Comparison of the House and Senate Versions of the Tax Cuts and Jobs Act

The below comparison outlines the “Tax Cuts and Jobs Act” (H.R.1) passed by the House of Representatives on November 16 and the Senate on December 2. Since the two plans differ, they will now be sent to a conference committee where negotiators from both chambers will create a unified bill. After, both parties must approve the bill before it is sent to the president for his signature. If you have any questions or concerns about the proposed tax reform and how it may affect you, please call our office at 410-497-5947.

One of the biggest wins appears to be for married individuals. Both the Senate and the House bills have drastically increased the size of the tax brackets for married filing joint status — effectively eliminating the “marriage penalty.” Most married taxpayers who file jointly should see a significant reduction in taxes. Currently, the top tax bracket of 39.6% kicks in when taxable income exceeds $418,400 for single taxpayers and $470,700 for married couples. In both new bills – the top tax bracket kicks in for single taxpayers when taxable income exceeds $500,000 and for married taxpayers at $1,000,000. Many married taxpayers will now see larger percentages of their income taxed at much lower rates.

Here is a detailed look at how the Senate and House versions of tax reform compare.

 

Provision House Bill Senate Bill
1.Tax Brackets Individual Income Tax Rates
Four tax brackets: 12%, 25%, 35%, and 39.6%.
Married Filing Jointly:

  • 12% (Taxable income not over $90,000)
  • 25% (Over $90,000 but not over $260,000)
  • 35% (Over $260,000 but not over $1,000,000)
  • 39.6% (Over $1,000,000)

Married Filing Separately:

 

  • 12% (Taxable income not over $45,000)
  • 25% (Over $45,000 but not over $130,000)
  • 35% (Over $130,000 but not over $500,00)
  • 39.6% (Over $500,000)

Head of Household:

 

  • 12% (Taxable income not over $67,500)
  • 25% (Over $67,500 but not over $200,000)
  • 35% (Over $200,000 but not over $500,000)
    39.6% (Over $500,000)

Other Individuals:

 

  • 12% (Taxable income not over $45,000)
  • 25% (Over $45,000 but not over $200,000)
  • 35% (Over $200,000 but not over $500,000)
  • 39.6% (Over $500,000)

The income levels would be indexed for
inflation using the Chained Consumer Price Index
for All Urban Consumers (C-CPI-U).

 

 

Individual Income Tax Rates
Seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%. Married Filing Jointly: 

  • 10% (Taxable income not over $19,050)
  • 12% (Over $19,050 but not over $77,400)
  • 22% (Over $77,400 but not over $140,000)
  • 24% (Over $140,000 but not over $320,000)
  • 32% (Over $320,000 but not over $400,000)
  • 35% (Over $400,000 but not over $1,000,000)
  • 38.5% (Over $1,000,000)

Married Filing Separately:

 

  • 10% (Taxable income not over $9,525)
  • 12% (Over $9,525 but not over $38,700)
  • 22% (Over $38,700 but not over $70,000)
  • 24% (Over $70,000 but not over $160,000)
  • 32% (Over $160,000 but not over $200,000)
  • 35% (Over $200,000 but not over $500,000)
  • 38.5% (Over $500,000)

Head of Household:

 

  • 10% (Taxable income not over $13,600)
  • 12% (Over $13,600 but not over $51,800)
  • 22% (Over $51,800 but not over $70,000)
  • 24% (Over $70,000 but not over $160,000)
  • 32% (Over $160,000 but not over $200,000)
  • 35% (Over $200,000 but not over $500,000)
  • 38.5% (Over $500,000)

Single Individuals:

 

  • 10% (Taxable income not over $9,525)
  • 12% (Over $9,525 but not over $38,700)
  • 22% (Over $38,700 but not over $70,000)
  • 24% (Over $70,000 but not over $160,000)
  • 32% (Over $160,000 but not over $200,000)
  • 35% (Over $200,000 but not over $500,000)
  • 38.5% (Over $500,000)

The income threshold amounts for each rate bracket would be indexed for inflation using C-CPI-U.

2. Personal and Dependency Exemptions Repeal effective for tax years beginning after December 31, 2017. Repeal effective for tax years beginning after December 31, 2017. Possible sunset after 2025.
3. Standard Deductions -Single: $12,200

-Married: $24,400

-Head of Household: $18,300

Effective for tax years beginning after 2017. The bill would also provide that these amounts be indexed for inflation for years beginning after 2019.

-Single: $12,000

-Married: $24,000

-Head of Household: $18,000

These increased amounts would expire after 2025. Effective for tax years beginning after 2017. The bill would also provide that these amounts be indexed for inflation for years beginning after 2018.

4. Earned Income Tax Credit Retain Retain
5. State and Local Income Taxes Repeal Repeal. Reinstate after 2025.
6. Real Estate Taxes Limit deductions to $10,000. Limit to $10,000 for married joint and $5,000 for single.
7. Mortgage Interest Deduction Limits mortgage interest deduction to the first $500,000 of debt incurred after November 2, 2017. Only applicable for taxpayer’s principal residence. Retain; eliminates deduction on Home Equity Debt.
Provision House Bill Senate Bill
8. Casualty Losses Repeal except for Presidentially Declared Disaster Area Losses. Repeal except for Presidentially Declared Disaster Area Losses.
9. Charitable Contributions The bill would (i) increase the AGI limitation on cash contributions from 50% to 60% and would retain the five-year carryover, (ii) repeal the current 80% deduction for contributions made for university athletic seating rights, (iii) provide that the standard mileage rate for charitable use of an automobile would take into account the variable cost of operating an automobile rather than the current 14 cents per mile, and (iv) repeal the exception to the contemporaneous written acknowledgment requirement for contributions of $250 or more when the donee organization files the required return. The changes would apply to contributions made in tax years beginning after 2017. The bill would (i) increase the AGI limitation on cash contributions from 50% to 60% and would retain the five-year carryover, (ii) repeal the current 80% deduction for contributions made for university athletic seating rights, (iii) provide that the standard mileage rate for charitable use of an automobile would take into account the variable cost of operating an automobile rather than the current 14 cents per mile, and (iv) repeal the exception to the contemporaneous written acknowledgment requirement for contributions of $250 or more when the donee organization files the required return. The changes would apply to contributions made in tax years beginning after 2017.
10. Charitable Contribution Mileage Deduction No change. Index to inflation.
11. Tax Return Preparation
Fee Deduction
Repeal Repeal
12. Miscellaneous ‑ Itemized Deductions Subject to the 2% AGI test Repeal Not directly addressed. However, the bill would suspend all miscellaneous itemized deductions that are subject to the 2% floor under §67 under present law for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026.
13. Phase‑out of the overall Itemized Deduction Amount (PEASE Provision) Repeal

 

Temporarily repealed, reinstate in 2024.
14. Alternative Minimum Tax (AMT) Individuals Repeal Retain but increase the exemption amounts.
15. Retirement Plan Contributions (IRA, §401(k), §403(b), §457(b) Retain Retain
16. Credit for Social Security Taxes Paid on Restaurant Tips Credit for portion of employer social security taxes paid with respect to restaurant employee tips would be modified to reflect current minimum wage. Restaurants with 10 or fewer employees would now be required to report tip allocations. Applicable beginning after December 31, 2017. Not addressed.
17. Child Tax Credit Increase credit to $1,600 per qualifying child under age 18, with the phaseout for couples filing jointly starting at $230,000. Dependent exemption replaced with a $300 per-person tax credit for those dependents not eligible for the child tax credit. Increase credit to $2,000 per qualifying child under age 18, with the phaseout for couples filing jointly starting at $500,000. Dependent exemption eliminated and a replaced with a $500 for dependents not eligible for the child tax credit.
18. Long‑Term Capital Gain and Qualified Dividends Preferential rates of 0%, 15%, 20% Retain Retain
19. Indexing of Provisions Change from CPI to “chained CPI” which is a slower rate of indexing. Change from CPI to “chained CPI.”
20. Adoption Credit No Change. No Change.
21. Exclusion for Adoptions Assistance Programs Repeal the exclusion for adoption assistance programs effective after December 31, 2017. Not addressed.
22. Affordable Care Act
Taxes: Net Investment
Retain Retain
23. Educator Deduction for Classroom Expenses and Professional Developmental Cost Repeal Deduction increased from $250 to $500.
24. Child Care and Dependent Care Credit Retain Retain
25. Alimony Alimony payments would no longer be deductible by the payor or taxable to the recipient. Effective for agreements entered into or modified after 2017. Retain
26. Student Loan Interest
Deduction
Repeal Retain
Provision House Bill Senate Bill
27. Education Credits Consolidate American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) into one Credit eliminating the Lifetime Learning Credit. No change
28. IRA Contributions Repeal the allowance for recharacterizing a contribution to a traditional IRA as a contribution to a Roth IRA, or vice versa. Same as House.
29. Roth Conversions Repeal Retain
30. Allowance of Meals for Convenience of the Employer Retain Repeal effective for tax years beginning after December 31, 2025.
31. Corporate Tax Rates Impose a flat rate of 20% effective January 1, 2018; corporate AMT repealed. Flat rate of 20% effective January 1, 2019; corporate AMT retained.
32. §179 Expense Deduction Election Amounts Increase current $500,000 amount indexed to inflation, to $5 million with the phase‑out amount increased from $2 million indexed to inflation to $20 million, for tax years beginning after December 31, 2017 and ending before January 1, 2023. Increase current $500,000 to $1.5 million with the phase‑out beginning at $2.5 million for all tax years beginning after December 31, 2017 and permanent.
33. Expansion of Cash Basis Accounting Method Increased from current $10 million gross receipts test to a $25 million gross receipts test. Increase to a $15 million gross receipts test.
34. Fringe Benefits Business Entertainment Deduction (Amusement or recreation) Repeal the costs associated with entertainment retain 50% food and beverage. Repeal the costs associated with entertainment retain 50% food and beverage.
35. §199 Domestic Income Production Activity Deduction Repeal for tax years beginning after December 31, 2017. Deduction is extended for activities in Puerto Rico for tax years beginning before Jan. 1, 2018 Repeal for tax years beginning after December 31, 2018.
36. Work Opportunity Credit Repeal Not addressed
37. Bonus Depreciation Immediate Expressing of Qualified Property Allow an unlimited deduction for 5 years for all tangible and intangible property after September 27, 2017 and before January 1, 2023. Allow an unlimited deduction for 5 years for all tangible and intangible property after September 27, 2017 and before January 1, 2023. For assets placed in services after September 27, 2017 and before January 1, 2018, 50% bonus can be elected.
Provision House Bill Senate Bill
38. Net Operating Losses (NOL) for both individuals and businesses Limit deduction to 90% of the NOL amount with a repeal of the 2 year carry back requirements except for farmers and casualties and allow a one year carry back only • Repeal the 20 year carry forward limitation, therefore unlimited carryforward period allowed effective for tax years beginning after December 31, 2017. Limit the deduction to 90% of the NOL amount for tax years beginning after December 31, 2017 and 80% for tax years after January 31, 2022. Repeal of the 2 year carryback period except for farmers for years beginning after 2023. Repeal the 20 year carry forward limitation, therefore unlimited carryforward period allowed effective for tax years beginning after December 31, 2017.
39. Estate Tax Doubles the estate tax exemption with repeal for deaths after December 31, 2017. Doubles the estate tax exemption for deaths after December 31, 2017 through 2015.
40. Net Business Interest
Deduction
Limitation to 30% of adjusted taxable income for business with gross receipts greater than $25 million. Same limitation as House Bill but less than $15 million of gross receipts during 3 prior years.
41. §1031 Like‑Kind Exchanges Repealed except for Real Estate Transaction Exchanges. Repealed except for Real Estate Transaction Exchanges.
42. Pass-through Income Treatment Qualifying businesses would be taxed at a maximum rate of 25% on a portion of pass-through entity net income distributions treated as business income. The remaining portion of distributions would be treated as wage income subject to individual income tax rates. A 9% tax rate would be applicable for certain qualifying business subject to regulations. Adopts a 23% deduction for pass-through income, generally limited to 50% of wage income, for qualifying businesses. Expires in 2025.

 

43. Charitable Contributions Substantiation Rules for Contributions of ≥ $250 per single Contribution Retain Repeal
44. §121 Exclusion for
Gain on Sale of Principal
Residence
Change the 2 out of 5 year rule for ownership and use to 5 out of 8 years. Limit the exclusion to once every 5 years from once every 2 years. Change the 2 out of 5 year rule for ownership and use to 5 out of 8 years. Limit the exclusion to once every 5 years from once every 2 years. Allows current exclusion amounts for written binding contracts in effect prior to January 1, 2018. Retains partial exclusion for unforeseen circumstances.
45. Gambling Losses All gambling-related expenses (including losses) would only be deductible to the extent of gambling winnings. All gambling-related expenses (including losses) would only be deductible to the extent of gambling winnings.
Provision House Bill Senate Bill
46. Private Activity Bond
Interest Income
Repeals the ability to issue private activity bonds on a tax exempt basis. No Mention.
47. Tax Exempt Bonds for
Professional Stadiums
Repeal Tax Exempt interest income on these bonds. No Mention.
48. Mandate of Minimum Essential Coverage (MEC) for individuals and families and Applicable Large Employers (ALE) that fail to Offer Coverage to Full Time Employees Retain Repeal after 2018.
49. Moving Expense Deduction Eliminate except for members of the armed forces. Eliminate except for members of the armed forces.
50. Conversion of a Traditional IRA to Roth IRA Repeal Retain
52. Rollover Period for the Rollover of Qualified Plan Loan Offset Amounts No change proposed. Increase the 60 day rollover contribution period from 60 days to the due date for filing the income tax return.
53. Student Loan Debt Discharge No mention. Certain student loans that are discharged on account of the death or total and permanent disability of the student would be excluded from gross income.
54. Simplified Filing for Older Taxpayer No mention. Require IRS to provide a simplified income tax return as Form 1040SR for persons who are age 65 and older effective for tax years beginning after January 31, 2018.
55. §529 Plans for Unborn Child No provision proposed. An unborn child would be able to qualify as a designated beneficiary effective for contributions made after December 31, 2017 and before January 1, 2026.
56. Deferred Foreign Profits Deemed repatriation of currently defined foreign profit of a rate of 12% for cash and cash equivalents profits and at 5% of all other profits. Deemed repatriation of currently defined foreign profit of a rate of 12% for cash and cash equivalents profits and at 5% of all other profits.
Provision House Bill Senate Bill
57. Creation of a Territorial Tax System Exempts from U.S. Tax 100% of dividends of any foreign subsidiary. Exempts from U.S. Tax 100% of dividends of any foreign subsidiary.
58. Kiddie Tax No proposed change. Unearned income would be taxed using the income tax rates and brackets applicable to Trusts and Estates. Earned income would continue to be taxed using the single taxpayer rates and brackets. Applicable to children ages 18 and under, or under age 24 if a full time student.
59. Due Diligence
Requirement for Head of Household Filing Status
No proposed change. Impose a due diligence requirement for paid tax preparers in determining the eligibility for a taxpayer to file with a status of Head of Household.
60. Dividends Received Deductions for C-Corporations Reduce the current 70% dividends received deduction to 50% and the current 80% dividends received deduction to 65%. No proposed change.
61. §179 Property to
Include Certain Real
Estate Property
No proposed change. Expand the definition of “qualified real property” to include improvements to nonresidential real property placed in service after the date such property is placed in service and will include:

• Roofs

• Heating

• Ventilation and Air Conditioning System

• Fire Protection

• Alarm System

• Security Systems for Tax Years after December 31, 2017

62. Inventory Accounting Rules No proposed change. Exempt Certain taxpayers from the requirements to keep inventory if gross receipts test of $15 million is met.
63. Bonus Depreciation for Luxury Auto under §280F No proposed change. Increase first year depreciation to $8,000 for autos placed in service after December 31, 2017.
64. Depreciation for
Luxury Autos if Bonus
Depreciation not claimed
No proposed change. • $10,000 year one
• $16,000 year two
• $9,600 year three
• $5,760 year four and all subsequent years
65. Recovery Period for Residential and Nonresidential Real Property No proposed change. Shorten the recovery period for determining the depreciation deduction with respect to rental real estate to 25 years for property placed in service after December 31, 2017.
66. Corporate Alternative Minimum Tax (AMT) Repeal Retain
67. Carried Interest Retain Impose a 3 year holding period for certain partnership interests received in connection with the performance of services to be taxed as long term capital gain rather than ordinary income.
68. Qualified Transportation Fringe Benefits Retain Repeal
69. Employee Achievement Awards Retain Repeal Reduction.
70. Credit for Employee Paid Family Leave No Proposal. 12.5% credit of wages paid if rate of pay is 50% of wages normally paid.
71. Whistleblower Awards Not addressed. Provide an above-the-line deduction for attorney fees and court costs paid by, or on behalf of, a taxpayer in connection with any action involving a claim under state false or fraudulent claims acts, the SEC Whistleblower program, and the Commodity Futures Trading Commission whistleblower program. For awards under §21F of the Securities and Exchange Act of 1934, awards under state false or fraudulent claims acts, and awards under §23 of the Commodity Exchange Act, the deduction would not be allowed in tax years beginning after December 31, 2025. Effective for tax years beginning after December 31, 2017.
Provision House Bill Senate Bill
72. IRS Whistleblower Program Not addressed. Modify the definition of collected proceeds eligible for awards to include: (1) penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws, and (2) any proceeds under enforcement programs that the Treasury has delegated to the IRS the authority to administer, enforce, or investigate, including criminal fines and civil forfeitures, and violations of reporting Requirements. The modified definition would also be used to determine eligibility for the enhanced reward program under which proceeds and additional amounts in dispute exceed $2 million. Collected proceeds amounts would be determined without regard to whether such proceeds are available to the IRS. Effective for information provided before, on, or after the date of enactment for which a final determination for an award has not been made before that date.
73. Estate and Gift Taxes Increase the federal estate and gift tax unified credit basic exclusion amount to $10 million, with inflation adjustments, effective for decedents dying and gifts made after 2017. The bill would repeal the federal estate tax, effective after 2024. The federal gift tax rates would also be decreased from 40% to 35%, effective for gifts made after 2024. The bill would increase the federal estate and gift tax unified credit basic exclusion amount to $10 million, with inflation adjustments, effective for decedents dying and gifts made after 2017 and before 2026.
74. Refundable Credit
Program Integrity
In order to claim a Child Tax Credit or the American Opportunity Tax Credit, taxpayers would be required to provide a word-eligible SSN. The IRS would be granted math error authority to adjust the returns of taxpayers failing to provide this. In order to claim the Child Tax Credit, taxpayers must provide the social security number of each qualifying child.
75. Tax Preparation Services Deduction The bill would eliminate the itemized deduction for tax preparation services for tax years beginning after 2017. Not addressed.
76. International Income Moves to a territorial system with base-erosion rules including the inclusion of 50 percent of excess returns by controlled foreign corporations in U.S. shareholder’s’ income, and an excise tax on payments made to foreign firms unless claimed as effectively connected income. Moves to a territorial system with anti-abuse rules and a base erosion minimum tax of the excess of 10 percent of modified taxable income over an amount equal to regular tax liability.