On Thursday, Nov. 16 the House of Representatives passed its tax reform bill. The Tax Cuts and Jobs Act maintains most of the provisions of the bill that has been under consideration for the last couple weeks.
The news of the House vote was followed by action of the Senate Finance Committee to move its version of the tax reform bill out of committee and to the full body of the Senate.
Between the two pieces of legislation there are hundreds of pages of details, and while the general concepts are clear, the impact this reform will have on businesses and individuals is still uncertain at this time. The House-approved and Senate Finance Committee-approved bills have many similar provisions between their pages. It is important to note a number of significant differences:
- The Senate Finance Committee bill would delay the reduction of corporate tax rates by one year to years after 2018, while the House approved bill would be effective for years after 2017.
- The formulation of the tax break available for pass-through entities differs between the bills.
- The Senate Finance Committee bill increases the Sec 179 limit to $1 million beginning in 2018, while the House bill increases the Sec 179 limit to $5 million beginning in 2018.
- The House bill has five individual tax rates, including 0% and a top rate of 39.6%, the Senate bill has seven individual tax rates from 10% to a top rate of 38.5%.
- Both the House and Senate bills would eliminate the deduction for state income taxes. The House bill would limit the itemized deduction for state and local property tax to $10,000, while the Senate bill would eliminate that itemized deduction entirely. However, the Senate bill would allow these deductions if they are imposed on a business.
- The House bill would eliminate the medical expense deduction, while the Senate bill would preserve that deduction.
- The bills differ in the treatment of a number of business tax credits.
- Both bills would increase the lifetime exemption from federal estate tax to $10 million. However, the House bill would repeal the federal estate tax after 2024, while the Senate bill would not repeal the Federal estate tax. The House bill would reduce the gift tax rate from 40% to 35% for gifts made after 2024.
The success of these bills cannot be predicted with any certainty. In the last day, it has been reported one or more Senators may withhold their approval of the Senate bill. When bills have been passed by both houses of Congress, they must be reconciled into one piece of legislation and then approved by both the House and Senate. The legislation must then move to the President for his signature.
We will continue to provide updates as they become available. For questions, call 888-556-0123.