On November 16, the House passed a new tax reform bill that moves the GOP closer to bringing the legislation to fruition. Now the Senate is preparing its own tax reform package. If passed, it must be reconciled with the House before any final legislation goes to the White House.
Here is a snapshot of some of the key changes proposed in the tax reform bill:
Individual tax rates would be reduced and there would be four revised brackets of 12, 25, 35 and 39.6 percent. There is also a new maximum rate on business income for individuals of 25 percent.
The standard deduction would be almost doubled, but personal exemption deductions would be repealed.
The mortgage interest deduction would be capped at $500,000 of debt for newly purchased homes, but the $1 million cap will remain for current home owners.
State and local sales and income tax itemized deductions would be eliminated and the property tax deduction would be limited to $10,000.
Several personal deductions would be eliminated including those for medical expenses, alimony and student loan interest.
Many education incentives would be consolidated.
The child tax credit would be increased; and a temporary family tax credit would be introduced. The child and dependent care credit and the adoption credit would remain.
Also, families of four or more would have fewer standard deductions and exemptions combined under the new plan which may or may not be offset by the increase in child tax credits or new tax brackets, depending on income levels.
The estate tax exemption amount would be doubled and the rate would be lowered with the estate tax repeal not taking effect until 2024.
The top corporate tax rate would drop to a flat 20 percent which will eliminate the graduated rates up to 35%.
A new pass-through entity tax structure would be created, and the rules for deducting business interest would be modified.
The individual and corporate AMT would be repealed.
The Work Opportunity Tax Credit and many other business tax preferences would be eliminated.
These are just some of the latest changes outlined in the draft tax reform bill. We will continue to provide updates on this legislation as it progresses. If you have questions, please contact our firm.