Courtesy of Parker Tax Publishing
Yesterday, December 14th, the conference committee reconciling the House and Senate versions of the Tax Cuts and Jobs Act (TCJA) ("House Bill" and "Senate Bill", respectively) is reported to have reached a deal in principle and is working rapidly to finalize legislative language for the massive tax bill. The legislators are rushing to get a bill passed before the holiday recess, a self-imposed deadline made more urgent by a Democratic victory in the Alabama special Senate election earlier this week.
The conference committee has not released a summary of its agreement, but a number of key details have emerged through comments (on and off the record) by members of Congress close to the negotiations and their staffs. According to the sources, negotiations between the House and the Senate have yielded the following compromises, concessions, and changes:
(1) A top individual tax rate of 37 percent (compared with 39.6 percent rate in the House Bill and 38.5 percent rate in the Senate Bill);
(2) A top corporate rate of 21 percent (compared with a rate of 20 percent in both the House and Senate Bills);
(3) Full repeal of the corporate alternative minimum tax (AMT) (adopts provision from the House Bill; the Senate Bill had retained the corporate AMT);
(4) A 20 percent deduction against qualified business income from passthrough business entities (compared with a 23 percent deduction in the Senate Bill, from which the provision is derived) and a likely tightening of the rules for calculating "qualified business income" (moving them toward the generally stricter ones in the House Bill);
(5) Repeal of shared responsibility payments (individual healthcare mandate) under the Affordable Care Act (provision was in the Senate Bill but not the House Bill);
(6) A maximum $10,000 deduction for state and local property taxes for individuals, with taxpayers being able to choose between deducting either property taxes or income taxes (the House and Senate Bills allowed for only the deduction of property taxes up to the limit; it's not clear whether taxpayers would be able to deduct sales taxes instead of income taxes, as they can under present law);
(7) A lowered $750,000 limit on the loan amount for which a mortgage interest deduction can be claimed by individuals, with existing loans grandfathered (splits the difference between the House and Senate Bills; the limit under present law is $1 million);
(8) Continued deductibility of unreimbursed medical expenses of individuals (the House Bill repealed the deduction);
(9) Retention of individual AMT with an exclusion of $1 million for joint filers and $500,000 for all others (the House Bill repealed the individual AMT; the Senate Bill retained it with far less generous enhancements to the AMT exemption amounts);
(10) Likely enhancement in the refundability of the child tax credit; As of last night this became a potential sticking point as Senator Rubio and Senator Lee indicated the refundable amount would need to be increased in order for them to vote yes on the bill.
(11) Continued deductibility of student loan interest and exclusion from income of graduate student tuition waivers (both breaks would have been repealed by the House Bill);
(12) Continued tax-exempt status for qualifying private activity bonds (the House Bill ended the tax break).
How the final bill will pay for the many taxpayer-friendly changes on the above list and still stay within the $1.5 trillion dollar increase to the deficit (in a 10-year timeframe) allowed by the instructions constraining the Senate is not known. Relative to the bill that passed the Senate earlier this month, the only known "pay-fors" are the increase in the corporate tax rate, the decrease in the percentage of the deduction against passthrough business income and the tightening of the rules for calculating "qualified business income"; and the tightening of the mortgage interest deduction. Those changes would not be enough to pay for the enhancements to other tax breaks on the list.
Unconfirmed rumors circulating Wednesday suggest that another possible pay-for might be an increase in the repatriation rates for foreign-earned income. Another likely candidate would be a tightening of the generous child tax credit phase-out provisions in the Senate Bill. Phaseouts don't begin until modified adjusted gross income reaches $500,000, more than double the threshold for joint filers in the House Bill and more than four times the threshold single and head of household filers.
Beyond the pay-fors, the list of unknowns about the final tax bill remains long and will not be addressed until the text of the legislation is released, which could happen as early as this morning, according to the Wall Street Journal. Until then, the status of dozens of conflicting provisions in the House and Senate bills will likely remain a mystery.
Multiple reports have indicated that final votes on TCJA will follow quickly on the heels of the release of legislative text. The Senate is expected to vote first, possibly as soon as Monday.
Turner's Tax Service will, of course, keep you up to date as this bill moves through the legislative process.
Yesterday, December 14th, the conference committee reconciling the House and Senate versions of the Tax Cuts and Jobs Act (TCJA) ("House Bill" and "Senate Bill", respectively) is reported to have reached a deal in principle and is working rapidly to finalize legislative language for the massive tax bill. The legislators are rushing to get a bill passed before the holiday recess, a self-imposed deadline made more urgent by a Democratic victory in the Alabama special Senate election earlier this week.
The conference committee has not released a summary of its agreement, but a number of key details have emerged through comments (on and off the record) by members of Congress close to the negotiations and their staffs. According to the sources, negotiations between the House and the Senate have yielded the following compromises, concessions, and changes:
(1) A top individual tax rate of 37 percent (compared with 39.6 percent rate in the House Bill and 38.5 percent rate in the Senate Bill);
(2) A top corporate rate of 21 percent (compared with a rate of 20 percent in both the House and Senate Bills);
(3) Full repeal of the corporate alternative minimum tax (AMT) (adopts provision from the House Bill; the Senate Bill had retained the corporate AMT);
(4) A 20 percent deduction against qualified business income from passthrough business entities (compared with a 23 percent deduction in the Senate Bill, from which the provision is derived) and a likely tightening of the rules for calculating "qualified business income" (moving them toward the generally stricter ones in the House Bill);
(5) Repeal of shared responsibility payments (individual healthcare mandate) under the Affordable Care Act (provision was in the Senate Bill but not the House Bill);
(6) A maximum $10,000 deduction for state and local property taxes for individuals, with taxpayers being able to choose between deducting either property taxes or income taxes (the House and Senate Bills allowed for only the deduction of property taxes up to the limit; it's not clear whether taxpayers would be able to deduct sales taxes instead of income taxes, as they can under present law);
(7) A lowered $750,000 limit on the loan amount for which a mortgage interest deduction can be claimed by individuals, with existing loans grandfathered (splits the difference between the House and Senate Bills; the limit under present law is $1 million);
(8) Continued deductibility of unreimbursed medical expenses of individuals (the House Bill repealed the deduction);
(9) Retention of individual AMT with an exclusion of $1 million for joint filers and $500,000 for all others (the House Bill repealed the individual AMT; the Senate Bill retained it with far less generous enhancements to the AMT exemption amounts);
(10) Likely enhancement in the refundability of the child tax credit; As of last night this became a potential sticking point as Senator Rubio and Senator Lee indicated the refundable amount would need to be increased in order for them to vote yes on the bill.
(11) Continued deductibility of student loan interest and exclusion from income of graduate student tuition waivers (both breaks would have been repealed by the House Bill);
(12) Continued tax-exempt status for qualifying private activity bonds (the House Bill ended the tax break).
How the final bill will pay for the many taxpayer-friendly changes on the above list and still stay within the $1.5 trillion dollar increase to the deficit (in a 10-year timeframe) allowed by the instructions constraining the Senate is not known. Relative to the bill that passed the Senate earlier this month, the only known "pay-fors" are the increase in the corporate tax rate, the decrease in the percentage of the deduction against passthrough business income and the tightening of the rules for calculating "qualified business income"; and the tightening of the mortgage interest deduction. Those changes would not be enough to pay for the enhancements to other tax breaks on the list.
Unconfirmed rumors circulating Wednesday suggest that another possible pay-for might be an increase in the repatriation rates for foreign-earned income. Another likely candidate would be a tightening of the generous child tax credit phase-out provisions in the Senate Bill. Phaseouts don't begin until modified adjusted gross income reaches $500,000, more than double the threshold for joint filers in the House Bill and more than four times the threshold single and head of household filers.
Beyond the pay-fors, the list of unknowns about the final tax bill remains long and will not be addressed until the text of the legislation is released, which could happen as early as this morning, according to the Wall Street Journal. Until then, the status of dozens of conflicting provisions in the House and Senate bills will likely remain a mystery.
Multiple reports have indicated that final votes on TCJA will follow quickly on the heels of the release of legislative text. The Senate is expected to vote first, possibly as soon as Monday.
Turner's Tax Service will, of course, keep you up to date as this bill moves through the legislative process.
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