House Republicans finally released their tax reform plan last week. Now the debating and special interest lobbying can begin in earnest! The following are highlights of some of the major tax provision changes contained in the bill.
- Individual tax brackets – The current seven brackets would be compressed to four under the GOP plan. The new brackets for married couples filing jointly are as follows:
- 12% $24K to $90K taxable income
- 25% $ 90K to $ 260K taxable income
- 35% $ 260K to $ 1,000,000 taxable income
- 39.6% Over $ 1,000,000 taxable income
- The standard deduction would nearly double to $ 12,000 for singles and $ 24,000 for married filers. This could eliminate the need for many taxpayers to itemize deductions. However, personal exemptions for taxpayer’s and their dependents would be dropped.
- Most itemized deductions would be done away with including medical expenses, state & local income taxes, property taxes on vehicles, second home interest, unreimbursed employee business expenses and the home office deduction.
- Three major deductions survive but with limitations: real estate taxes, mortgage interest and charitable contributions.
- The deduction for real estate property taxes would be capped at $ 10,000.
- Mortgage interest deductions would only be allowed on loans up to $ 500,000 down from the current $1,000,000 while interest on home equity loans would be eliminated. These provisions would apply to loans taken after November 2, 2017. Existing loans would be grandfathered in with the current limits.
- Deductions for charitable contributions would be preserved.
- The child credit would increase to $ 1,600 per child and a new $ 300 credit for taxpayer, spouse and non-child dependents would be implemented. These credits would be phased out for higher income individuals. The earned income credit would not be touched.
- The alternative minimum tax (AMT) would be repealed.
- The estate tax exemption would double to $ 10,980,000 and the entire estate tax would be repealed in 2024. There would be no change in the basis step-up rules for estates of any size.
- For businesses, the corporate tax rate would be slashed to 20%, down from the current 35%. Maximum tax rates for many pass-through entities like S-corporations and LLC’s would fall to 25% although many special rules & limitations would apply.
- Businesses would be allowed to write off 100% of fixed asset purchases in the year of purchase with the cap on this deduction dramatically increased to $ 5 million.
- The American Opportunity tax credit for college tuition would remain the same but other education tax credits would be eliminated.
- For investors, the deductions for IRA and 401k contributions remain unchanged and tax rates for capital gains and dividends would also remain the same.
The GOP tax bill represents major changes for individuals and businesses alike. Lots of heated debate will follow in the House while the Senate continues work on its own version of tax reform which will probably differ greatly from the House plan. Stay tuned for more updates as the legislative process continues.
David K. Raye, CPA, P.C.
704-887-5298
*The information in this blog post is general in nature and not intended as specific advice. Please consult a tax advisor to see how this information applies to your specific situation.
Recent Comments