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A Comparison of Key Provisions of the House and Senate Approved Versions

On December 2, 2017, the U.S. Senate approved its version of the Tax Cut and Jobs Act of 2017, following, the U.S. House of Representatives which approved its version on November 16, 2017, to usher in U.S. Federal tax reform. Here are the highlights of the differences on key areas in the draft legislation that we feel applies to a large cross-section of our clients and friends.

Please note that these legislative proposals have not yet been enacted into law but Senate and House are negotiating to send the final bill for the President to sign into a law. Many high-income taxpayers (especially in high tax states like New York, New Jersey and California) will see increases in their taxes when these provisions are enacted.

Individual Income Taxes

Key Area Current Law House Bill Senate Bill
Individual Tax Rates Seven brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6% Four brackets: 12%, 25%, 35%, and 39.6%; includes a “bubble rate” of 45.6% Seven brackets: 10%, 12%, 22%, 24%, 32%, 35% and 38.5%
Alternative Minimum Tax (AMT) Limits certain tax benefits for higher income earners Eliminates AMT Retains AMT
Standard Deduction Single: $6,350 Married: $12,700 Single: $12,000 Married: $24,000 Single: $12,000 Married: $24,000
Mortgage Interest Deduction Limited to $1M acquisition debt Capped at $500K. Retains current cap of $1M.
State and Local Tax Income Deduction (SALT) Income and property tax are fully deductible for itemizers Repeals SALT deduction for income taxes; caps property tax deduction at $10K Repeals SALT deduction for income taxes; caps property tax deduction at $10K
Capital Gains Exemption on Sale of Primary Residence Must own and use residence for at least two of five years prior to sale. Must own and use residence for at least five of the eight years prior to sale. Income limits apply Must own and use for at least five of the eight years prior to sale. No income limits apply.
1031 Like-Kind Exchange Limited to real and tangible property. Limited to real property assets. Limited to real property assets.
Child Tax Credit $1,000 credit for each child; credit phased out at $110K (married) $1,600 credit; $300 credit for each parent and nonchild dependent; credit phased out at $230K (married) $2,000 credit; $500 credit for non-minor child dependents; credits phased out at $500K (married)
Obamacare Taxes Individual tax penalty for not having health insurance No change Repeal of individual mandate penalty ending tax for failing to have insurance
Estate Tax 40% tax on assets over $5.49 million per person ($5.6 million in 2018) Immediately doubles exclusion and repeals the tax after 2024 ($11.2 million or $22.4 for a married couple) Immediately doubles the basic exclusion ($11.2 million or $22.4 for a married couple); does not repeal the tax

Tax Reform for Business Taxes

Key Area Current Law House Bill Senate Bill
Corporate Tax Rate Federal corporate tax rate of 35% Permanent and immediate tax rate reduction to 20% in 2018 Permanent tax rate reduction to 20% in 2019
“Pass-through” Tax Treatment “Pass-through” income taxed at personal income tax rates Maximum rate capped at 25%, 9% rate on first $75K; income over 25% threshold subject to special rules that effectively raise the tax rate Deduction allowed for 23% of “pass-through” income; no other preferential rate
Reduced Period for Depreciation of Real Property 27.5 years for residential, 39 years for nonresidential and 15 years for qualified leasehold improvements, etc No Change 25 years for both residential and nonresidential, and 10 years for qualified leasehold improvements, etc
Cash Method Accounting Average 3-years gross receipts of $5M Average 3-years gross receipts of $25M Average 3-years gross receipts of $15M ($25M for Family Corporations)
Accounting for Inventory Accrual method Cash method with average 3-years gross receipts of $25M, must confirm with books and records or financial statements Same as House Bill
Net Operating Loss Full deduction, 2-yr carry back 20-yr carryforward 90% deduction, 1-yr carryback, unlimited carryforward 90% deduction, no carryback, unlimited carryforward
Carried Interest More than 1-yr holding period for capital gain treatment No Change More than 3-yr holding period for capital gain treatment
International Tax Rules Taxes worldwide corporate profits, which can be deferred minus taxes paid elsewhere Moves towards a territorial system that only taxes domestic profits; imposes a 10% international minimum tax and a 20% excise tax on certain transactions with foreign subsidiaries Moves toward a participation exemption system. A full deduction for dividends received from foreign corporations, by U.S. corporate shareholder. Imposes a 10% tax on low-tax intangible income and a 12.5% tax on certain foreign intangible income
Deemed Repatriation Tax Passive income tax at regular tax rates 14% on liquid assets, 7% on physical assets. Election to pay tax over 8 years. Deduction that results in approx. 14.5% on liquid assets, 7.5% on physical assets. Election to pay tax over 8 years.