Tax reform is a hot topic in the US this holiday season, with much activity at the federal level. On December 2, the Senate passed H.R. 1, the Tax Cuts and Jobs Act, by a vote of 51-49. Prior to Thanksgiving, the House passed a similar bill by a vote of 227 to 205. The House and Senate have established a conference committee to reconcile the bills for a final vote. Congressional Republican Leadership and the White House want a bill on the President’s desk before Christmas.
We have provided a few of the notable provisions below:
- Individual Income Tax Rates: The House bill condenses the current seven individual income brackets to four: 12%, 25%, 35% and 39.6%. The Senate bill maintains seven brackets but changes them to: 10%, 12%, 22%, 24%, 32%, 35% and 38.5%.
- Standard Deduction: Both bills double the standard deduction to $12,000 for individuals and $24,000 for couples.
- Home Mortgage Interest Deduction: The House bill limits the deduction to the first $500,000 of the loan for new home purchases (existing loans are grandfathered). The Senate bill retains the current $1 million limit.
- State and Local Taxes: Both bills end the deduction for state and local income and sales taxes but allow it for up to $10,000 in property taxes.
- Individual Insurance Mandate: The Senate bill repeals the Affordable Care Act’s individual mandate. The House bill does not.
- Corporate Tax Rates: Both bills cut the current 35% corporate rate to 20%, but the Senate bill has a one-year delay.
- Pass-Throughs: The House bill includes a 25% rate for qualifying pass-through income while the Senate bill includes a 23% deduction.
- Business Investment: Both bills include full and immediate expensing for certain qualifying business assets.