On Thursday, November 16, the House of Representatives passed their version of the Tax Reform bill.  The Senate Finance Committee also voted to approve their version, which will allow the Senate to consider the bill after Thanksgiving.  While both bills contain many similar proposals, there are some major differences.  At Hancock & Dana, we have been closely following the proposed changes and how they may affect our clients and we will continue to do so.

The chart below explains some of the major provisions of the two tax bills, as well as how they compare to each other and to current tax law.  If you have questions about how the proposed changes may affect your situation, please give us a call.

 

Category Current Law House GOP Plan (as passed 11/16/2017) Proposed Senate GOP Plan (as of 11/16/2017)
Income taxes (see more detail on tax brackets below) Seven brackets:  10%, 15%, 25%, 28%, 33%, 35%, 39.6% Four brackets: 12%, 25%, 35%, 39.6% Seven brackets:  10%, 12%, 22%, 24%, 32%, 35%, 38.5%
Standard deduction $6,350 for Singles, $12,700 for married couples Increases 2018 deduction to:  $12,200 for individuals, $24,400 for married couples Increases 2018 deduction to:  $12,000 for individuals, $24,000 for married couples
Personal Exemptions $4,050 exemption each for taxpayer and spouse (if applicable) and each dependent claimed on return Eliminates Personal Exemptions Eliminates Personal Exemptions
Child Tax Credit/Family Tax Credit Provides $1,000 tax credit per child age 16 and under for families making less than $110,000 Provides $1,600 credit per child age 16 and under for families making less than $230,000.
Creates new $300 credit for each non-child dependent (i.e., children over age 16 or non-child dependent).
Creates new $300 family flexibility credit for each taxpayer and spouse (if applicable).
The Non-child dependent credit and Family Flexibility credit will expire after 2022.
Provides $2,000 credit per child age 17 and under for families making less than $500,000.  Creates new $500 credit for each non-child dependent.
Alternative Minimum Tax (AMT) Limits certain benefits for higher-income earners Eliminates AMT Eliminates AMT
Mortgage Interest Deduction Allows deduction of interest on first $1 million of mortgages for first and second home(s)
Permits deduction for interest expense on up to $100,000 of home equity indebtedness.
Limits deduction to interest on first $500,000 of mortgages for primary residence only.
No deduction for mortgage interest on second home.
No deduction for home equity interest expense.
Retains deduction of interest on first $1 million of mortgages for first and second home acquisition indebtedness.
Eliminates deduction for interest expense on home equity indebtedness.
State/local income and property tax deductions Allows deduction for state and local income tax (or sales tax), real estate tax, personal property tax. Eliminates Deductions for state and local income taxes, sales tax and real property tax.
Limits deduction for real property taxes to a maximum of $10,000.
Eliminates deductions for all state and local income taxes, sales tax, real property tax and personal property taxes.
American Opportunity Tax Credit (AOTC) Tax credit for up to $2,500 for the first $4,000 spent on tuition and fees for the first four years of undergraduate education for each eligible student.  Taxpayers must have Modified Adjusted Gross Income (“MAGI”) of less than $90,000 as a single filer or $180,000 as joint filers in order to claim the credit. Extends the AOTC credit to a fifth year, but only allows for half the credit in the final year ($1,250).  Phaseout of credit remains at $65,000 for single filers and $130,000 for joint filers. Retains AOTC under current rules
Lifetime Learning Credit Credit for 20% of up to $10,000 in qualified tuition  expenses for higher education, not limited to undergraduate education.   Taxpayers must have MAGI of less than $65,000 as a single filer or $130,000 as joint filers in order to claim the credit.  Credit is limited to $2,000 per tax return. Eliminates the Lifetime Learning Credit Retains the Lifetime Learning Credit
Other deductions Various deductions to reduce tax burden for individual filers Eliminates deductions for student loan interest, medical expenses, tax preparation fees, most personal casualty losses, tuition and fees deduction, and employee business expenses.
Denies deduction for charitable contributions that entitle donors to a right to purchase tickets to college sporting events.
Eliminates deductions for  tax preparation fees, most personal casualty losses, and employee business expenses.
Retains deduction for medical expenses and charitable contributions
Sunset provisions N/A Family Flexibility Credit and non-child dependent credit will expire as of January 1, 2023. The individual tax cuts would expire after 2025 in order to comply with a rule that requires the bill to not increase the deficit after 10 years.
Corporate tax cuts will be permanent.
Estate tax Taxes assessed on estates with total property valued at more than $5.5 million, $11 million if passed to a surviving spouse. Increases exemption to $11 million ($22 million for a surviving spouse).  Repeals tax entirely after six years. Increases exemption to $11 million ($22 million for a surviving spouse).
Corporate taxes Graduated tax rates of 15% – 35%. Flat rate of 20% for corporations starting in 2018.
Maximum rate of 25% for certain small businesses that pass on profits to owners.  Lower tax rate is not available for specified service businesses.
Flat rate of 20% for corporations starting in 2019.
Certain small businesses owners are able to deduct some earnings, but will pay ordinary tax rate on remainder. Deduction is not available for owners of specified service businesses with taxable income of greater than $500,000 for married taxpayers and $250,000 for single taxpayers.

Tax Bracket Changes

Current Law
Rate Single Married Filing Joint
10% $0-$9,525 $0-$19,050
15% $9,525-$38,700 $19,051-$77,400
25% $38,700-$93,700 $77,400-$156,150
28% $93,700-$195,450 $156,150-$237,950
33% $195,451-$424,950 $237,950-$424,950
35% $424,951-$426,700 $424,950-$480,050
39.6% Over $426,700 Over $480,050
House Bill (passed)
Rate Single Married Filing Joint
12% $0 to $45,000 $0 to $90,000
25% $45,001 – $200,000 $90,001-$260,000
35% $200,001 – $500,000 $260,001 – $1,000,000
39.6% Over $500,000 Over $1,000,000
Senate Bill (as of 11/16/17)
Rate Single Married Filing Joint
10% $0-9,525 $0-$19,050
12% $9,526-$38,700 $19,051-$77,400
22% $38,701-$70,000 $77,401-$140,000
24% $70,001-$160,000 $140,001-$320,000
32% $160,001-$200,000 $320,001-$400,000
35% $200,001-$500,000 $400,001-$1,000,000
38.5% Over $500,000 Over $1,000,000