House and Senate Republicans met Wednesday, December 13 and reached a compromise on the Tax Cuts and Jobs Act. Major topics agreed upon include tax rates for corporations and individuals, pass-through income treatment, estate tax and several itemized deductions for individuals. The bill will be voted on by the full House and Senate sometime in the next week.
Here is a summary of known provisions originally proposed by the House and Senate and the compromised legislation being reported by the Conference Committee.
Corporate Tax Rate
- House: 20% starting in 2018.
- Senate: 20% starting in 2018.
- Joint Agreement: Cut rate to 21%, from the prior 35%, beginning in 2018.
Highest Individual Tax Rate
- House: Leave top rate at 39.6%.
- Senate: Cut to 38.5%.
- Joint Agreement: Cut rate to 37% for the highest earners.
Pass-Through Tax Breaks
- House: Tax business income at 25%, applicable to only certain income sources and types of businesses.
- Senate: Provide a 23% deduction from an individual’s taxable income, with certain limitations.
- Joint Agreement: Individuals receiving pass-through income would be able to deduct 20% of this income from their taxable income, with certain limitations.
Corporate Alternative Minimum Tax
- House: Repeal it.
- Senate: Maintain it.
- Joint Agreement: Repeal the corporate AMT but individual AMT would remain, with threshold amounts increasing.
- House: Increase exemption and repeal estate tax in five years.
- Senate: Increase exemption.
- Joint Agreement: Lifetime exemption would increase from $5.49 million in 2017 to $11 million in 2018.
Mortgage Interest Deduction
- House: $500,000.
- Senate: $1,000,000.
- Joint Agreement: $750,000, based on indebtedness.
State and Local Deduction
- House: Property taxes up to $10,000, no deduction for state and local taxes.
- Senate: Property taxes up to $10,000, no deduction for state and local taxes.
- Joint Agreement: An election to choose either a property tax deduction or a state and local income tax deduction, up to $10,000.
The full text of the bill is expected to be released today, December 15. GBQ will continue to monitor and communicate tax reform updates as they become available.
If you have any questions regarding the tax reform, please contact your GBQ tax advisor.