The House and Senate reached a compromise on tax reform legislation, the “Tax Cuts and Jobs Act,” on December 13, 2017. The exact language of the bill is not yet available and is expected to be released on December 15. However, the following list provides the changes reportedly included in the compromise legislation from the Conference Committee.
- The corporate tax rate will be set at 21% for tax years beginning in 2018, as opposed to the current rate of 35% and the previously proposed cut to 20%.
- The highest individual tax rate will be reduced from 39.6% to 37%. The Senate legislation originally called for a 38.5% top rate.
- Individuals receiving pass-through income from entities such as partnerships and S corporations will be able to deduct 20% of this income from their taxable income, a lower rate than the 23% proposed in the Senate plan. The House bill would have capped the rate at which this income was taxed at 25%. This deduction would be subject to various limitations and applicable to only certain income sources.
- The estate tax will remain in place; however the lifetime exemption is expected to increase to roughly $11 million in 2018 (and be indexed for inflation). Both the House and Senate had proposed an increased exemption amount. The House had further proposed the future repeal of the estate tax.
- The alternative minimum tax for corporations will be repealed, matching the House bill. The individual AMT would remain, but the threshold amounts will increase and only affect the highest income taxpayers.
- Mortgage interest will be deductible based on indebtedness up to $750,000, which is the midpoint between the House proposal of $500,000 and the Senate’s plan to keep the existing $1 million cap.
Please call your Warren Averett advisor if you have any questions on how Tax Reform is going to affect you or your business.