On December 15th, the congressional conference committee charged with reaching a consensus on the competing versions of the Senate and House tax reform bills released its conference report containing the language of the final bill. The final bill, titled Tax Cuts and Job Acts (TCJA), is expected to be approved by both chambers next week and signed into law by the end of the year. The chart below highlights the key aspects of the final bill.
We will provide regular updates on the tax reform bill and anticipate providing live seminars on the topic starting in January, so please stay tuned.
INDIVIDUAL | ||
Topic | Current Law | Final Bill |
Rates[1] – Single | 10% — $0 – $9,325 15% — $9,326 – $37,950 25% — $37,951 – $91,900 28% — $91,901 – $191,650 33% — $191,651 – $416,700 35% — $416,701 – $418,400 39.6% — over $418,400 |
10% — $0 – $9,525 12% — $9,526 – $38,700 22% — $38,701 – $82,500 24% — $82,501 – $157,500 32% — $157,501 – $200,000 35% — $200,001 – $500,000 37% — over $500,000 |
Rates – Married Filing Jointly & Surviving Spouses | 10% — $0 – $18,650 15% — $18,651 – $75,900 25% — $75,901 – $153,100 28% — $153,101 – $233,350 33% — $233,351 – $416,700 35% — $416,701 – $470,700 39.6% — over $470,700 |
10% — $0 – $19,050 12% — $19,051 – $77,400 22% — $77,401 – $165,000 24% — $165,001 – $315,000 32% — $315,001 – $400,000 35% — $400,001 – $600,000 37% — over $600,000 |
Rates – Married Filing Separately | 10% — $0 – $9,325 15% — $9,326 – $37,950 25% — $37,951 – $76,550 28% — $76,551 – $116,675 33% — $116,676 – $208,350 35% — $208,351 – $235,350 39.6% — over $235,350 |
10% — $0 – $9,525 12% — $9,526 – $38,700 22% — $38,701 – $82,500 24% — $82,501 – $157,500 32% — $157,501 – $200,000 35% — $200,001 – $300,000 37% — over $300,000 |
Rates – Heads of Households | 10% — $0 – $13,350 15% — $13,351 – $50,800 25% — $50,801 – $131,200 28% — $131,201 – $212,500 33% — $212,501 – $416,700 35% — $416,701 – $444,500 39.6% — over $444,500 |
10% — $0 – $13,600 12% — $13,601 – $51,800 22% — $51,801 – $82,500 24% — $82,501 – $157,500 32% — $157,501 – $200,000 35% — $200,001 – $500,000 37% — over $500,000 |
Capital Gains | By holding assets for one year or less, any capital gain will be considered short-term and will be taxed at ordinary income tax rates. By holding assets for one year or more, any capital gain will be considered long-term and is taxed at rates up to 20% | No significant change, except the brackets will be adjusted |
Standard Deduction[2] | Single & Married Filing Separately – $6,350 Married Filing Jointly & Surviving Spouse – $12,700 Heads of Households – $9,350 |
Single and Married Filing Separately – $12,000 Married Filing Jointly & Surviving Spouse – $24,000 Heads of Households – $18,000 |
Personal Exemption | $4,050 per person in each household | Eliminated |
Child Tax Credit[3] | $1,000 per child with modified adjusted gross income phase outs at $75,000 for single and heads of households filers; $55,000 for married filing separately; and $110,000 for married filing jointly. The credit is refundable for certain filers. | $2,000 per child with modified adjusted gross income phase outs at $200,000 for single, and heads of households, and married filing separately filers and $400,000 for married filing jointly. Up to $1,400 is refundable for certain filers. |
Medical Expense Deduction[4] | Medical expenses deductible in excess of 10% of adjusted gross income. | Medical expenses deductible in excess of 7.5% of adjusted gross income. |
State and Local Tax Deduction | Individuals may deduct state and local property, income, and/or sales tax in excess of the standard deduction. | Deductions for state and local taxes will be capped at $5,000 for single filers and married filing separately and $10,000 per year for married filing jointly. Any 2018 taxes that are pre-paid during the 2017 tax year will be credited toward the $10,000 limit beginning on January 1, 2018. |
Mortgage Interest Deduction | Individuals may deduct mortgage interest on purchases of up to $1,000,000 for the primary residence plus one additional home; individuals may also deduct up to $100,000 of equity debt | The mortgage interest deduction will be capped at purchases of $750,000 for mortgages taken out after December 15, 2017; deductions for equity debt will be eliminated. |
Casualty Losses | Individuals may deduct casualty losses (including fire, theft, and other property loss) in excess of 10% of adjusted gross income, plus $100 per casualty event. | Casualty losses will be allowed as a deduction only to the extent the casualty event is attributable to a federally-declared disaster. |
Miscellaneous Itemized Deductions | Certain miscellaneous deductions (including unreimbursed business expenses, tax preparation fees, and other expenses) are permitted in excess of 2% of adjusted gross income. | Eliminated |
Moving Expense Deduction | Taxpayers may deduct moving expenses when moving due to new employment that is located at least 50 miles further than the taxpayer's previous place of employment from the taxpayer's residence. | Eliminated |
Alimony Deduction | Alimony payments are deductible by the payor as an above-the-line deduction. | Eliminated for divorce instruments executed on or after January 1, 2019 or modified after such date if the modification expressly states that this rule applies. |
Alternative Minimum Tax (AMT) – Exemptions[5] | Single filers – $54,300 Married filing jointly – $84,500 Married filing separately – $42,250 Heads of Households – $54,300 |
Single filers – $70,300 Married filing jointly – $109,400 Married filing separately – $54,700 Heads of Households – $70,300 |
Alternative Minimum Tax (AMT) – Phase-Outs[6] | Single filers – $120,700 Married filing jointly – $160,900 Married filing separately – $80,450 Heads of Households – $120,700 |
Single filers – $500,000 Married filing jointly – $1,000,000 Married filing separately – $500,000 Heads of Households – $500,000 |
Individual Mandate under the ACA | Taxpayers who do not have required minimum health coverage are required to pay a penalty or claim a waiver or exemption. | Eliminated |
[1] Note – Rates are current as of January 1, 2018. All rates will be adjusted for inflation for tax years beginning January 1, 2019.
[2] Note – Rates are current as of January 1, 2018. All rates will be adjusted for inflation for tax years beginning January 1, 2019.
[3] Note – Rates are current as of January 1, 2018. The refundable portion of the Child Tax Credit will be adjusted for inflation for tax years beginning January 1, 2019.
[4] Note – Medical expense deduction rules are retroactive to tax years beginning January 1, 2017.
[5] Note – Exemptions listed under current law are 2017 rates; 2018 rates will continue to be adjusted for inflation.
[6] Note – Phase-outs listed under current law are 2017 rates; 2018 rates will continue to be adjusted for inflation.
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CORPORATE | |||||||||||||||||
Topic | Current Law | Final Bill | |||||||||||||||
Corporate Tax Rates | C Corporations pay tax at graduated rates with a maximum rate of 35% of taxable income. | Under the TCJA, C corporations would pay a maximum rate of 21% on their taxable income. There would be no graduated rates. | |||||||||||||||
Alternative Minimum Tax ("AMT") | The purpose of the AMT is to make sure that corporations pay a minimum amount of taxes. | For taxable years beginning after December 31, 2017, the corporate AMT will be repealed. | |||||||||||||||
Dividends Received Deduction |
The dividends received deduction allows corporations to deduct
a portion of the dividends such corporation receives from other
corporations in which it has an ownership stake.
The amount of the deduction depends on the receiving
corporation's ownership in the payor corporation. If the
two corporations are in the same affiliated group, the deduction is
100%. If the receiving corporation owns more than 20% of the
payor corporation then the deduction is 80%. If the receiving
corporation owns less than 20% of the payor corporation then the
deduction is 70%.
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The TCJA would lower the 80% deduction to 65% and the 70% deduction to 50%. | |||||||||||||||
Section 179 Expensing | A taxpayer may elect under Section 179 to deduct up to $500,000 of the cost of qualifying property placed in service in the taxable year. This $500,000 is reduced by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $2 million. Qualifying property is generally depreciable tangible personal property that is purchased for use in active conduct of a trade or business. | The TCJA would increase the amount that a taxpayer may expense under Section 179 to $1 million and the phrase out threshold to $2.5 million. These amounts would be indexed for inflation for tax years beginning after 2018. | |||||||||||||||
Increased Expensing | In 2017, taxpayers are allowed to claim first year onus deprecation equal to 50% of the adjusted basis of property acquired and placed in service in 2017. | The TCJA increases the first year depreciation deduction to 100% for property placed in service in 2018 through 2022 (with lower percentages in years 2023-2027). | |||||||||||||||
Research and Experimentation Tax Credit | The research and experimentation (R&D) tax credit is a business credit allowed to companies who incur research and development costs | The TCJA preserves the R&D tax credit however amounts paid or incurred in tax years beginning after December 31, 2021 will have to be deducted over time as opposed to being expensed immediately. | |||||||||||||||
Limitation on Interest Expense Deduction | Corporations can generally deduct interest paid or accrued. | The TCJA would as a general rule limit the amount of interest that can be deducted to 30% of adjusted taxable income with any excess being carried forward indefinitely. Taxpayers with average annual gross receipts for the three taxable year periods ending with the prior taxable year that do not exceed $25 million are exempt from the limitations. | |||||||||||||||
Modification of Net Operating Loss Deduction | Under current law, a taxpayer may carry back net operating losses ("NOLs") for two years and carry them forward 20 years. | The TCJA would limit the NOL deduction to 80% of taxable income for taxable years beginning after December 31, 2017. It also repeals the two-year carryback in certain situations. | |||||||||||||||
Like Kind Exchanges | A like kind exchange allows a taxpayer to exchange property for new property without incurring immediate tax liability. Under current law, like-kind exchange treatment can apply to both personal and real property that is "held for the productive use in a trade or business or for investment." | The TCJA limits like kind exchanges to those exchanges involving real property that is not held primarily for sale. |
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TAX-EXEMPT ORGANIZATIONS | ||||||||||||||
Topic | Current Law | Final Bill | ||||||||||||
Deductions for Charitable Contributions | Individual taxpayers may deduct up to 50% of the taxpayer's contribution base for donations made to public charities. | Individual taxpayers may deduct up to 60% of taxpayer's contribution base for cash contributions made to public charities. | ||||||||||||
Deductions for Amounts Paid for College Athletic Seating Rights | Individuals may deduct up to 80% of amounts paid for the right to purchase tickets for seating at a college athletic event | Eliminated | ||||||||||||
Executive Compensation Excise Tax [1] | N/A | Tax-exempt entity shall pay a 20% excise tax on compensation over $1,000,000 paid to its top 5 most highly compensated employees, including those employed by related organizations; this excise tax also applies to parachute payments. | ||||||||||||
Excise Tax on Investment Income of Private Colleges & Universities | N/A | A 1.4% tax is imposed on net investment income for certain institutions. | ||||||||||||
Unrelated Business Income Tax | Many entities with more than one unrelated trade or business aggregate the lines of business to take advantage of net operating losses across multiple lines of business. | For entities with for more than one unrelated trade or business, unrelated business taxable income, including for purposes of determining any net operating loss deductions, shall be computed separately with respect to each such trade or business; unrelated business taxable income is increased by the amount of certain fringe benefit expenses for which a deduction is disallowed |
[1] Note – Compensation paid to licensed medical
professionals, including veterinarians, is excluded from this
rule.
[1] Note – Contributions to 529 plans are not deductible for federal income tax purposes. However, the following states permit deductions on state income taxes for 529 contributions (subject to certain limitations and rules in each state): Alabama, Arizona, Arkansas, Colorado, Connecticut, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, Washington, D.C., West Virginia, Wisconsin
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TAX-EXEMPT BONDS & TAX CREDITS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Topic | Current Law | Final Bill | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Private Activity Bonds (PABs) | Tax-exempt PABs can be issued to finance a number of private and public/private endeavors, including multifamily housing projects, single family housing loan programs, airports, water and sewer facilities, solid waste facilities, toll roads, certain manufacturing facilities and non-profit projects, including healthcare facilities, educational facilities and senior living facilities. | The House bill eliminated PABs, but the TCJA conference report retains current law. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Advance Refunding of Governmental Bonds and 501(c)(3) Bonds | Governmental bonds and 501(c)(3) bonds are eligible for one advance refunding, i.e., a refunding in which the refunded bond is not callable within 90 days of issuance of the refunding bond and an escrow is funded to pay debt service on the refunded bond until the call date. | TCJA eliminates advance refundings. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Qualified Tax Credit Bonds | Holders of qualified tax credit bonds receive a tax credit instead of interest. Tax credit bonds can be issued to finance renewable and clean energy projects (clean renewable energy bonds and qualified energy conservation bonds and educational facilities (qualified zone academy bonds and qualified school construction bonds). | TCJA eliminates qualified tax credit bonds. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Historic Rehabilitation Tax Credit | 20% credit for qualified rehabilitation expenditures with respect to certified historic structures and 10% credit for qualified rehabilitation expenditures for buildings built before 1936. | TCJA retains the 20% credit, but provides for the credit to be taken over 5 years rather than when the project is placed in service, which is current law. TCJA eliminates the 10% credit. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Markets Tax Credit (NMTC) | 39% credit for qualified investments in low-income communities. $3.5 billion of NMTC allocation for each of 2018 and 2019. | The House bill eliminated NMTCs, but the TCJA conference report retains current law. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Renewable Energy Production Tax Credit (PTC) | Tax credit for the projection of electricity from renewable energy sources, such as wind, biomass and hydropower. Taxpayers may elect to take the 30% ITC discussed below in lieu of the PTC. | The House bill eliminated the inflation adjustment for the credit, but the TCJA conference report retains current law. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Renewable Energy Investment Tax Credit (ITC) | 10% credit for certain renewable energy property, but such percentage is adjusted to 30% for solar energy property prior to 2020, with a phase down of the percentage thereafter. | The House bill eliminated the permanent 10% credit, but the TCJA conference report retains current law. |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.