Yesterday the House Ways and Means Committee amended its version of the tax bill and the Senate Committee on Finance introduced its tax reform plan. The plans differ in a number of ways and will undoubtedly under go changes as the bills move through the legislative process. Here are some of the key provisions of the two bills -
Tax Rates - The House has 4 (12%, 25%, 35% and 39.6%), the Senate has 7 (10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%).
Personal Exemptions - Eliminated in both versions
Child Tax Credit - The House bill provides a $1600 credit for children under 17 and adds a $300 credit for taxpayers and other dependents. The credit is reduced based on adjusted gross income. The Senate bill provides a $1650 credit for children under 18 and adds a $500 credit for other dependents. The credit is not reduced based on adjusted gross income.
Standard Deduction - Both versions increase the standard deduction to $12K for single filers and $24K for married filers. The House version eliminates additional amounts for the blind and elderly - the Senate version retains additional amounts for the blind an elderly.
Medical Deduction - The House version eliminates the deduction. The Senate version allows a deduction for expenses greater than 10% of adjusted gross income.
State and Local Taxes - The House version eliminates all but up to $10K for property taxes. The Senate version eliminates all state and local taxes.
Mortgage Interest - For purchases after 2017, the House version allows interest on purchases up to $500K and eliminates deductions for interest on a second home. The Senate version allows interest on purchases up to $1M but eliminates interest on equity loans.
Charitable Contributions - Both versions increase the amount that can be deducted from 50% of adjusted gross income to 60% of adjusted gross income.
Miscellaneous Itemized Deductions - The House version eliminates unreimbursed employee business expenses, personal casualty losses, fees for tax preparation and financial management but retains the deduction for casualty losses in a presidentially declared disaster area. The Senate version eliminates all miscellaneous deductions but also retains the deduction for casualty losses in a presidentially declared disaster area.
AMT - Both versions repeal the alternative minimum tax.
Adoption Credit - Both versions retain the credit.
Exclusion of Profit on the Sale of a Personal Residence - For sales after 2017, the House version require homes to be owned and used for 5 of the last 8 years before any profit can be excluded from income. The amount that can be excluded is limited for taxpayers with adjusted gross income more than $250K. The Senate version also requires homes to be owned and used for 5 of the last 8 years but there is no limitation based on adjusted gross income.
Moving Expenses - Both versions eliminate the deduction except for military personnel.
Alimony - The House version does not allow payers to deduct the amount paid and does not require the recipient to report alimony as income. The Senate version is silent.
Estate Taxes - The House version doubles the exemption to $10K and repeals the provision after 2023. The Senate version doubles the exemption but does not repeal it.
What happens next? The House version has been approved by the Ways and Means Committee and moves to the full House for consideration. The Senate version is still in committee. Once the committee has completed its work it will send a bill to the full Senate for consideration. Eventually there should be two bills - the House version and the Senate version - though it's unclear that the votes are there to approve what's coming out of the committees. If bills do pass, a conference committee will be appointed to reconcile the two bills and come up with one final bill that will have to be approved by both the House and Senate and finally signed by the President. There are LOTS of hurdles facing the bills and there is no guarantee that there will be a bill for the President to sign.
Turner's Tax Service will be monitoring the bills closely and updating information as events unfold.
Tax Rates - The House has 4 (12%, 25%, 35% and 39.6%), the Senate has 7 (10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%).
Personal Exemptions - Eliminated in both versions
Child Tax Credit - The House bill provides a $1600 credit for children under 17 and adds a $300 credit for taxpayers and other dependents. The credit is reduced based on adjusted gross income. The Senate bill provides a $1650 credit for children under 18 and adds a $500 credit for other dependents. The credit is not reduced based on adjusted gross income.
Standard Deduction - Both versions increase the standard deduction to $12K for single filers and $24K for married filers. The House version eliminates additional amounts for the blind and elderly - the Senate version retains additional amounts for the blind an elderly.
Medical Deduction - The House version eliminates the deduction. The Senate version allows a deduction for expenses greater than 10% of adjusted gross income.
State and Local Taxes - The House version eliminates all but up to $10K for property taxes. The Senate version eliminates all state and local taxes.
Mortgage Interest - For purchases after 2017, the House version allows interest on purchases up to $500K and eliminates deductions for interest on a second home. The Senate version allows interest on purchases up to $1M but eliminates interest on equity loans.
Charitable Contributions - Both versions increase the amount that can be deducted from 50% of adjusted gross income to 60% of adjusted gross income.
Miscellaneous Itemized Deductions - The House version eliminates unreimbursed employee business expenses, personal casualty losses, fees for tax preparation and financial management but retains the deduction for casualty losses in a presidentially declared disaster area. The Senate version eliminates all miscellaneous deductions but also retains the deduction for casualty losses in a presidentially declared disaster area.
AMT - Both versions repeal the alternative minimum tax.
Adoption Credit - Both versions retain the credit.
Exclusion of Profit on the Sale of a Personal Residence - For sales after 2017, the House version require homes to be owned and used for 5 of the last 8 years before any profit can be excluded from income. The amount that can be excluded is limited for taxpayers with adjusted gross income more than $250K. The Senate version also requires homes to be owned and used for 5 of the last 8 years but there is no limitation based on adjusted gross income.
Moving Expenses - Both versions eliminate the deduction except for military personnel.
Alimony - The House version does not allow payers to deduct the amount paid and does not require the recipient to report alimony as income. The Senate version is silent.
Estate Taxes - The House version doubles the exemption to $10K and repeals the provision after 2023. The Senate version doubles the exemption but does not repeal it.
What happens next? The House version has been approved by the Ways and Means Committee and moves to the full House for consideration. The Senate version is still in committee. Once the committee has completed its work it will send a bill to the full Senate for consideration. Eventually there should be two bills - the House version and the Senate version - though it's unclear that the votes are there to approve what's coming out of the committees. If bills do pass, a conference committee will be appointed to reconcile the two bills and come up with one final bill that will have to be approved by both the House and Senate and finally signed by the President. There are LOTS of hurdles facing the bills and there is no guarantee that there will be a bill for the President to sign.
Turner's Tax Service will be monitoring the bills closely and updating information as events unfold.
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