House Republicans on November 2 unveiled their much-anticipated tax reform legislation, the Tax Cuts and Jobs Act (HR 1).
The bill loosely follows the uniﬁed framework released by the House, Senate and Trump Administration in September. Although it is a long way from enactment and still has to go through both the House Ways and Means Committee and the Senate Finance Committee, the following is a brief summary of the highlights.
On the individual side of the tax code, the Tax Cuts and Jobs Act proposes to do the following:
- Lower the individual tax rates for low-to-middle income taxpayers to 12, 25, and 35 percent. For joint returns, the 25 percent would start at $90,000; and at $260,000 for the 35 percent bracket (half for single, individual ﬁlers). The bill would maintain the current 39.6 percent tax rate for joint ﬁlers with taxable income of more than $1 million ($500,000 for individuals);
- Increase the standard deduction to $12,000 for single individuals and to $24,000 for married couples;
- Aim to simplify the tax code and ﬁling process by eliminating “special-interest deductions;”
- Establish a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600, and providing a credit of $300 for each parent and non-child dependent to help all families;
- Eliminate personal exemptions;
- Preserve the Earned Income Tax Credit;
- Continue the deduction for charitable contributions for those who itemize;
- Grandfather in the home mortgage interest deduction for existing mortgages up to the current $1 million debt limit but lower the limit going forward for the home mortgage interest deduction on newly purchased homes up to $500,000 (note interest will only be deductible on the taxpayer’s primary residence unlike existing law which allows for interest on two residences);
- Continue to allow itemized state and local property taxes deduction but only up to $10,000;
- Eliminates the current itemized deduction for state and local taxes;
- Retain popular retirement savings options such as 401(k)s and Individual Retirement Accounts as they are currently structured;
- Repeal the alternative minimum tax (AMT); and
- Double the estate tax exclusion, with full repeal after six years.
On the business side of tax reform, the Tax Cuts and Jobs Act would among other things, include proposals to:
- Cut the corporate tax rate to 20 percent from 35 percent;
- Create a top pass-through rate of 25 percent on small business income with safeguards against abuse;
- Create a temporary 100 percent expensing write-oﬀ for qualiﬁed business property;
- Make numerous changes to the taxation of foreign income and foreign persons/ businesses;
- Cap the deduction for net interest expenses at 30 percent of adjusted taxable income, except for small businesses;
- Modify the net operating loss deduction; and
- Allow for the temporary repatriation of foreign earnings at a 12 percent rate (5 percent for noncash holdings).
If you have any questions about the proposed legislation and how it might affect you or your business, please contact us at 212-973-1000.