This Issues and Insights discusses the release of the new House Tax Bill and Senate Tax Bill amid year-end planning.

  • On November 9, 2017, the House Ways and Means Committee passed the Tax Cuts and Jobs Act (House Tax Bill) and the Senate Finance Committee released its proposed version (Senate Tax Bill).
  • Keep in mind that these bills are just the starting point of tax reform; we could see sweeping changes in the law, minor revisions, or no change at all.
  • Whatever the outcome, it’s still important to make sure you have taken advantage of available income tax planning strategies for 2017 and reviewed your other planning documents.
  • New Development: Since this article was published, the U.S. Congress passed the Tax Cuts and Jobs Act (the Act) on December 20, 2017 and it was signed by President Trump. Most of the year-end planning tips in the article are still relevant to 2017 year-end planning.

As the end of the year grows near, it is time to finalize planning for taxes and the steps you need to take to help minimize them.  Now that both the House Tax Bill and Senate Tax Bill have been released and have started their way through the legislative process, we see that there could be significant tax law changes that will affect all of us. There are substantial changes that will start the debate over what the final bill will look like. The Senate Tax Bill has significant differences from the House Tax Bill that could make the passage of tax reform difficult. 

Summary of the House Tax Bill

Most importantly, as you plan for year end, please keep in mind that the House Tax Bill generally applies to tax years 2018 and beyond. The House Tax Bill provides for four tax brackets, keeping the current top bracket of 39.6%. The capital gains tax rate remains unchanged. State and local income taxes will no longer be deductible, but mortgage interest and real estate taxes will be, albeit limited to smaller amounts. Charitable contributions are also still deductible. There will no longer be a deduction for personal exemptions, and the standard deduction for taxpayers will be nearly doubled. Alimony will no longer be taxable to the recipient or deductible by the payor, and additional limits apply to the exclusion of gain on the sale of a personal residence. The estate and generation-skipping transfer (GST) taxes would eventually be repealed, although the gift tax would be retained.  

Summary of the Senate Tax Bill

Like the House Tax Bill, the Senate Tax Bill generally applies to tax years beginning after December 31, 2017. Unlike the House Tax Bill, the Senate Tax Bill keeps seven tax brackets with a top tax rate of 38.5%. The Senate Tax Bill also retains the current capital tax gains rate. The Senate Tax Bill eliminates all state and local taxes, including income, sales, and real estate taxes. The standard deduction is nearly doubled and the personal exemptions are eliminated. Charitable contributions are still deductible. Miscellaneous deductions are also eliminated.  There would be no change in the tax treatment of alimony, and additional limits would also apply to the gain on the sale of a personal residence. The estate and GST taxes would be retained with higher exemption amounts and the gift tax would be retained. All of these proposals would expire after December 31, 2025.

These are just some of the many changes in the proposals. For a more detailed description of the changes, please read Tax Cuts and Jobs Act: Comparing the House and Senate Tax Bills. We will be updating these charts as the proposals change, so please check back often.

Please see important disclosures at the end of the article.

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