Trump Tax Reform Update for Professional Fiduciaries

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.

Similarities:

  • 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:

ItemHouseSenate
Individual Income Tax Brackets4 brackets – 12%, 25%, 35%, 39.6%7 brackets – 10%, 12%, 22%, 24%, 32%, 35%, 38.5%
Business Income from Pass-through Entities25% 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 PaymentsNo longer deductible by payer, no longer excludible by recipientNo change to current law – deductible by payer, includible by recipient
Determination of Cost Basis for Investment Securities SoldNo change to current rulesFirst-in, First-out method must be used, with limited exceptions
Alternative Minimum Tax (AMT)EliminatedRetained, but exemptions increased
Transfer Tax (Estate & GST)Repealed after 12/31/2024Tax structure remains
Transfer Tax (Gifts)Maximum gift tax rate of 35% after 12/31/2024No change to existing rates
Individual Mandate under ACANo changeRepealed
Medical Expense DeductionEliminatedRetained, 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:

  • 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.

    This is a purchased placement. The information and views on this page are those of the author and not endorsed by PFAC.