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December 4, 2017

Tax Cuts and Jobs Act Update: Senate Approves Tax Bill

Early Saturday morning the Senate voted to approve a revised version of the Tax Cuts and Jobs Act.  The bill needs to be reconciled with the House version and then approved by both chambers of Congress again before it hits the President’s desk for signature.  The more significant differences that need to be reconciled include the treatment of pass-through entities, the effective date of the lower corporate tax rate, international tax and the alternative minimum tax.  With this bill passing the Senate the likelihood that we will see legislation enacted before year-end has become much greater.  We would encourage everyone to discuss the impact of this legislation with their tax advisors now, if not already started, as there is still time to do year-end tax planning.  Below is an updated version of a comparison of the two bills:

Income tax brackets:  The Senate bill would keep seven tax brackets, but changing the rate structure with new tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 38.5%, while the House bill proposes four brackets of 12%, 25%, 35% and 39.6%.

Personal exemption and standard deduction:  Both bills would nearly double the standard deduction and eliminate personal exemptions.

State & local tax deduction:  The Senate bill originally eliminated the deduction for state & local income and property tax, however, the revised bill now conforms to the House version.  The House bill would eliminate the state & local income tax deduction, but keeping the property tax deduction with a maximum deduction of $10,000.

Mortgage interest deduction:  The Senate bill would keep the deduction and limitations regarding mortgage interest the same as present law, while the House bill would lower the debt limit to $500,000 for newly purchased homes.

Child tax credit:  Both bills propose an increase in the child tax credit, with the Senate’s proposal slightly higher, but the House bill introduces a family tax credit. 

Alternative Minimum Tax:  The revised Senate bill keeps the AMT for individuals, but increases the exemption amounts beginning in 2018.  The House bill repeals AMT.

Corporate tax rate:  The Senate bill proposes a 20% flat tax rate (eliminating the special tax rate for personal service corporations) beginning in 2019, while the House bill’s 20% rate (25% for personal service corporations) would begin in 2018.

Pass-through tax rate:  The revised Senate bill raised the special tax rate for certain pass-through income from 17.4% to 23%.  The House bill proposes a 25% tax on the non-wage portion of pass-through business income.

Carried interest:  The revised Senate bill now conforms to the House bill, which proposes a 3-year holding period requirement to qualify for the carried interest benefits.

Business interest deduction:  Both bills would limit interest deductions for businesses with exceptions for small businesses.

Capital expenditures:  Both bills include a similar proposal to generally allow a 100% deduction for qualified capital expenditures placed in service during the period after September 27, 2017 and before January 1, 2023. 

Estate tax:  The Senate bill keeps the estate tax in place, but doubles the exemption, while the House bill would phase out the estate tax by 2024.

International:  The revised Senate bill proposes a 10% (12% with the original draft) tax on the deemed repatriation of cash and 5% on non-cash assets.  The House bill calls for a 100% foreign dividend deduction, a 14% tax on cash and 7% tax on other assets.

We will be monitoring this very closely and update you with any additional changes. In the meantime, if you have any questions, please contact us at 973.994.9400 or Evan Gernant, CPA at egernant@wiss.com.