows taxpayers to use the exclusion only once every five years. These special rules would apply to sales or exchanges made after December 31, 2017, and before January 1, 2026, but would not apply to any sale of exchange that had a written binding contract in effect before January 1, 2018.
  • Mortgage Interest Deduction 
    • House Bill: Reduces the mortgage interest deduction limitation to $500,000 for debt incurred after November 2, 2017, limiting the interest to only a taxpayer’s principal residence. For refinancing transactions which occurred before November 2, 2017, the refinanced debt would be treated as incurred on the same date as the original debt.
    • Senate Bill: Suspends the mortgage interest deduction with respect to interest on home equity indebtedness for tax years beginning after December 31, 2017, and before January 1, 2026. Retains the current interest deduction of up to $1,000,000 ($500,000 for a married person filing a separate return).

Depreciation

  • Depreciation Limitation for Luxury Automobiles and Personal Use Property
    • House Bill: Increases the first-year depreciation increase for passenger automobiles eligible for bonus depreciation to $16,000 from $8,000. 
    • Senate Bill: Increases the depreciation limitations under §280F for passenger automobiles placed in service after December 31, 2017, to $10,000 for the year placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years.
  • Section 179 Expensing
    • House Bill: Effective for tax years 2018 through 2022, increases the business expensing limitation to $5 million and the phase out amount to $20 million (both indexed for inflation).
    • Senate Bill: Increases the amount that a taxpayer may expense under §179 to $1,000,000 and increases the phase out threshold to $2,500,000 (indexed for inflation for tax years beginning after 2018).
  • Depreciation Deductions for Nonresidential Real Property and Residential Rental Property
    • House Bill: No Provision.
    • Senate Bill: Generally effective for property placed in service after December 31, 2017, the recovery period is shortened for nonresidential real property and residential rental property under both §168 and §467(e) to 25 years and provides a 10-year recovery period for qualified improvement property. The separate definitions of “qualified leasehold improvement property”, “qualified restaurant property”, and “qualified retail improvement property” are eliminated. A 20-year ADS recovery period for all qualified improvement property is used. Real property used in a trade or business electing out of the interest expense deduction limitation is required to use ADS to depreciate its nonresidential real property, residential rental property, and qualified improvement property.  Lowers the ADS recovery period to 30 years for residential rental property.
  • Recovery Period for Farming Property
    • House Bill: No Provision.
    • Senate Bill:  Effective for property placed in service after December 31, 2017, repeals the requirement that property used in a farming business use the 150% declining balance method.
  • Use of Alternative Depreciation System for Electing Farming Businesses
    • House Bill: No Provision.
    • Senate Bill: Requires a farming business electing to use ADS to depreciate property with a recovery period of 10 years or more, for tax years beginning after December 31, 2017.

Bonds

  • Private Activity Bond Reforms
    • House Bill: Repeals tax-exempt status for qualified private activity bonds and terminates qualified bond classifications.
    • Senate Bill: No provision.
  • Advance Refunding Bonds
    • House Bill: Repeals advance refunding bonds for all types of bond issues.
    • Senate Bill: Repeals interest on a bond issued to advance refund another bond is excluded from gross income for advance refunding bonds issued after December 31, 2017. 
  • Tax Credit Bonds 
    • House Bill: Repeals the authority to issue new tax credit bonds.
    • Senate Bill: No provision.
  • Professional Sports Stadium Construction
    • House Bill: Disallows the tax-exempt status for bond issues in which proceed finance a professional sports facility which is used for professional sports exhibitions, games, or training at least five days during any calendar year.
    • Senate Bill: No provision.