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.
Differences between the House and Senate:
|Individual Income Tax Brackets||4 brackets – 12%, 25%, 35%, 39.6%||7 brackets – 10%, 12%, 22%, 24%, 32%, 35%, 38.5%|
|Business Income from Pass-through Entities||25% maximum tax rate (doesn’t apply to personal service entities)||Deduction of up to 23% of domestic income, then subject to ordinary income tax rates (includes personal service entities with income less than $300,000)|
|Alimony Payments||No longer deductible by payer, no longer excludible by recipient||No change to current law – deductible by payer, includible by recipient|
|Determination of Cost Basis for Investment Securities Sold||No change to current rules||First-in, First-out method must be used, with limited exceptions|
|Alternative Minimum Tax (AMT)||Eliminated||Retained, but exemptions increased|
|Transfer Tax (Estate & GST)||Repealed after 12/31/2024||Tax structure remains|
|Transfer Tax (Gifts)||Maximum gift tax rate of 35% after 12/31/2024||No change to existing rates|
|Individual Mandate under ACA||No change||Repealed|
|Medical Expense Deduction||Eliminated||Retained, and the floor is reduced to 7.5% of AGI, from 10% currently|
The key things to keep an eye on for professional fiduciaries are:
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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