Comparison of the House and Senates Tax Cuts and Jobs Act

The below comparison outlines the "Tax Cuts and Jobs Act" passed by the House of Representatives on November 16 and the Senate on December 2. Since the two plans differ, they will now be sent to a conference committee where negotiators from both chambers will create a unified bill. After, both parties must approve the bill before it is sent to the president for his signature. If you have any  questions or concerns about the proposed tax reform and how it may affect you, please call our office at 410-497-5947.

One of the biggest wins appears to be for married individuals.  Both the Senate and the House bills have drastically increased the size of the tax brackets for married filing joint status -- effectively eliminating the "marriage penalty".  Most married taxpayers who file jointly should see a significant reduction in taxes.  Too illustrate the change: In 2017 the top tax bracket of 39.6% kicks in when taxable income exceeds $418,400 for single taxpayers and $470,700 for married couples.  In both new bills - the top tax bracket kicks in for single taxpayers when taxable income exceeds $500,000 and for married taxpayers at $1,000,000.  Many married taxpayers will now see larger percentages of their income taxed at much lower rates.

Here is a detailed look at how the Senate and House versions of tax reform compare.


Provision

House Bill

Senate Bill

1.`Tax Brackets

Individual Income Tax Rates
Four tax brackets: 12%, 25%, 35%, and 39.6%.


Married Filing Jointly:

  • 12% (Taxable income not over $90,000)

  • 25% (Over $90,000 but not over $260,000)

  • 35% (Over $260,000 but not over $1,000,000)

  • 39.6% (Over $1,000,000)

Married Filing Separately:

  • 12% (Taxable income not over $45,000)

  • 25% (Over $45,000 but not over $130,000)

  • 35% (Over $130,000 but not over $500,00)

  • 39.6% (Over $500,000)

Head of Household:

  • 12% (Taxable income not over $67,500)

  • 25% (Over $67,500 but not over $200,000)

  • 35% (Over $200,000 but not over $500,000)
    39.6% (Over $500,000)


Other Individuals:

  • 12% (Taxable income not over $45,000)

  • 25% (Over $45,000 but not over $200,000)

  • 35% (Over $200,000 but not over $500,000)

  • 39.6% (Over $500,000)


The income levels would be indexed for
inflation using the Chained Consumer Price Index
for All Urban Consumers (C-CPI-U).



Individual Income Tax Rates
Seven tax brackets: 10%,12%, 22%, 24%, 32%, 35%, and 38.5%.


Married Filing Jointly:

  • 10% (Taxable income not over $19,050)

  • 12% (Over $19,050 but not over $77,400)

  • 22% (Over $77,400 but not over $140,000)

  • 24% (Over $140,000 but not over $320,000)

  • 32% (Over $320,000 but not over $400,000)

  • 35% (Over $400,000 but not over $1,000,000)

  • 38.5% (Over $1,000,000)

Married Filing Separately:

  • 10% (Taxable income not over $9,525)

  • 12% (Over $9,525 but not over $38,700)

  • 22% (Over $38,700 but not over $70,000)

  • 24% (Over $70,000 but not over $160,000)

  • 32% (Over $160,000 but not over $200,000)

  • 35% (Over $200,000 but not over $500,000)

  • 38.5% (Over $500,000)

Head of Household:

  • 10% (Taxable income not over $13,600)

  • 12% (Over $13,600 but not over $51,800)

  • 22% (Over $51,800 but not over $70,000)

  • 24% (Over $70,000 but not over $160,000)

  • 32% (Over $160,000 but not over $200,000)

  • 35% (Over $200,000 but not over $500,000)

  • 38.5% (Over $500,000)


Single Individuals:

  • 10% (Taxable income not over $9,525)

  • 12% (Over $9,525 but not over $38,700)

  • 22% (Over $38,700 but not over $70,000)

  • 24% (Over $70,000 but not over $160,000)

  • 32% (Over $160,000 but not over $200,000)

  • 35% (Over $200,000 but not over $500,000)

  • 38.5% (Over $500,000)

The income threshold amounts for each rate
bracket would be indexed for inflation using CCPI-U.

2.Personal and Dependency Exemptions

Repeal effective for tax years beginning after December 31, 2017.

Repeal effective for tax years beginning after December 31, 2017.

3.Standard Deductions



-Single: $12,200

-Married: $24,400

-Head of Household: $18,300


Effective for tax years beginning after 2017. The bill would also provide that these amounts be indexed for inflation for years beginning after 2019.

-Single: $12,000

-Married: $24,000

-Head of Household: $18,000


These increased amounts would expire after 2025. Effective for tax years beginning after 2017. The bill would also provide that these amounts be indexed for inflation for years beginning after 2018.

4.Earned Income Tax Credit

Retain

Retain

5.State & Local Income Taxes

Repeal

Repeal. Reinstate after 2025

6.Real Estate Taxes

Limit deductions to $10,000

Limit to $10,000 for married joint and $5,000 for single

7.Mortgage Interest Deduction

Limits mortgage interest deduction to the first $500,000 of debt incurred after November 2, 2017. Only applicable for taxpayer's principal residence.

Retain; eliminates deduction on Home Equity Debt.


8.Casualty Losses

Repeal except for Presidentially Declared Disaster Area Losses

Repeal except for Presidentially Declared Disaster Area Losses

9.Charitable Contributions

Retain



Retain, with some modifications. Increase the AGI limitation on cash contributions from 50% to 60%, effective for years after 2017 and before 2026.

10.Charitable Contribution Mileage Deduction

No change

Index to inflation

11.Tax Return Reparation
Fee Deduction

Repeal

Repeal

12.Miscellaneous ‑ Itemized Deductions Subject to the 2% AGI test

Repeal

Repeal

13.Phase‑out of the overall Itemized Deduction Amount (PEASE Provision)

Repeal

Temporarily repealed, reinstate in 2024.

14.Alternative Minimum Tax (AMT) Individuals

Repeal starting 2017.


Retain but increase the exemption amounts

15. Retirement Plan Contributions (IRA, §401(k), §403(b), §457(b)

Retain

Retain

16.Credit for Social Security Taxes Paid on Restaurant Tips

Credit for portion of employer social security taxes paid with respect to restaurant employee tips would be modified to reflect current minimum wage. Restaurants with 10 or fewer employees would now be required to report tip allocations. Applicable beginning after December 31, 2017.

Not addressed

17.Child Tax Credit



Increase credit to $1,600 per qualifying child under age 18, with the phaseout for couples filing jointly starting at $230,000. Dependent exemption replaced with a $300 per-person tax credit for those dependents not eligible for the child tax credit.

Increase credit to $2,000 per qualifying child under age 18, with the phaseout for couples filing jointly starting at $500,000. Dependent exemption eliminated and a replaced with a $500 for dependents not eligible for the child tax credit.

18.Long‑Term Capital Gain and Qualified Dividends Preferential rates of 0%, 15%, 20%

Retain

Retain

19.Indexing of Provisions

Change from CPI to "chained CPI" which is a slower rate of indexing

Change from CPI to "chained CPI"

20.Adoption Credit

No Change

No Change

21.Exclusion for Adoptions Assistance Programs

Repeal the exclusion for adoption assistance programs effective after December 31, 2017

Not addressed

22.Affordable Care Act
Taxes: Net Investment

Retain


Retain

23.Educator Deduction for Classroom Expenses and Professional Developmental Cost

Repeal

Deduction increased from $250 to $500

24.Child Care and Dependent Care Credit

Retain

Retain

25.Alimony

Alimony payments would no longer be deductible by the payor or taxable to the recipient. Effective for agreements entered into or modified after 2017.

Retain

26. Student Loan Interest
Deduction

Repeal

Retain

27. Education Credits

Consolidate American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) into one Credit eliminating the Lifetime Learning Credit

No change

28.IRA Contributions


Repeal the allowance for recharacterizing traditional IRAs to Roth IRAs and recharacterization of Roth IRA to traditional IRAs

Retain

29.Roth Conversions

Repeal

Retain

30.Allowance of Meals for Convenience of the Employer

Retain

Repeal effective for tax years beginning after December 31, 2025

31.Corporate Tax Rates

Impose a flat rate of 20% effective January 1, 2018; corporate AMT repealed

Flat rate of 20% effective January 1, 2019; corporate AMT retained

32.§179 Expense Deduction Election Amounts

Increase current $500,000 amount indexed to inflation, to $5 million with the phase‑out amount increased from $2 million indexed to inflation to $20 million, for tax years beginning after December 31, 2017 and ending before January 1, 2023

Increase current $500,000 to $1.5 million with the phase‑out beginning at $2.5 million for all tax years beginning after December 31, 2017 and permanent

33.Expansion of Cash Basis Accounting Method

Increased from current $10 million gross receipts test to a $25 million gross receipts test

Increase to a $15 million gross receipts test.


34.Fringe Benefits Business Entertainment Deduction (Amusement or recreation)

Repeal the costs associated with entertainment retain 50% food and beverage

Repeal the costs associated with entertainment retain 50% food and beverage

35.§199 Domestic Income Production Activity Deduction

Repeal for tax years beginning after December 31, 2017

Repeal for tax years beginning after December 31, 2018

36.Work Opportunity Credit

Repeal

Not addressed

37.Bonus Depreciation Immediate Expressing of Qualified Property

Allow an unlimited Deduction for 5 years for all tangible and intangible property after September 27, 2017 and before January 1, 2023

Allow an unlimited Deduction for 5 years for all tangible and intangible property after September 27, 2017 and before January 1, 2023. For assets placed in services after September 27, 2017 and before January 1, 2018, 50% bonus can be elected

38.Net Operating Losses (NOL) for both individuals and businesses

Limit deduction to 90% of the NOL amount with a repeal of the 2 year carry back requirements except for farmers and casualties and allow a one year carry back only • Repeal the 20 year carry forward limitation, therefore unlimited carryforward period allowed effective for tax years beginning after December 31, 2017

Limit the deduction to 90% of the NOL amount for tax years beginning after December 31, 2017 and 80% for tax years beginning after January 31, 2022. Repeal of the 2 year carryback period except for farmers for years beginning after 2023. Repeal the 20 year carry forward limitation, therefore unlimited carryforward period allowed effective for tax years beginning after December 31, 2017

39.Estate Tax

Doubles the estate tax exemption with repeal for deaths after December 31, 2017

Doubles the estate tax exemption for deaths after December 31, 2017 through 2015

40.Net Business Interest
Deduction

Limitation to 30% of adjusted
taxable income for business with gross receipts greater than $25 million

Same limitation as House Bill
but less than $15 million of gross receipts during 3 prior years

41. §1031 Like‑Kind Exchanges

Repealed except for Real Estate Transaction Exchanges

Repealed except for Real Estate Transaction Exchanges

42. Pass-through Income Treatment

Qualifying businesses would be taxed at a maximum rate of 25% on a portion of pass-through entity net income distributions treated as business income. The remaining portion of distributions would be treated as wage income subject to individual income tax rates. A 9% tax rate would be applicable for certain qualifying business subject to regulations.

Adopts a 23% deduction for pass-through income, generally limited to 50% of wage income, for qualifying businesses. Expires in 2025.

43. Charitable Contributions Substantiation Rules for Contributions of ≥ $250 per single Contribution

Retain

Repeal

44. §121 Exclusion for
Gain on Sale of Principal
Residence

Change the 2 out of 5 year rule for ownership and use to 5 out of 8 years. Limit the exclusion to once every 5 years from once every 2 years

Change the 2 out of 5 year rule for ownership and use to 5 out of 8 years. Limit the exclusion to once every 5 years from once every 2 years. Allows current exclusion amounts for written binding contracts in effect prior to January 1, 2018. Retains partial exclusion for unforeseen circumstances

45. Gambling Losses

All gambling-related expenses (including losses) would only be deductible to the extent of gambling winnings.

All gambling-related expenses (including losses) would only be deductible to the extent of gambling winnings.

46. Private Activity Bond
Interest Income

Repeals the ability to issue private activity bonds on a tax exempt basis

No Mention

47. Tax Exempt Bonds for
Professional Stadiums

Repeal Tax Exempt interest income on these bonds

No Mention

48. Mandate of Minimum Essential Coverage (MEC) for individuals and families and Applicable Large Employers (ALE) that fail to Offer Coverage to Full Time Employees

Retain

Repeal after 2018

49. Moving Expense Deduction

Eliminate except for members of the armed forces

Eliminate except for members of the armed forces

50. Conversion of a Traditional IRA to Roth IRA

Repeal

Retain

52. Rollover Period for the Rollover of Qualified Plan Loan Offset Amounts

No change proposed

Increase the 60 day rollover contribution period from 60 days to the due date for filing the income tax return

53. Student Loan Debt Discharge

No mention


Certain student loans that are discharged on account of the death or total and permanent disability of the student would be excluded from gross income

54. Simplified Filing for Older Taxpayer

Not mentioned.

Require IRS to provide a simplified income tax return as Form 1040SR for persons who are age 65 and older effective for tax years beginning after January 31, 2018.

55. §529 Plans for Unborn Child

No provision proposed

An unborn child would be able to qualify as a designated beneficiary effective for contributions made after December 31, 2017 and before January 1, 2026

56. Deferred Foreign Profits

Deemed repatriation of currently defined foreign profit of a rate of 12% for cash and cash equivalents profits and at 5% of all other profits

Deemed repatriation of currently defined foreign profit of a rate of 12% for cash and cash equivalents profits and at 5% of all other profits

57. Creation of a Territorial
Tax System

Exempts from U.S. Tax 100% of dividends of any foreign subsidiary

Exempts from U.S. Tax 100% of dividends of any foreign subsidiary

58. Kiddie Tax

No proposed change

Unearned income would be taxed using the income tax rates and brackets applicable to Trusts and Estates. Earned income would continue to be taxed using the single taxpayer rates and brackets. Applicable to children ages 18 and under, or under age 24 if a full time student.

59. Due Diligence
Requirement for Head of Household Filing Status

No proposed change

Impose a due diligence requirement for paid tax preparers in determining the eligibility for a taxpayer to file with a status of Head of Household.

60. Dividends Received Deductions for C-Corporations

Reduce the current 70% dividends received deduction to 50% and the current 80% dividends received deduction to 65%

No proposed change

61. §179 Property to
Include Certain Real
Estate Property

No proposed change

Expand the definition of "qualified real property" to include improvements to nonresidential real property placed in service after the date such property is placed in service and will include:

• Roofs

• Heating

• Ventilation and Air Conditioning System

• Fire Protection

• Alarm System

• Security Systems for Tax Years after December 31, 2017

62. Inventory Accounting Rules

No proposed change


Exempt Certain taxpayers from the requirements to keep inventory if gross receipts test of $15 million is met

63. Bonus Depreciation for Luxury Auto under §280F

No proposed change

Increase first year depreciation to $8,000 for autos placed in service after December 31, 2017

64. Depreciation for
Luxury Autos if Bonus
Depreciation not claimed

No proposed change

• $10,000 year one
• $16,000 year two
• $9,600 year three
• $5,760 year four and all subsequent years

65. Recovery Period for Residential and Nonresidential Real Property

No proposed change

Shorten the recovery period for determining the depreciation deduction with respect to rental real estate to 25 years for property placed in service after December 31, 2017

66. Corporate Alternative Minimum Tax (AMT)

Repeal

Retain

67. Carried Interest

Retain

Impose a 3 year holding period for certain partnership interests received in connection with the performance of services to be taxed as long term capital gain rather than ordinary income

68. Qualified Transportation Fringe Benefits

Retain

Repeal

69. Employee Achievement Awards

Retain



Repeal Reduction

70. Credit for Employee Paid Family Leave

No Proposal

12.5% credit of wages paid if rate of pay is 50% of wages normally paid

71. Whistleblower Awards

Not addressed

Provide an above-the-line deduction for attorney fees and court costs paid by, or on behalf of, a taxpayer in connection with any action involving a claim under state false or fraudulent claims acts, the SEC Whistleblower program, and the Commodity Futures Trading Commission whistleblower program. For awards under §21F of the Securities and Exchange Act of 1934, awards under state false or fraudulent claims acts, and awards under §23 of the Commodity Exchange Act, the deduction would not be allowed in tax years beginning after December 31, 2025. Effective for tax years beginning after December 31, 2017.

72. IRS Whistleblower Program

Not addressed

Modify the definition of collected proceeds eligible for awards to include: (1) penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws, and (2) any proceeds under enforcement programs that the Treasury has delegated to the IRS the authority to administer, enforce, or investigate, including criminal fines and civil forfeitures, and violations of reporting Requirements.  The modified definition would also be used to determine eligibility for the enhanced reward program under which proceeds and additional amounts in dispute exceed $2 million. Collected proceeds amounts would be determined without regard to whether such proceeds are available to the IRS. Effective for information provided before, on, or after the date of enactment for which a final determination for an award has not been made before that date.

73. Estate and Gift Taxes

Increase the federal estate and gift tax unified credit basic exclusion amount to $10 million, with inflation adjustments,  effective for decedents dying and gifts made after 2017. The bill would repeal the federal estate tax, effective after 2024. The federal gift tax rates would also be decreased from 40% to 35%, effective for gifts made after 2024.

The bill would increase the federal estate and gift tax unified credit basic exclusion amount to $10 million, with inflation adjustments, effective for decedents dying and gifts made after 2017 and before 2026.

74. Refundable Credit
Program Integrity

In order to claim a Child Tax Credit or the American Opportunity Tax Credit, taxpayers would be required to provide a word-eligible SSN.  The IRS would be granted math error authority to adjust the returns of taxpayers failing to provide this.

In order to claim the Child Tax Credit, taxpayers must provide the social security number of each qualifying child.

75. Tax Preparation Services Deduction

The bill would eliminate the itemized deduction for tax preparation services for tax years beginning after 2017.

Not addressed

76. Alternative Minimum Tax

Repeal

Amend; exemption amount increases slightly.

77. International Income

Moves to a territorial system with base-erosion rules including the inclusion of 50 percent of excess returns by controlled foreign corporations in U.S. shareholder's’ income, and an excise tax on payments made to foreign firms unless claimed as effectively connected income

Moves to a territorial system with anti-abuse rules and a base erosion minimum tax of the excess of 10 percent of modified taxable income over an amount equal to regular tax liability