This week, House and Senate passed H.R. 1, The Tax Cuts and Jobs Act. The House vote was 227-203 and the Senate vote was 51-48. The bill was signed into law by President Donald Trump on December 22. The Conference Report for H.R. 1, the Congressional Budget Office score, and final bill text can be found here.
It has been nearly 50 days since the House released its draft bill in October. This legislative effort set a land speed record for major tax legislation. No Democrat voted for the bill in the House or Senate. Twelve Republicans did not support the bill in the House including a member of the House Appropriations Committee, Rep. Rodney Frelinghuysen (R-NJ). The other Republicans were Reps. Dan Donovan (NY), Darrell Issa (CA), Walter Jones (NC), Dana Rohrabacher (CA), John Faso (NY), Chris Smith (NJ),Frank LoBiondo (NJ), Lee Zeldin (NY), Elise Stefanik (NY), Peter King (NY), and Leonard Lance (NJ).
We anticipate there will be a technical corrections bill in late spring next year, and perhaps another tax bill to amend or correct larger than technical issues.
As we reported at the end of November, NFDA was advocating on your behalf to ensure that the tax bill did not adversely impact small business or the funeral profession. Specifically, NFDA was working with Congress on the Small Business Exemption from Limitation on Deduction of Business Interest, individual tax rates, treatment of small business income, estate taxes and state and local tax deductions. You can learn more about our work on these issues here.
Here are highlights of the bill:
- 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. This expires 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 a business’ 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.
- 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%.
- 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 percent for 2018, 10 percent for 2019-2025 and 12.5 percent starting in 2026. As we understand, the provision PTC and ITC benefits are retained. Also 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%; these rates expire 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.
- The Investing in Opportunity Act, which connects private capital with underserved communities, was included in the final bill.
- Repeals the Individual Mandate from the 2010 Affordable Care Act.
As the only funeral service association with a full-time presence in Washington, D.C., NFDA has your back on critical issues that impact you, your business and the funeral profession. NFDA’s work on your behalf is strengthened each year during the Advocacy Summit.
Meeting with your Congressional representatives and sharing your stories during the Advocacy Summit enables you to put a face on critical legislation that will impact the profession, grieving families and small business.
Next year’s Advocacy Summit will take place April 25-27, 2018… mark your calendars and make plans to join your fellow funeral service professionals from across the country to advocate on legislative and regulatory issues that affect funeral service and small business. Registration details will be available in early-February 2018.