Tax reform: What advisers need to know about the Senate bill

Some key differences from House bill include how mortgage deduction and estate taxes are treated

Nov 9, 2017 @ 4:00 pm

By Mark Schoeff Jr.

Republican members of the Senate Finance Committee released their tax-reform bill on Thursday. Here are the highlights for financial advisers along with a comparison to the House bill, an amended version of which was approved on Thursday by a party-line vote in the House Ways and Means Committee.

Tax rates

Senate: Expands the zero tax bracket and maintains a 10% bracket. The plan "targets tax relief to the middle class while maintaining the existing tax distribution, and a 38.5% bracket for high-income earners," the highlights state.

Here are the breakouts of the seven marginal tax rates under the Senate's bill: 10% (taxable income up to $9,525 for single filers); 12% (over $9,525); 22.5% (over $38,700); 25% (over $60,000); 32.5% (over $170,000); 35% (over $200,000); and 38.5% (over $500,000).

House: Reduces the number of marginal income-tax rates to four: 12% (starting at $12,000 of taxable income for single filers), 25% ($45,000), 35% ($200,000) and 39.6% ($500,000).

401 (k) plans

Senate: No changes to pre-tax limit for tax-deferrals for contributions to 401(k)s and individual retirement accounts.

House: Same

Pass-throughs

Senate: A taxpayer "generally may deduct 17.4% of domestic qualified business income" from a partnership, S corporation, or sole proprietorship," according to a detailed outline of the tax plan published by the Joint Committee on Taxation.

House: A portion of net income distributed from a pass-through business to an owner would be treated as business income and taxed at a 25% instead of the current individual rate. The amended bill approved by the House Ways and Means Committee on Thursday provides a lower tax rate for some small business owners. Tax rates could be as low as 9% for some income for an indivdual earning less than $75,000 through a pass-through business.

Estate tax

Senate: Doubles the current exemption of $5.49 million ($10.98 million for married couples). The federal estate tax, currently 40%, is levied at death.

House: Doubles exemption beginning in tax-year 2018 and repeals the tax beginning in 2024.

AMT

Senate: Repeals the alternative minimum tax.

House: Same

Mortgage deduction

Senate: Maintains the mortgage deduction for existing mortgages and for newly purchased homes up to $1 million.

House: Caps mortgage deduction at $500,000 for new homes.

Charitable deduction

Senate: Preserves deduction for charitable contributions

House: Same, with some minor changes

State and local tax deduction

Senate: Eliminates all state and local tax deductions.

House: Ends itemized deduction for state and local income and sales taxes, while allowing itemized deductions for up to $10,000 of property taxes.

Standard deduction

Senate: Doubles standard deduction from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples.

House: Same

Corporate tax rate

Senate: Sets corporate tax rate at 20%, but wants to delay it until 2019

House: Same, but change would take effect in 2018.

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