Congress Releases Revised Conference Bill on Tax Reform
A Look at How It Compares with Earlier House and Senate Bills
Congress released the "Tax Cuts and Jobs Act" on late Friday evening, Dec. 15, 2017. This version of the bill is the result of a conference committee process to marry the different bills previously passed by the U.S. House of Representatives and the U.S. Senate. The House is expected to vote on Tuesday, Dec. 19, and the Senate will likely vote on the bill Tuesday, Dec. 19, or Wednesday morning, Dec. 20, depending on the length of the debate. The margin of error in the Senate, however, is slim. With no support from Senate Democrats, Republicans can stand to lose only two votes. Nevertheless, it is expected that the bill will be passed by both chambers and sent to President Donald Trump for his signature before the Christmas holiday.
Although the bill is not a complete overhaul of the U.S. Tax Code, the bill contains significant changes to many provisions of the Code and impacts every individual and business. If signed into law, the next challenge will be implementation – many of the provisions are effective in 2018 and much of the statutory language will need to be flushed out by the U.S. Department of the Treasury and the Internal Revenue Service (IRS) through the regulatory process.
Holland & Knight will provide further analysis. However, below is a look at how the House and Senate bills compare with the revised conference bill:
| House Bill | Senate Bill | Conference |
Individual Tax Rates | Four brackets: 35 percent and | Seven brackets: | Seven brackets: |
Capital Gains and Qualified Dividends Rates | Zero percent if in 12 percent bracket; 15 percent if in 25 percent bracket; 20 percent if in 35 percent bracket | Zero percent for taxpayers with income of $38,700 or less; 15 percent for taxpayers with income of $426,700 or less; 20 percent for taxpayers with income of more than $426,700 | Zero percent for taxpayers with income of $38,600 or less; 15 percent for taxpayers with income of $425,800 or less; 20 percent for taxpayers with income of more than $425,800 |
Personal Exemption | Repealed | Suspended through 2025 | Suspended through 2025 |
Standard Deduction | $12,200 for single taxpayers, $18,300 for heads of household and $24,400 for married filing jointly | $12,000 for single taxpayers, $18,000 for heads of household and $24,000 for married filing jointly | $12,000 for single taxpayers, $18,000 for heads of household and $24,000 for married filing jointly |
Itemized Deductions | Eliminates deduction for medical expenses, state and local income taxes, property tax of more than $10,000, mortgage interest expense on acquisition debt of more than $500,000, certain personal casualty losses, unreimbursed employee expenses and tax preparation fees; Overall limitation on itemized deductions repealed | Eliminates deduction for state and local taxes, property tax of more than $10,000, unreimbursed employee expenses and tax preparation fees; Overall limitation on itemized deductions suspended until 2026 | Limits combined deduction for state and local taxes and property taxes to $10,000 from 2018 to 2025 and eliminates deduction for mortgage interest expense on acquisition debt of more than $750,000, unreimbursed employee expenses and tax preparation fees through 2025; Overall limitation on itemized deductions suspended until 2026 |
Alternative Minimum Tax (AMT) | Repealed | Retained with increased exemptions for individuals through 2025 | Retained with increased exemptions for individuals through 2025 Repealed for corporation |
Carried Interest | Partnership interests received in exchange for services must be held for at least three years to be eligible for long-term capital gain tax rate | Partnership interests received in exchange for services must be held for at least three years to be eligible for long-term capital gain tax rate | Partnership interests received in exchange for services must be held for at least three years to be eligible for long-term capital gain tax rate |
Corporate Tax Rate | 20 percent starting in 2018 | 20 percent starting in 2019 | 21 percent starting in 2018 |
Depreciation | Immediate deduction of capital expenditures for property placed in service in the next five years up to $5 million per year with phaseout for income of more than $20 million | Immediate deduction of capital expenditures for property placed in service in the next five years up to $1 million per year with phaseout for income of more than $2.5 million. Starting in 2024, the percentage of a property's cost that may be deducted immediately decreases 20 percent each year | Immediate deduction of capital expenditures for property placed in service in the next five years up to $1 million per year with phaseout for income of more than $2.5 million. Starting in 2023, the percentage of a property's cost that may be deducted immediately decreases 20 percent each year |
Pass-Through Taxation | Maximum tax rate of 25 percent on business income of S corporation shareholders, partners of partnerships and sole proprietorships if owners are passive investors and based on capital percentage; Owners of businesses other than personal-service businesses can elect to apply a default capital percentage of 30 percent or establish the capital percentage based on facts and circumstances; owners of personal-service businesses must establish the capital percentage based on facts and circumstances | S corporation shareholders, partners of partnerships and sole proprietorships can deduct 23 percent of business income, but deduction is limited to 50 percent of wages paid; Owners of personal services businesses are ineligible unless income is less than $75,000 | S corporation shareholders, partners of partnerships and sole proprietorships can deduct 20 percent of business income, but deduction is limited to a percentage of wages paid for taxpayers with income exceeding 157,500 ($315,000 if married) that is phased in to 50 percent over the next $50,000 ($100,000 if married) of income; For owners of personal services businesses, deduction is phased out over the next $50,000 ($100,000 if married) of income if income exceeds $157,500 ($315,000 if married) |
Interest Deduction | Interest deduction limited to 30 percent of earnings before interest, tax, depreciation and amortization (EBITDA) for businesses with gross receipts of more than $25 million | Interest deduction limited to 30 percent of earnings for businesses with gross receipts of more than $15 million | Interest deduction limited to 30 percent of EBITDA for businesses with gross receipts of more than $25 million; depreciation, amortization and depletion are counted toward earnings beginning in 2022 |
Net Operating Losses | Eliminates net operating loss carrybacks; net operating loss carry forward deduction made indefinite but limited to 90 percent of the taxpayer's taxable income | Eliminates net operating loss carrybacks; net operating loss carry forward deduction made indefinite but limited to 90 percent of the taxpayer's taxable income; starting in 2023, carry forward deduction is reduced to 80 percent of taxable income | Eliminates net operating loss carrybacks; net operating loss carry forward deduction made indefinite but limited to 80 percent of the taxpayer's taxable income |
Section 199 Gross Production Activities | Repealed | Repealed | Repealed |
Business Tax Credits | R&D and low-income housing tax credits retained | R&D and low-income housing tax credits retained | R&D and low-income housing tax credits retained |
Taxation of International Income | Territorial system U.S. shareholders must include 50 percent of excess returns earned by controlled foreign corporations | Territorial system Minimum base erosion tax equal to 10 percent of the excess of modified taxable income over regular tax liability | Territorial system Minimum base erosion tax equal to 10 percent of the excess of modified taxable income over regular tax liability |
Earnings of Foreign Subsidiaries | One-time deemed repatriation tax of 14 percent on income held as cash and 7 percent on non-cash holdings of foreign subsidiaries payable over eight years | One-time deemed repatriation tax of 14.49 percent on income held as cash and 7.49 percent on non-cash holdings of foreign subsidiaries | One-time deemed repatriation tax of 15.5 percent on income held as cash and 8 percent on non-cash holdings of foreign subsidiaries payable over eight years |
Dividends from Foreign Subsidiaries | Excluded from income of U.S. corporations that own at least 10 percent of the foreign subsidiary | Excluded from income of U.S. corporations that own at least 10 percent of the foreign subsidiary | Excluded from income of U.S. corporations that own at least 10 percent of the foreign subsidiary |
Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income | 50 percent of foreign high-return amounts included currently in income of U.S. shareholders of a controlled foreign corporation | Global intangible low-taxed income (GILTI) included currently in income of U.S. shareholders of a controlled foreign corporation. Domestic C corporations may deduct 50 percent of GILTI and 37.5 percent of foreign-derived intangible income (FDII) through 2025; deductions are reduced to 37.5 percent of GILTI and 21.875 percent of FDII after 2025 | GILTI included currently in income of U.S. shareholders of a controlled foreign corporation. Domestic C corporations may deduct 50 percent of GILTI and 37.5 percent of FDII through 2025; deductions are reduced to 37.5 percent of GILTI and 21.875 percent of FDII after 2025 |
Subpart F Income | Retained | Retained | Retained |
Gift Tax | Retained; rate decreased to 35 percent beginning in 2024; exemption amount increased to $10 million | Silent; exemption amount increased to $10 million | Silent; exemption amount increased to $10 million |
GST | Repealed beginning in 2024; exemption amount increased to $10 million | Silent; exemption amount increased to $10 million | Silent; exemption amount increased to $10 million |
Estate Tax | Repealed beginning in 2024; exemption amount increased to $10 million | Exemption amount increased to $10 million | Exemption amount increased to $10 million |
Step-Up in Basis at Death | Retained | Silent | Retained |
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.