Tax Reform: House vs Senate

Tax Reform: House vs Senate

The House has now passed its version of the tax reform bill while the Senate has just recently released its initial version. As expected, it has differences from the House version, some of which are significant. Below are several of the differences of note. Remember, these items are fluid as we move through the process of reconciliation between the two bills.

State And Local Taxes (Including Property) 

• House-  retains the property tax deduction with a limit of $10,000. No deduction for state and local income tax.
• Senate- full repeal of all state and local taxes, including property taxes.

Equipment Expensing

• House- increased expensing for 5 years.
• Senate- would make increased expensing  permanent.

Standard Deduction

Both versions double the standard deduction with the  Senate plan adding slightly more to singles with children.

Individual Tax Rates

• House- lowest rate of 12% with four tax brackets.
• Senate- maintains the current lowest rate of 10% with  seven tax brackets.

Other Credits And Deductions

The Senate plan would retain many current law provisions that have been potentially targeted for repeal by the House, including: the child and dependent care credit; the adoption credit, the deduction for medical expenses, the enhanced standard deduction for the blind and elderly, provisions that provide education relief for graduate students, the home mortgage interest deduction, preserved for existing mortgages and maintained for newly purchased homes up to $1 million; the earned income tax credit, and retirement savings programs including 401(k)s and IRAs as well as the educator credit.

Capital Gains Rates

Neither would change the current rates on capital gains and dividends.

Small Business (Flow-through) Tax Rate

• House- limited to maximum 25% for a specified amount of flow-through income based on a detailed formula.
• Senate- no special tax rate, but would allow for an 17% exclusion from tax for a specified amount of flow-through income.

Business Interest

Both the Senate and House plan limit the write-off of interest on business debt to 30 percent of modified taxable income.

Estate Tax

• House- doubles the amount exempt from tax (currently $5.6 million) in each of next six years.  Full repeal afterward.  
• Senate- same as House except no repeal at any point.

Alternative Minimum Tax

Both call for full and permanent repeal.

Obamacare

The Senate’s initial version calls for full repeal of the Obamacare individual mandate. The House version does not.

Corporations

Both have the new corporate tax rate at 20%.

• House- goes into effect 2018.
• Senate- goes into effect 2019.