Senate Passes its Version of the Tax Bill
How Will it Affect You if Signed into Law?
The Senate passed its version of the Tax Cuts and Jobs Act (TCJA) on December 2nd. The changes to the bill that the Senate made move the bill closer to the House counterpart bill for some provisions but further apart for others. The next step is for the bills to enter review with the Congressional conference committee.
Main Provisions of Senate Bill that May Affect You
For partnership and S Corporation income, the proposed pass through deduction is increased to 23 percent in the Senate’s version of the bill (up from the previous 17.4 percent), resulting in a maximum effective tax rate for qualifying pass-through income of 29.6 percent. The House’s proposed rate was 25 percent.
Another change in the Senate’s bill is to extend the proposed eligibility for capital asset expensing, to cover property placed in service before Jan. 1, 2027. During this additional period, the amount eligible for immediate write-off will phase out by 20 percent each year.
There are also changes to the individual income tax brackets:
There are seven brackets in today's individual tax code: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
The Senate bill changes the rates on taxable income to:
- 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
- 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
- 22% (over $38,700 to $70,000; over $77,400 to $140,000 for couples)
- 24% (over $70,000 to $160,000; over $140,000 to $320,000 for couples)
- 32% (over $160,000 to $200,000; over $320,000 to $400,000 for couples)
- 35% (over $200,000 to $500,000; over $400,000 to $1 million for couples
- 38.5% (over $500,000; over $1 million for couples)
The House bill, by contrast, only calls for four brackets: 12%, 25%, 35% and 39.6%.
The final version of the Senate’s bill now also matches the House bill with respect to property tax deductions, by allowing individuals to deduct state and local property taxes up to $10,000.
The Senate bill would still let you claim a deduction for the interest you pay on mortgage debt up to $1 million. The House wants to cap the loan limit at $500,000 for new mortgages.
Additionally, the final version of the Senate’s bill allows elementary and high school expenses to be paid with funds from 529 educational plans.
Finally, the Senate and House bills both contain a proposed change to the Estate Tax Exemption to change the exemption amount to $11,200,000 per person, doubling the Estate Tax Exemption. Under the current law, the exemption will be $5,600,000 per person starting on January 1, 2018. However, the Senate bill change expires after 2025.
The next step is for the bill to go before a conference committee. The committee members, after their appointment, work to produce a conference report which is composed of amendments to resolve the differences between the two chambers’ bills.
Both the House and the Senate can act first on approving the conference report, which the Constitution requires to originate in the House. The House typically acts first on the report.
If there are differences remaining after the conference report, further steps are necessary as the legislation cannot be sent to the President until all differences are resolved. If House or Senate fails to pass the conference report, a new conference committee can be requested.
Once we have a final bill signed into law by the President, you may need to schedule an appointment with us to take a look at the provisions in your trust to ensure that you have the best tax advantaged provisions to protect your family. Stay tuned.