In dramatic form, the U.S. Senate passed the Tax Cuts and
Job Act, H.R. 1 in the wee hours of Saturday, with only one member breaking
party lines. Not so surprisingly, after several
rounds of negotiations, the bill is becoming more convoluted and no longer
reflects a “simplification” by any stretch of the imagination. The major impact of the current proposal
remains lower corporate tax rates at an anticipated cost of $1 trillion dollars.
Here are some highlights of where the
bill currently stands, as it heads into reconciliation where the two houses
vote on a common revised bill…
Under the Senate’s bill, the tax brackets for individuals
remain at 7 rates instead of reducing the number of rates to 4 as proposed by
the House. The income rates are lowered
from the current rates through 2025 to 0%, 10%, 12%, 22.5%, 32.5%, 35%, and
The Senate bill raises the standard deduction to:
-Single $12,000 (currently $6,350)
-Head of Household $18,000
-Married filing Jointly $24,000
These limits hardly offset the state and local income tax
deduction that is eliminated.
Property Tax and State & Local Income Tax Deduction
The state and local income taxes remain on the chopping
block for both versions of the bill, however, both retain a capped $10,000
property tax deduction. Unfortunately,
the Senate bill also retains the alternative minimum tax (AMT), which was the
major offsetting item that made the loss of these deductions palatable to high
tax states, like New York.
Mortgage Interest Deduction
The Senate bill keeps the mortgage interest deduction as it
currently stands, on interest paid up to $1,100,000 of indebtedness; whereas,
the House bill capped the indebtedness at $500,000.
Child Tax Credit / New Family Credit
The child tax credit increases to $2,000 for each child under
18 and at higher income limits. It also
creates a temporary $500 credit for dependents who are not children.
The Senate’s plan allows deduction for medical expenses in
excess of 7.5% of adjusted gross income.
This is a lower rate than in the current tax code which is a 10% floor,
and the House bill which eliminates the deduction altogether.
Student Loan Interest Deduction
Remains in the Senate version of the bill.
Health Care Mandate
The Senate bill repeals the penalty for not having
The Senate keeps AMT, but raises the exemption amounts
temporarily through 2025, when it will revert to current law.
The bill attempts to extend the corporate tax rate cut to
pass-through entities, by allowing 23% of pass through income to be treated at
a preferential corporate tax rate.
The bill lowers the corporate tax rate from 35% to 20% with
an effective date of 2019.
The estate and gift tax exemption amount is doubled from approximately $11,000,000 for married taxpayers to $22,000,000.
Given the amount that has changed, I find it unlikely that
the House will accept the Senate’s bill as passed. Therefore, I expect the negotiations to
continue. There are reports a bill may
be passed by Christmas – we shall see!