Articles

November 3, 2017

House Releases Draft Legislation – The Tax Cuts and Jobs Act

By Evan Gernant

On Thursday the House of Representatives released a draft of their tax reform legislation. After negotiations, further changes will likely occur in the Senate before a final vote. The goal of the President and republicans in Congress are to have a final tax bill enacted before the end of this year. Below is a summary of the more significant provisions of this bill in its current form.

Individual

  • A reduction in the number of tax brackets to four:  12 percent, 25 percent, 35 percent and 39.6 percent
  • A significant increase in the standard deduction
  • Repeal the deduction for personal exemptions
  • Repeal of the alternative minimum tax
  • Increased child tax credit and introduction of a new family tax credit
  • Elimination of the state and local income tax deduction
  • Capping the property tax deduction at $10,000
  • Restricting the exclusion on the gain from the sale of a personal residence, but retaining the maximum exclusion amount of $500,000
  • No change in the pre-tax 401(k) contributions limit ($18,500 for 2018) 

Corporate

  • Repeal of the alternative minimum tax
  • Reduction of the corporate tax rate to a 20 percent flat rate (25 percent for personal service corporations)
  • Loosening restrictions on use of the cash method of accounting
  • Increased up-front expensing for capital expenditures
  • Introduction of new rule to require corporations to include in gross income certain capital contributions
  • Retention of the research and development credit, but elimination of many other credits and deductions, including the domestic production deduction and the work opportunity tax credit
  • Limiting interest expense deductions, with exceptions for certain small businesses
  • Elimination of the deduction for certain entertainment expenses 

Pass-Through Entities

  • Transition to a 25% tax rate of a portion of business income passed through (although a portion would be treated as ordinary wage income)
  • Introduction of new rule to require partnerships to include in gross income certain capital contributions
  • Eliminating technical terminations of partnerships 

International

  • Deduction for dividends received from certain U.S. owned foreign corporations
  • A 12 percent tax on accumulated foreign earnings held in cash or cash equivalents (5 percent on illiquid assets) with an election to pay resulting tax over an eight year period
  • Elimination of deemed paid foreign tax credit for U.S. corporations receiving dividends from 10 percent owned foreign corporations

Estate and Gift

  • Repeal of the estate tax beginning in 2024
  • Increase of the estate and gift tax unified credit exclusion to $10,000,000 ($20,000,000 for a married couple) beginning in 2018
  • Decrease of the gift tax rate to 35% beginning in 2024
  • Repeal of the generation-skipping transfer tax beginning in 2024
  • Increase of the generation-skipping transfer exemption to $10,000,000 ($20,000,000 for a married couple) beginning in 2018

The bill, the text of which can be found here, includes many other proposals. At this very early stage it is impossible to say when and in what form legislation will be enacted. We will be monitoring the process closely.

If you have any questions, please contact us at 973.994.9400 or egernant@wiss.com.