by Paul Hynes, CFP® and Beth Misak
Now that the House and the Senate have passed their versions of tax reform, it’s time for an update. While there are similarities, the versions differ in important ways. We’ll list the similarities which are likely to be included in the final bill. Then, we’ll focus on the differences which are still up in the air. Finally, we’ll highlight the items that professional fiduciaries will want to keep their eyes on.
- Elimination of personal exemption, but double the standard deduction to $12,200 single filer and $24,400 for married couples
- Limiting of itemized deductions to mortgage interest and charitable contributions, with property taxes still deductible up to $10,000
- Deduction for state income or sales taxes is eliminated, as are deductions for moving expenses and tax preparation fees
- Doubling of the estate, gift and generation-skipping transfer tax exemption from $5.6 million to $11.2 million
- Corporate tax rate reduced to 20% from 35%
Differences between the House and Senate:
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The key things to keep an eye on for professional fiduciaries are:
- Medical Expenses: Possible elimination of the medical expense deduction in the House version would be a big negative for many elderly people. However, if the Senate version passes, more people will be able to deduct medical expenses than under current law.
- Cost Basis: The House version keeps the current option, allowing you to choose the version you want as long as you’re consistent. The Senate version would require you to use first-in, first-out, which may make it worthwhile to consider distributions “in kind” to shift the tax burden to the beneficiaries.
- Estate Tax: The House would eliminate the estate tax starting in 2025. The Senate version keeps the estate tax in place. However, both versions raise the lifetime exemption to $11.2 million, indexed for inflation.
Some expect to have the reconciled bill ready for President Trump’s signature by year-end, but there’s still a lot of work to be done. Stay tuned for further developments.
Paul Hynes, CFP®, and Beth Misak are advisors with HearthStone | Private Wealth Management in San Diego. Hearthstone is an avid supporter of PFAC and proponent of educating and empowering professional fiduciaries to make informed decisions. This is intended to provide general information and should not be construed as tax or legal advice.
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