Determined to get something passed before the holidays, the House and Senate are working feverishly on tax reform bills. Any final legislation will no doubt contain elements of both the House and Senate versions, but for now, let’s take a look at the similarities and differences of the major provisions of the bills.
Notable differences between the two bills include the proposed individual and pass-through tax rates, limitations on the deductibility of mortgage interest, and repeal of the estate tax. Many of the Senate provisions — including all of the individual tax reform provisions — sunset by the end of 2025 because of a complicated legislative rule that prevents the Senate from passing a reconciliation bill that increases the federal deficit beyond the 10-year budget window.
Below is a side-by-side comparison of key provisions in the House and Senate bills.
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A conference committee has begun working to resolve the differences between the two bills since identical versions of the final bill must be passed by both legislative bodies before it can be submitted to President Trump for his consideration.
Buried in the Tax Reform Bills
Both bills includes hundreds of pages of other provisions, mainly revenue raisers that curtail different tax breaks. Here are a few of the more significant proposed changes.
Chained CPI. Both bills would index inflation in a different way for purposes of raising tax bracket amounts each year, moving to Chained CPI. This change could actually increase taxes significantly over time.
Like-Kind exchanges. The House bill would abolish like-kind exchange treatment for personal property but retains it for real property.
Longer Period Required for Exclusion of House Gain. The Senate bill would increase time you have to live in your house to get the exclusion of gain from sale of a principal residence to 5 of the 8 years before sale. Currently, you are only required to live in the house 2 of the 5 years before sale. The bill also would allow the exclusion only every five years. Now the exclusion may be taken every two years.
Private Activity Bonds. The House bill would eliminate the tax exemption of private activity bonds.
Trade ‘Subsidy’ for Intangibles. The House proposal imposes a favored rate as low as 12.5% on a U.S. company’s intangible profits from exports of property and services. The catch? This provision could violate World Trade Organization rules.
And last but not least…
Football Tickets??? Current law allows an 80 percent deduction for money donated to a university for the right to purchase season tickets to a school’s home basketball and football games. The House bill would repeal this provision, leaving these contributions subject to much lower charitable contribution limits.
The tax reform process continues to be fluid. We will continue to inform you as the bills progress through the legislative process. Please contact us if you have any questions regarding the proposed bills, the impact the bills would have on you and your business if enacted, or tax strategies you can adopt to take advantage of opportunities and respond to challenges tax reform may present.