On November 2nd, the House Republicans unveiled their proposed tax code. The bill would impact every individual and business in some way. Some taxpayers will be “winners” and some will be “losers”. The plan, if passed, would lower the individual tax rates, repeal multiple tax credits and deductions, eliminate alternative minimum tax (AMT), abolish the federal estate tax after 2023, adjust the child tax credit and boost business expensing.
The current tax treatment of qualified dividends and capital gains will remain the same.
Standard Deductions and Personal Exemptions
The standard deduction would increase to $24,400 for married filing jointly and $12,200 for single filers. the current law allows $13,000 for married filing jointly and $6,500 for single filers.
The bill would also eliminate the deduction for personal exemptions.
Deductions and Credits
The following currently allowable deductions will be eliminated:
- State and local income tax
- Alimony payments
- Student loan interest
- Medical expenses
- Moving expenses
The following expenses would still be allowed, however, they would be limited:
- Home mortgage interest (limited to interest on new mortgages up to $500k, on one residence only)
- Real estate taxes (limited to $10,000)
The child tax credit would increase from $1,000 to $1,600. The bill would also add a credit of $300 for each non-child dependent or parent for five years, after which that provision would expire.
The bill keeps the current rules for 401(k) and other retirement plans in place. However, they would eliminate the ability for taxpayers to recharacterize traditional IRA contributions to a ROTH IRA.
Federal Estate Tax
The bill would double the federal estate tax exemption and completely eliminate the estate tax after six years. Currently, the maximum estate tax rate is 40% with a $5 million exclusion (married couples can combine for a $10 million exclusion).
Alternative Minimum Tax
The bill would eliminate AMT completely.
- The top corporate tax rate would be reduced from 35% to 20%.
- The bill would create the ability to expense five year property immediately (rather than depreciating under MACRS).
- The Section 179 limitation would increase from $500,000 to $5 million and phase-out amount of $20 million in qualified expenditures.
- The bill would eliminate Code Section 199 domestic production activities deduction, non-real property like-kind exchanges and other deductions, but would leave the research and development credit.
- Currently, owners of partnerships, S corporations and sole proprietorships pay tax at the individual rates (up to 39.6%). The bill proposes a 25% tax rate for pass-through income. There will likely be limitations on the businesses that can claim this rate to avoid abuse of the lower tax by individuals.