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November 15, 2017
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The landscape of tax reform continues to change, with further mark-ups, compromises, and changes occurring in the near future. But we believe it important to communicate to you where we are now. Below is a detailed comparison of the Senate proposed tax legislation (released on November 13, 2017) as compared to the House proposed tax legislation, which includes mark-ups.

 

Topic

House Bill (H.R. 1)

Senate Plan

Tax Rates

Individual Income Tax Rates

The bill would have four tax brackets: 12 percent, 25 percent, 35 percent, and 39.6 percent, in addition to an effective fifth bracket at zero percent in the form of the enhanced standard deduction. The income levels would be indexed for Chained Consumer Price Index for 8 All Urban Consumers (C-CPI-U) instead of CPI, a different measure of inflation.

 

The tax brackets for married filing jointly are as follows 12% up to $90,000; 25% up to $260,000; 35% up to $1 million; 39.6% over $1 million.

 

The tax brackets for single filers are as follows 12% up to $45,000; 25% up to $200,000; 35% up to $500,000; 39.6% over $500,000.  

 

The bill would, for high-income taxpayers, impose an increase in tax at 6 percent of any excess of adjusted gross income over $1,200,000 in the case of a joint return or surviving spouses and $1,000,000 for any other individual.

 

The top long term capital gains tax rate is unchanged.

 

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

Individual Income Tax Rates

The plan would have seven tax brackets: 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent, and 38.6 percent.

 

Married Filing Jointly (Surviving Spouses)

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

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

22.5% (Over $77,400 but not over $120,000)

25% (Over $120,000 but not over $290,000)

32.5% (Over $290,000 but not over $390,000)

35% (Over $390,000 but not over $1,000,000)

38.5% (Over $1,000,000)

 

Married Filing Separately:

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

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

22.5% (Over $38,700 but not over $60,000)

25% (Over $60,000 but not over $145,000)

32.5% (Over $145,000 but not over $195,000)

35% (Over $195,000 but not over $500,000)

38.5% (Over $500,000)

 

Head of Household:

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

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

22.5% (Over $51,800 but not over $60,000)

25% (Over $60,000 but not over $170,000)

32.5% (Over $170,000 but not over $200,000)

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

38.5% (Over $500,000)

 

Single Individuals

25% (Over $60,000 but not over $170,000)

32.5% (Over $170,000 but not over $200,000)

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

38.5% (Over $500,000)

 

The income levels would be indexed for inflation using the Chained Consumer Price Index for All Urban Consumers (C- CPI-U) for tax years beginning after 2018.

 

Capital Gains Tax Rates

Under the plan, the breakpoints between the zero- and 15-percent rates and the 15- and 20-percent rates would be the same as the under 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 Separately:

15% Rate Threshold - $38,600

20% Rate Threshold - $239,500

 

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

 

The above 15% and 20% threshold amounts would be adjusted for inflation beginning in tax years after 2017.

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

Standard Deduction

The bill would increase the standard deduction to $24,400 for joint filers (and surviving spouses), $12,200 for individual filers, and for single filers with at least one qualifying child could claim a standard deduction of $18,300. The bill would provide that these amounts would be adjusted for inflation based on the chained CPI (C-CPI-U). The bill would make these provisions effective for tax years beginning after 2017.

Would increase the standard deduction to the following amounts:

$24,000 (joint return or a surviving spouse)

$18,000 (unmarried individual with at least one qualifying child)

$12,000 (for single filers)

 

The plan would retain the enhanced standard deduction for the blind and elderly that is available under current law.

Personal Exemptions

The bill would repeal the deduction for personal exemptions, which would be effective for taxable years beginning after December 31, 2017.

The plan would repeal the deduction for personal exemptions, which would be effective for taxable years beginning after Dec. 31, 2017.

Alternative Minimum Tax

The proposal would repeal the existing individual AMT.

The proposal would repeal the existing individual AMT.

Phase out of Itemized Deduction

Repealed.

The plan would eliminate the overall limitation on itemized deductions.

Home Mortgage Interest

Limited on post 11/2/17 debt limited to $500,000 of principal and ONLY on primary residence.

The plan would repeal the mortgage interest deduction with respect to interest on home equity indebtedness. But, the plan would retain the deduction with respect to interest on acquisition indebtedness of up to $1,000,000 ($500,000 for a married person filing a separate return).

State and Local Tax Deduction

The deduction for state and local income tax and sales tax is repealed.  The real property tax deduction is capped at $10,000. Taxes paid in carrying on a trade or business are still deductible.

The plan would eliminate the itemized deduction for all state and local taxes paid by individuals.

 

The plan would only allow a deduction for state and local taxes paid or accrued in carrying on a trade or business.

 

The plan would only allow state and local property taxes imposed on business assets to be written off.

Charitable Contributions

The bill would (i) increase the AGI limitation on cash contributions from 50% to 60% and would retain the 5-year carryover, (ii) repeal the current 80% deduction for contributions made for university athletic seating rights, (iii) provide that the standard mileage rate for charitable use of an automobile would take into account the variable cost of operating an automobile rather than the current 14 cents per mile, and (iv) repeal the exception to the contemporaneous written acknowledgment requirement for contributions of $250 or more when the donee organization files the required return. The changes would apply to contributions made in tax years beginning after 2017.

The plan would increase the AGI limitation on cash contributions from 50% to 60% for tax years beginning after 2017. The bill would not make any change to the carryover period.

 

The plan would repeal the current deduction for contributions to higher education institutions if the taxpayer receives in return the right to purchase tickets or seating at an athletic event. The change would apply to contributions made in tax years beginning after 2017.

 

The Senate plan does not address the standard mileage rate for charitable use of a personal vehicle.

Personal Casualty Losses Deduction

Repealed.

The plan would repeal the personal casualty loss deduction for property losses (not used in connection with a trade or business or transaction entered into for profit) incurred from fire, storm, shipwreck, or other casualty, and theft. The plan would allow taxpayers to claim a personal casualty loss if the loss was incurred as a result of certain disasters.

Tax Preparation Services Deduction

Repealed.

The plan would eliminate the itemized deduction for tax preparation services.

Medical Expense Deduction

Repealed.

Would preserve the current deduction for medical expenses.

Alimony Payments Deduction

For any post 2017 decree, alimony would be neither deductible not taxable.

Not addressed.

Employee Business Expenses

Repealed.

Not addressed.

Enhancement of Child Tax Credit and New Family Tax Credit

Under the bill, the child credit would be increased to $1,600. Alternatively, a credit of $300 would be allowed for non-child dependents. 

 

In addition, 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.

 

The family flexibility credit and the non-child dependent credit would be effective for taxable years ending before Jan. 1, 2023.

 

The phase out for the combined child credit, the non-child dependent credit, and the credit for other taxpayers would be increased to $230,000 (for joint filers), and to $115,000 (for single filers).

 

The provision would be effective for tax years beginning after 2017.

The plan would preserve the child and dependent care tax credit. Under the plan, the child tax credit would be increased to $1,650.

 

The plan would increase the age limit for a qualifying child by one year so that a taxpayer may claim the credit with respect to any qualifying child under the age of 18.

 

The plan would provide a $500 nonrefundable credit for dependents other than qualifying children (generally retaining the current law definition of dependent).

 

The plan would increase the phase out for the child tax credit to $1,000,000 (for married taxpayers filing a joint return), and $500,000 (for all other taxpayers). These amounts are not indexed for inflation.

 

The plan would lower the refundable portion of the credit threshold to $2,500.

 

The plan would index the maximum amount refundable ($1,000) for inflation with a base year of 2017, rounding up to the nearest $100 (the threshold in 2018 would be $1,100).

 

Additionally, the plan would require that a taxpayer provide the social security number of each qualifying child that is claimed on the tax return in order to receive the refundable portion of the child tax credit.

American Opportunity Tax Credit

Under the bill, the three existing higher education tax credits (American Opportunity Tax Credit (AOTC), Hope Scholarship Credit (HSC), and Lifetime Learning Credit (LLC)) would be consolidated into a new, enhanced AOTC.

 

The new AOTC, like the current AOTC,  would provide a 100-percent tax credit for the first $2,000 of certain higher education expenses and a 25-percent tax credit for the next $2,000 of such expenses.

 

The AOTC would also be available for a fifth year of post-secondary education at half the rate as the first four years, with up to $500 of such credit being refundable.

 

The provision would be effective for tax years beginning after 2017.

Would provide education relief for graduate students.

Consolidation of Education Savings Rules

Under the bill, new contributions to Coverdell education savings accounts after 2017 (except rollover contributions) would be prohibited, but tax-free rollovers from Coverdell accounts into section 529 plans would be allowed.

 

Elementary and high school expenses of up to $10,000 per year would be qualified expenses for section 529 plans.

 

The provision would be effective for contributions and distributions made after 2017.

Would provide additional ways for parents to save for the education costs of their unborn children.

Reforms to Discharge of Certain Student Loan Indebtedness

Under the 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.

 

The provision would be effective for discharges of indebtedness received after 2017 and amounts received in taxable years beginning after 2017.

Not addressed.

Repeal of Other Provisions Relating to Education

Under the bill, the deduction for interest on education loans and the deduction for qualified tuition and related expenses would be repealed. The exclusion for interest on United States savings bonds used to pay qualified higher education expenses, the exclusion for qualified tuition reduction programs, and the exclusion for employer-provided education assistance programs would also be repealed.

 

The exclusion for education assistance programs would be effective for amounts paid or incurred after 2017. The other provisions would be effective for tax years beginning after 2017.

Not addressed.

Gain from Sale of a Principal Residence Exclusion

The bill would continue to exclude from gross income up to $500,000 ($250,000 for other filers) from the sale of a principal residence, but only 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 would begin to phase out by one dollar for every dollar by which the taxpayer’s gross income exceeds $250,000 ($500,000 for joint filers). The provision would be effective for sales and exchanges after 2017.

The plan would provide that the exclusion be available only if the taxpayer has owned and used the residence as a principal residence for at least five of the eight years with an exception for taxpayers that change places of employment, health, or unforeseen circumstances (equal to a fraction of the $250,000, or $500,000 if married filing a joint return). The plan would limit the ability of taxpayer’s to use the exclusion to once every five years.

Exclusion for Qualified Moving Expense Reimbursements

Effective after Dec. 31, 2017 the bill would repeal the exclusion for qualified moving expense reimbursements – such reimbursements would constitute taxable income.

The bill would repeal the exclusion from gross income for qualified moving expense reimbursements.

Exclusion for Adoptions Assistance Programs

Effective after Dec. 31, 2017, the bill would repeal the exclusion for adoption assistance programs.

Not addressed.