U.S. Tax Reform Halfway There:
House Passes Tax Cuts and Jobs Act
Tax reform was on the back burner for much of the last year, but we’ve finally seen some progress. The U.S. House of Representatives passed the Tax Cuts and Jobs Act on November 16, 2017. The Senate hopes to pass its own version by Christmas of this year.
What might this mean for you? Depending on how the final version appears, it’s expected to bring simplification and tax relief to both individuals and businesses.
For now, here’s what it looks like.
The eight previous tax brackets would be reduced to four. For married taxpayers filing jointly, these would be:
The standard deduction would go from $12,700 for Married Filing Jointly (MFJ) to $24,000, and from $6,350 to $12,000 for single individuals.
The deduction for personal exemptions (previously $4,050) would be repealed under the new legislation.
Other deductions would also be affected, as well. For example, the mortgage interest deduction would remain in place for existing mortgages and home equity lines of credit, but for newly-purchased homes, mortgage interest would only be deductible for those mortgages of less than $500,000. The deduction for home equity lines of credit would be repealed.
Taxpayers would be able to write off the cost of state and local property taxes up to $10,000, but would not be allowed to claim a deduction for state and local income taxes (SALT) unless they relate to business income from a flow-thru entity such as an S-Corporation or a partnership.
401(k) and IRAs would remain in place and the Tax Cuts and Jobs Act would repeal both the Alternative Minimum Tax (AMT) and the Estate Tax. The rates on capital gains and dividends would remain untouched.
The biggest news here, of course, is that the C-Corporation tax rate would be reduced from its high of 35 percent to a 20 percent flat rate. There would be no changes to the carried interest rules, but the corporate AMT would be eliminated.
Numerous other areas of business taxes would be affected as well. Depreciation and amortization would be much simpler than they are now. Businesses would be able to take full, immediate deductions, and Section 179 would have a new limit of $5 million (phaseout to $20 million). Changes have also been proposed to rules affecting:
There are many other many proposed modifications, and, of course, exceptions to them.
If tax reform is indeed passed by the end of 2017, expect complexity, change – and confusion. We’re here to help you sort it all out. Connect with us, and we’ll make sure you understand what applies to you, and how.