Alan D. Miller, CPA, PFS
LJPR Financial Advisors
Wednesday, congressional Republicans reportedly reconciled the major differences in the Tax Cut & Jobs Act (TCJA) between the House proposal approved in November and the Senate version approved earlier this month, and agreed in principle to the most comprehensive reform of the federal tax code since 1986. There are many details still being worked out but preliminary information indicates the following highlights, which overall, seem to be closer to Senate’s proposal. The final proposal is expected to be released on Friday 12/15/17. It is anticipated that the Senate will vote on the reconciliation bill first as early as Monday. The House would then follow up with their vote to approve it before being sent to President Trump for signature by the self-imposed deadline of Christmas.
- The top individual tax rate is reduced to 37% from current 39.6% and the originally proposed top rate of 38.5%, while the top corporate tax rate will be lowered from the current 35% to 21% as opposed to the originally proposed rate of 20%. This seemingly reduces one of the significant complaints from some that the original proposals favored corporations/businesses at the expense of individuals. It seems that the current 7-bracket system for individuals will be retained but that may change as the conference committee completes the details.
- Standard deduction likely to be $24,000 for married couples, $18,000 for head-of-household and $12,000 for all other taxpayers.
- Medical deductions still to be allowed (details on threshold and for what period of years unclear at this time).
- On a combined basis, deduction for real estate taxes and state/local income taxes may be allowed up to $10,000. This is being carved out to appease taxpayers in high tax states such as New York, New Jersey and California.
- Deduction for mortgage interest on up to $750,000 of debt to be allowed – this is a compromise between the House’s proposed limit of $500,000 and the Senate’s continuance of the current $1,000,000 limit.
- Elimination of the corporate alternative minimum tax (AMT) and a positive revision of the individual AMT, reportedly raising the exemption amount to $500,000 for single taxpayers and $1,000,000 for joint taxpayers. This will eliminate the imposition of the AMT for millions of taxpayers that have been increasingly ensnared over the decades since it was first put into the tax code and will greatly simplify tax preparation for those taxpayers.
- So called ‘pass-through’ businesses (partnerships, S-Corporations, limited liability companies (LLCs)) will reportedly be able to deduct 20% of their business income, down from the 23% that was proposed by the Senate. This reduction, along with the lowering of the top individual tax bracket to 37%, will result in an effective tax-rate for these pass-through businesses closer to their corporate counterparts.
While much of the major ‘framework’ of the reconciliation process has been agreed upon, many of the details remain to be determined. We are continually and actively monitoring the progress of the bill.
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