10 Key Differences Between the Senate and House Tax Bills


Print Friendly, PDF & Email

The big story in the tax world continues to be the newest updates to the tax proposals. President Trump has been preaching about tax change since his campaign. Since being elected, he has made some changes to his initial plan… and then some more changes.

 

We are inching closer and closer to tax reform as the proposals have made their way to the House of Representatives and the Senate. The House released their tax bill on November 2. The Senate tweaked it a bit, releasing a revised bill a week later. Let’s take a look at the ten biggest differences between the two bills.

 

Nicholas Aiola, CPA - 10 Key Differences Between the Senate and House Tax Bills - Justice Scale

Let’s compare the two bills…

 

1. Individual tax rates

Current Structure House Bill

Senate Bill

7 tax rates (10%, 15%, 25%, 28%, 33%, 35%, 39.6%) Cut it down to 4 tax rates (12%, 25%, 35%, 39.6%) Keep it at 7 tax rates, but different rates (12%, 22.5%, 25%, 32.5%, 35%, 38.5%)

 

2. Corporate tax rates

Current Structure House Bill

Senate Bill

4 tax rates (15%, 25%, 34%, 35%) Flat tax rate of 20%, starting in 2018 Flat tax rate of 20%, starting in 2019

 

3. Itemized deductions

Itemized Deduction Current Structure House Bill

Senate Bill

State and local taxes (SALT) Deductible in full for taxpayers who itemize Eliminate SALT deductions completely Eliminate SALT deductions
Real estate and personal property taxes Deductible in full for taxpayers who itemize Limit the total deduction to $10,000 Eliminate the real estate and personal property tax deductions completely
Mortgage interest Mortgage interest on up to two mortgages worth up to a combined $1 million is deductible for those who itemize Mortgage interest is still deductible, but only on one mortgage worth up to $500 million No change from the current structure – keep it as is
Medical expenses Medical expenses that exceed 10% (7.5% if you are age 65 or older) of your AGI are deductible for those who itemize Eliminate medical expense deductions completely No change from the current structure – keep it as is

 

4. Standard deduction

Filing Status Current Structure House Bill

Senate Bill

Single & married filing separately $6,300 $12,200 $12,000
Married filing jointly $12,600 $24,400 $24,000
Head of household $9,300 $18,300 $18,000

 

5. Small businesses (pass-through entities)

Current Structure House Bill

Senate Bill

Pass-through income from small businesses (sole proprietorships, LLCs, partnerships, and S corps) are taxed at ordinary individual rates. Tax on pass-through income from small businesses will be capped at 25% and adds a lower minimum rate, but this comes with “anti-abuse” rules that presume 70% of income is wage income (taxed at ordinary individual rates) and 30% is business income (taxed at the proposed lower rates). This does not apply to all pass-through income; it depends on the nature of the business and the taxable income of the taxpayer. Allows a deduction of 17.4% of pass-through income. This does not apply to all pass-through income; it depends on the nature of the business and the taxable income of the taxpayer.

 

6. Estate tax

Current Structure

House Bill

Senate Bill

The estate tax exemption is currently at $5.49 million for individuals and $10.98 million for married couples. The exemptions are indexed for inflation. Doubles the current exemptions, and then repeals the estate tax altogether starting in 2025 Doubles the current exemptions and continues to index them for inflation (no repeal)

 

7. Student loan interest

Current Structure

House Bill Senate Bill

Eligible taxpayers can deduct up to $2,500 per year in student loan interest

Eliminate student loan interest deduction completely

No change from the current structure – keep it as is

 

8. Child tax credit

Current Structure

House Bill Senate Bill

$1,000 credit for each child under age 17. The credit begins to phase-out at $75,000 of AGI for single filers and $110,000 for married-filing-joint filers.

Increase credit to $1,600 per child plus an additional credit of $300 for the taxpayer, spouse, and dependents who are not children under 17 (additional credit will expire after 2022). The phase-out AGI limits would increase to $115,000 for single filers and $230,000 for married-filing-joint filers.

Increase credit to $1,650 per child. The phase-out AGI limits would increase to $500,000 for single filers and $1,000,000 for married-filing-joint filers.

 

9. Catch-up contributions to retirement accounts

Current Structure

House Bill Senate Bill

Catch-up contributions are allowed for taxpayers who are age 50 or older

No change from the current structure – keep it as is

Eliminates catch-up contributions for high-wage employees (wages of $500,000 or more in the preceding year) and consolidates contribution limits for 457(b)s (would then match contribution limits for 401(k)s and 403(b)s)

 

10. Capital investments and expenses

 Deduction Current Structure House Bill

Senate Bill

Section 179 deduction $510,000 limit with the phase-out starting at $2,030,000 of total expenditures on equipment $5,000,000 limit with the phase-out starting at $20,000,000 of total expenditures on equipment $1,000,000 limit with the phase-out starting at $2,500,000 of total expenditures on equipment
Depreciation on real property 39 years for nonresidential real property and 27.5 years for residential real property No change from the current structure – keep it as is 25 years for both nonresidential and residential real property

 

Nicholas Aiola, CPA - 10 Key Differences Between the Senate and House Tax Bills - Change

Change is coming, one way or the other

 

The House bill is over 425 pages and the Senate bill is over 250, so there are obviously other differences in addition to these. If there is something in either bill that you would like to discuss further––maybe it was not included here or it’s something that relates to you personally and you would like more info on it––let me know! Drop a line in the comments below or reach out to me directly 🙂

 

Did you like this article? Feel like it was missing something? Rate it to let me know 🙂

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading...

Nick Aiola is a CPA located in New York, NY. Nick provides the highest quality of tax and accounting services to a wide range of clients, including individuals, businesses, and fiduciary entities.

 

Phone – (646) 397-9537

Email – nick@nicholasaiola.com

Facebook – Nicholas Aiola, CPA

Twitter – @nicholasaiola

Subscribe to Nick’s blog here!

Comments