Details of the Senate Version of the Tax Cuts and Jobs Act

Late Thursday evening, the Senate Finance Committee released its version of the Tax Cuts and Jobs Act. The Senate Tax Cuts and Jobs Act shares many things with the House counterpart: both plans reduce the corporate income tax rate, move to a territorial tax system, provide full expensing of certain capital expenditures (on a temporary basis), repeal the alternative minimum tax, provide more favorable tax treatment of pass-through businesses, and eliminate many targeted tax preferences in favor of lower rates and a higher standard deduction.

The Senate approach, however, is unique in many particulars. The tables below outline the major details of the legislation.

Individual Income Taxes

Tax Brackets

Lowers the top marginal rate to 38.5 percent while adjusting rate and bracket thresholds. The rate schedules for single filers and heads of household converge above $60,000.

Single Filers

Heads of Household

Joint Filers

10.0% > $0

10.0% > $0

10.0% > $0

12.0% > $9,525

12.0% > $13,600

12.0% > $19,050

22.5% > $38,700

22.5% > $51,800

22.5% > $77,400

25.0% > $60,000

25.0% > $60,000

25.0% > $120,000

32.5% > $170,000

32.5% > $170,000

32.5% > $290,000

35.0% > $200,000

35.0% > $200,000

35.0% > $390,000

38.5% > $500,000

38.5% > $500,000

38.5% > $1,000,000

Indexing Provisions

Indexes tax brackets and other provisions to the Chained CPI measure of inflation.

Standard Deduction

Increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers (currently $6,500 for single filers, $9,550 for heads of households, and $13,000 for married filers). Eliminates the additional standard deduction and the personal exemption.

Itemized Deductions

Retains the charitable contribution deduction and the mortgage interest deduction for purchases, but eliminates the deduction for equity debt. Fully repeals the state and local tax deduction, except for taxes paid or accrued in carrying on a trade or business. Eliminates other itemized deductions as well.

Other Deductions and Exclusions

Eliminates the moving deduction and modifies the exclusion of capital gains from the sale of a principal residence, among other changes.

Child Tax Credit

Replaces the personal exemption for dependents with an expansion of the child tax credit from $1,000 to $1,650, while increasing the phaseout threshold dramatically, from $110,000 to $1 million for married filers. The first $1,000 would be refundable, increasing with inflation up to the $1,650 base.

Alternative Minimum Tax

Eliminates the individual alternative minimum tax.

Business Taxes

Corporate Tax Rate

Lowers the corporate income tax rate to 20 percent beginning in calendar year 2019, down from 35 percent under current law.

Pass-Through Provisions

Establishes a 17.4 percent deduction of qualified business income from certain pass-through businesses. Specified service industries, like health, law, financial services, and professional services, are excluded, except those with income below $150,000 for married filers. Permits the use of the cash method of accounting for businesses with gross receipts of up to $15 million.

Capital Investment

Allows full expensing of short-lived capital investment (currently subject to “bonus” depreciation), such as equipment and machinery, for five years. Increases Section 179 expensing from $500,000 to $1 million and increases the phaseout threshold from $2 million to $2.5 million. Reduces asset lives for residential and nonresidential real property to 25 years.

Tax Treatment of Interest

Limits the deductibility of net interest expense on future loans to 30 percent of earnings before interest and taxes (EBIT).

Net Operating Loss Provisions

Eliminates Net Operating Loss (NOL) carrybacks and limits carryforwards to 90 percent of taxable income.

Business Credits and Deductions

Eliminates the domestic production activities deduction (section 199) and modifies the rehabilitation credit and orphan drug credit. Limits the deduction for FDIC premiums.

Alternative Minimum Tax

Eliminates the corporate alternative minimum tax.

International Income

Moves to a territorial system with special base erosion rules for passive and mobile income, and anti-abuse rules regarding U.S. subsidiaries of foreign-based companies.

Deemed Repatriation

Enacts deemed repatriation of currently deferred foreign profits, at a rate of 10 percent for cash and cash-equivalent profits and 5 percent for reinvested foreign earnings.

Other Taxes

Estate Tax

Doubles the estate tax exemption to $11.2 million from $5.6 million under current law. Continues with the step-up basis under current law.

 


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