- Effective date. It seems pretty clear that any new law will not be retroactive. The changes will affect taxes next year, for 2018 and later.
- Tax rates. Many taxpayers will experience lower marginal rates, but also a loss of deductible expenses. The House bill calls for individual marginal rates of 12%, 25%, 35% and 39.6%. The Senate proposes 7 brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%. In both cases, the top bracket begins at $1 million taxable income for marrieds filing a joint return.
- Deductions. The House bill doubles the standard deduction and, except for charitable contributions and limited property taxes and mortgage interest, eliminates all other itemized deductions. The Senate also doubles the standard deductions, but, in addition to contributions, retains medical expenses and mortgage interest on up to $1 million of home acquisition debt, while completely eliminating any state and local tax deduction (including property taxes) and any home equity debt interest.
- Personal exemptions. Both bills eliminate any deduction for personal exemptions.
- Repeal of Alternative Minimum Tax. For those of you who have been subject to this “stealth” tax, this provision may not be as life-changing as it seems. With many deductions eliminated in the regular tax that were previously only disallowed under AMT, your tax bill might not change that much, if at all.
- Estate taxes. The current House bill does not repeal the estate tax entirely until 2024. In the meantime, it does nearly double (to $10 million per person) the amount of an estate that can be transferred without tax. The Senate doubles the exemption without ever repealing estate tax.
One final note. Nothing is final yet. Older taxpayers in particular may be most concerned about loss of medical expense deductions and reduced gain exclusion on the sale of your home. Know that while the legislation is under consideration, large lobbying groups will no doubt be working behind the scenes. In addition to voicing your concerns to your own legislators, you might contact AARP and the National Association of Realtors, two of the nation’s largest lobbying organizations.
We will do our best to keep you updated, and look forward to strategizing with most of you during your tax interviews this coming year.
Thank you for your continued business!
Abedian + Totlian