Congressional lawmakers are expected to pass the biggest tax code rewrite in more than 30 years and keep the government open beyond Friday, all in time to head home for Christmas later this week.
While the GOP tax bill seems to be on the path to passage in the House and Senate, lawmakers in both chambers are still battling over a short-term funding bill, with no clear agreement in sight.
Let's start with taxes: House Republicans will huddle tonight to talk about the conference report – which members of the conference committee signed on Friday – before voting on the final bill tomorrow.
Assuming it moves through the House on a party-line vote, the bill will then kick over to the Senate, where it's expected to pass via the narrowest of margins after Sens. Bob Corker (R-TN) and Marco Rubio (R-FL) both signaled their support late last week. Sen. John McCain (R-AZ), meanwhile, is expected to miss the vote this week. McCain, who is currently battling brain cancer, flew home to Arizona after receiving treatment in D.C. for a viral infection and isn't expected to return to Capitol Hill until January
Here are noteworthy features of the Conference Committee final package:
- Corporate rate is permanently lowered to 21% beginning January 1, 2018
- Generally achieves a "territorial" tax system from a worldwide tax system
- Repeals corporate AMT
- Creates a special 20% deduction for pass-through taxpayers on the first $315,000 of joint income and a 20% deduction on income at higher income levels’ these deductions would expire in 2025
- 100% expensing is allowed through January 1, 2023
- Section 179 small business expensing is increased to $1,000,000 with a phase-out threshold at $2,500,000
- Interest deductions will be limited to 30% of businesses adjustable taxable income (defined as EBITDA for first four years and EBIT after that); there is an exemption for businesses with annual gross business receipts of $25M and an exemption for businesses with floor plan financing interest
- Preserves the R&D tax credit
- No change to Master Limited Partnerships
- No change to the LIFO method of accounting
- Preserves the Earned Income Tax Credit
- No change in advertising deductibility
- No change to Federal Fuel Tax Exemptions
- No change to the Alternative Fuel Tax Credit
- On the international side, the legislation sets a repatriation tax rate on earnings and profits comprising liquid assets at 15.5% and illiquid assets at 8%
- The Base Erosion provision creates a BEAT (Base Erosion Anti-inversion Tax) that follows the Senate construct and not the House's Excise Tax.
- The BEAT imposes a tax on modified taxable income and does not include the cost of goods sold in its calculation. The BEAT will be 5% for 2018, 10% for 2019-2025 and 12.5% starting in 2026.
- As we understand the provision. PTC and ITC benefits are retained and the provision will not curtail the use of renewable-energy credits for banks and other financial institutions
- The Base Erosion provision limiting interest deductions, 163(n), for taxpayers that are members of a worldwide group, was not included in the final bill.
- Individual tax rates will be 0%, 10%, 12%, 22%, 24%, 32%, 35% and 37%. Expiring in 2025
- Modifies AMT for higher income individuals by increasing the exemption amount
- Doubles the exemptions for the estate tax but is not repealed
- Preserves the deduction for medical expenses exceeding 7.5% for two years and rising to 10% beginning in 2020
- Keeps the Home Mortgage Interest Deduction for homeowners up to $750,000 of indebtedness for new mortgages
- The Child Tax Credit increases to $2,000 from $1,000 per child under 17 and the credit is made refundable up to $1,400
- The bill preserves the Child and Dependent Care Tax Credit and the Adoption Tax Credit
- Almost doubles the standard deduction from $6,350/$12,000 to $12,700/$24,000 for individuals/married filing jointly
- SALT deduction for state and local property and income taxes will be capped at $10,000
- Preserves charitable deductions
- Preserves student loan interest deductions
- Private Activity Bonds are preserved
- The New Market Tax Credit is preserved
- Rehabilitation credits are preserved as modified by the Senate
- Advanced refinancing bonds are effectively repealed.
- Repeals the individual mandate from the 2010 Affordable Care Act
Stay tuned! We'll be sure to share details about how the tax bill may impact you as we receive new information.