Early Friday evening, Congressional GOP leaders agreed upon a tax reform bill that both the House and the Senate are expected to vote on this week. If passed, the bill will go to President Trump for his signature.
Key provisions of the bill are as follows:
Individual provisions
- Seven marginal tax brackets are retained, with lower rates. The rates will be 0%, 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- The standard deduction is nearly doubled to $24,000 for married couples, and $12,000 for single filers.
- Allows taxpayers to deduct a maximum of $10,000 of combined real estate taxes and state and local income taxes. Previous proposals completely eliminated the state and local income tax deduction.
- The Child Tax Credit is expanded from $1,000 to $2,000, with up to $1,400 being refundable. Phase-out of the credit begins at $400,000 for married couples.
- The Child and Dependent Care Credit, as well as the Adoption Tax Credit, have been preserved.
- Mortgage interest deduction – no change for taxpayers with existing mortgages; however, for new mortgages interest will only be deductible on up to $750,000 of mortgage indebtedness.
- The medical deduction is retained and expanded for 2018 and 2019, allowing deductions of medical expenses in excess of 7.5% of adjusted gross income, before increasing to 10% in 2020.
- Retains the ability to deduct charitable contributions.
- Eliminates the Affordable Care Act’s individual mandate to have health insurance or pay a tax penalty.
- Expands use of 529 accounts to allow qualified distributions for elementary, secondary and college education.
- Retains the alternative minimum tax, but significantly increases the exemption level.
- Retains the estate tax, but doubles the exemption level to nearly $11 million per individual.
Business provisions
- Lowers the corporate tax rate to 21%, effective January 1, 2018 (down from 35%).
- Creates a 20% tax deduction for pass-through businesses (S Corporations, LLCs, partnerships, and sole proprietors) on the first $315,000 of business profits, excluding certain industries, such as personal service businesses.
- Allows businesses to immediately expense the cost of new and used equipment purchased through December 31, 2022, phasing out beginning January 1, 2023, through December 31, 2027, and significantly increases Section 179 expensing of qualified property.
- Eliminates the corporate alternative minimum tax.
- Retains provisions such as the ability to deduct business interest expense, the research and development tax credit, and the tax-preferred status of private-activity bonds.
Numerous other provisions affect substantially all tax filers. Please consult your Yeo & Yeo tax advisor with any questions you may have on this bill.