Proposed 2017 Tax Reform, 2017 Year-End Tax Planning Series

Updated for Senate amendments 12/1/2017

December 1, 2017
Jessica Fine, Tax Partner

Here are a few key items proposed by the House and Senate that could have a significant impact on year-end planning if legislation is passed:

Topic

House Bill

Senate Plan

Individual Tax Rates and Brackets

Four personal tax rate brackets, with a maximum rate of 39.6% at higher thresholds than under current law; See details on our website located here

Seven personal tax rate brackets, with a maximum of 38.5% at higher thresholds than under current law; Rates are effective through 2025; See details at our website located here

Standard Deduction

$24,400 (Married filing jointly)

$18,300 (Unmarried w/ qualifying child)

$12,200 (Single)

$24,000 (Married filing jointly)

$18,000 (Unmarried w/ qualifying child)

$12,000 (Single)

Personal Exemptions

Repeal

Suspend until 2026

Individual Alternative Minimum Tax (“AMT”)

Repeal

Suspend until 2026 (Senate amendment: retain AMT but increase exemption thresholds through 2025)

Miscellaneous Itemized Deductions (2% Floor)

Repeal unreimbursed employee expenses and tax preparation fees

Suspend until 2026

Limitation on Itemized Deductions (Pease)

Repeal

Suspend until 2026

Mortgage Interest Deduction

Limit to $500,000 mortgage for debt incurred after November 2, 2017, and only deductible on principal residence

Retain the $1,000,000 mortgage limit but suspend interest deduction on $100,000 home equity loan until 2026

State and Local Tax Deduction

Eliminate deduction for income and sales tax but allow deduction up to $10,000 in property taxes

Suspend deduction for all state and local taxes for individuals until 2026; Deduction allowed for state and local taxes in carrying on a trade or business; Property tax deduction limited to business assets (Senate amendment: allow up to $10,000 in property taxes)

Medical Expense Deduction

Repeal

No change from current law (Senate amendment: reduce deduction threshold from 10% to 7.5% of AGI for 2017 and 2018)

Charitable Contributions

Beginning after 2017: increase the AGI limitation from 50% to 60%; repeal the 80% deduction for contributions made for university athletic event seating rights; charitable mileage rate adjustment to reflect variable cost

Increase the AGI limitation from 50% to 60%; repeal the 80% deduction for contributions made for university athletic event seating rights

Affordable Care Act Individual Mandate

Not addressed

Elimination of shared responsibility payment for individuals failing to maintain essential coverage

Moving Expenses Deduction

Repeal, except for members of the armed forces; Reimbursement for moving expenses would constitute taxable income

Suspend until 2026, except for active duty members of the armed forces who move pursuant to military orders; Reimbursement for moving expenses would constitute taxable income

Child Tax Credit and New Family Tax Credit

Credit for children under the age of 17 increased to $1,600; A $300 credit for children over age of 17 and non-child dependents; A  family flexibility credit of $300 allowed with respect to the taxpayer (each spouse in the case of a joint return) who is neither a child nor a non-child dependent; Non-dependent and family flexibility credits terminate after 2022; Phase out for all credits at $230,000 for joint filers and $115,000 for single filers

Credit for children under the age of 18 increased to $2,000; A $500 nonrefundable credit for dependents other than qualifying children; Phase out at $500,000 for all taxpayers; All changes expire after 2025 (Senate amendment: increased age limit to 18 terminates after 12/31/2024)

Gain from Sale of a Principal Residence Exclusion

Continue to exclude up to $500,000 of gain for joint filers ($250,000 for other filers), but only if the taxpayer owns and uses the home as a principal residence for five out of the last eight years; Exclusion only available once every five years and  phases out starting at taxpayer’s gross income over $250,000 ($500,000 for joint filers)

Continue to exclude up to $500,000 of gain for joint filers ($250,000 for other filers), but only if the taxpayer owns and uses the home as a principal residence for five out of the last eight years except for changes in employment, health, or unforeseen circumstances; Exclusion only available once every five years; No income phase-out; Changes expire after 2025

Like-Kind Exchanges

Deferral limited to exchanges of real property

Deferral limited to exchanges of real property that is not held primarily for sale

Estate and Gift Taxes

Exclusion amount increased to $10,000,000 for decedents dying and gifts made after 2017; Federal estate tax repealed for decedents dying after 2024; Gift tax rate decrease from 40% to 35% for gifts made after 2024

Exclusion amount increased to $10,000,000 for decedents dying and gifts made after 2017 and before 2026; No provision for repeal of estate tax

Corporate Tax Rate and Corporate AMT

After 2017, 20% flat corporate tax rate; 25% flat corporate tax rate for personal service corporations; Repeal of Corporate AMT after 2017

After 2018, 20% flat corporate tax rate, including personal service corporations; Repeal of Corporate AMT after 2017 (Senate amendment: Retain Corporate AMT)

Depreciation Deductions

100% bonus depreciation for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023; Expanding eligible property to include used property

100% bonus depreciation for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023 (Senate amendment: extended/phasing out through 2026); Expanding eligible property to include qualified film, television, and live theatrical productions; Recovery period shortened for nonresidential real property and residential real property to 25 years (Senate amendment: beginning after 2017)

Section 179

Business expensing limit increased to $5 million and phase out amount increased to $20 million

Business expensing limit increased to $1 million and phase out amount increased to $2.5 million

Domestic Production Activities Deduction (“DPAD”)

Repeal after 2017; Retroactively extends the deduction in 2017 for activities in Puerto Rico

Repeal after 2018 (Senate amendment: after 2017); Extension of deduction to activities in Puerto Rico not addressed by Senate; (Senate amendment: deduction allowed for C corporations for 2018 only, thereafter repealed for all)

Entertainment, etc. Expenses

Disallowed deductions for entertainment, amusement, or recreation activities under all circumstances; Disallowed deductions for many employee fringe benefits unless treated as taxable compensation

Disallowed deductions for entertainment, amusement, or recreation activities; Retain the deduction for 50% of food and beverage expenses associated with operating a trade or business in most cases

Pass-Through Tax Treatment

25% maximum tax rate on a portion of pass-through income treated as business income with the remainder treated as wage income subject to normal rates; 25% maximum rate does not apply to certain service businesses; 9% tax rate bracket for certain small business taxpayers

Deduction allowed in lieu of rate change: generally allows individual taxpayer to deduct 17.4% of domestic qualified business income from flow-through entities; Deduction not allowed for certain service businesses; Deduction limited to 50% W-2 wages paid in certain circumstances; Deduction will expire after 2025 (Senate amendment: deduction increased to 23%)

Carried Interest

After 2017, gain from partnership profits interests, granted or held in connection with the performance of investment services, will be treated as short-term capital gain if the partnership interest has been held for less than three years

Same as House proposal

For Further Information
Jessica Fine
T: 714.361.7612
F: 714.361.7601
Jessica.Fine@hcvt.com
Main Menu