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The Winners and the Losers in the Republican Tax Reform Proposal

by
Lee Reams II
on
11/1/2017
The Winners and the Losers in the Republican Tax Reform Proposal

It didn't take long for the tax reform discussion in Washington to turn ugly. The long-awaited tax reform proposal will affect millions of taxpayers in ways they never realized. The “Tax Cuts and Jobs Act” is 429 pages long and will take some time for tax experts to dissect in full.

The first major area of discontent is limiting the mortgage interest deduction to $500,000. This is only for new purchases and your $1,000,000 current limit will remain until you sell your property. The National Association of Realtors quickly released a statement about the framework. NAR president William Brown stated “eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk."

Granger MacDonald, chairman of the National Association of Home Builders already had come out against the bill, by stating "given that owning a home is the largest asset for most American households, it makes little sense to offer a tax bill that effectively abandons the nation's long-standing commitment to housing.”

The double whammy for homeowners is the cap on state and local property taxes of $10,000. This will compound the loss from the mortgage deduction for high real estate zones like California, New York, and Connecticut. "What we are seeing today is a plan that exacerbates the unfairness and inequality in our tax code," said Senate Minority Leader Charles E. Schumer (N.Y. Democrat).

The big winners are corporations, large families, estates and those taxpayers that are hit by the Alternative Minimum Tax (AMT).

Here are some highlights of major changes:

For Individuals: 

  • Cutting 7 tax brackets to 4 – 12% = $0 – 45,000, 25% = $45,001 - $200,000 , 35% = $200,001 - $500,000 and 39.6% = $500,001 or more.
  • Increase Standard Deduction - $12,000 for Individual and $24,000 or Married Couples
  • Increase Child Tax Credit from $1,000 to $1,600 Per Child
  • Establish New Family Tax Credit
  • Elimination of Alternative Minimum Tax (AMT)
  • Elimination of Student Loan Interest Deduction
  • Enhancement of Standard Deduction
  • Repeal of Deduction for Personal Exemptions
  • For New Purchases Home Mortgage Interest is Limited to the Interest on $500,000 of Debt.
  • Limits State and Local Property Taxes capped at $10,000
  • Eliminates Ability to Deduct State and Local Income or Sales Taxes
  • Changes to Charitable Contributions
  • Limitation of Wagering Losses
  • Repeal of Deduction for Personal Casualty Losses
  • Repeal of Deduction for Tax Preparation Expenses
  • Repeal of Medical Expense Deduction
  • Repeal of Deduction for Alimony Payments
  • Alimony Received No Longer Taxable
  • Repeal of Deduction for Moving Expenses
  • Termination of Deduction and Exclusions for Contributions to Medical Savings Accounts
  • Repeal of Estate and Generation-skipping Transfer Taxes
  • Consolidation of 3 Education Credits Into a Single Tax Credit
  • Denial of Deduction for Expenses Attributable to the Trade or Business of Being an Employee
  • Changes to Exclusion of Gain From Sale of Principal Residence – Anti-Flipper Rules
  • Repeal of Exclusion for Adoption Assistance Programs 

For Business: 

  • The 2018 Corporate Tax Rate Would be Reduced From 35% to 20% Flat Rate.
  • 25% Tax Rate for Pass-through Businesses
  • Immediately Expense 100 percent of the Cost of Qualified Property Acquired and Placed in Service after September 27, 2017, and before January 1, 2023
  • Expansion of Section 179 Expensing - Increased to $5 million and the Phase-out Amount Would be Increased to $20 million
  • Repeal of Employer-provided Health Care Credit
  • Repeal of Work Opportunity Tax Credit
  • Repeal of Credit for Expenditures to Provide Access to Disabled Individuals
  • Consolidation of Education Savings Rules
  • Repeal of Oil Recovery Credit
  • Termination of New Markets Tax Credit
  • Termination of Private Activity Bonds
  • No Tax Exempt Bonds for Professional Stadiums
  • Repeal of Small Life Insurance Company Deduction
  • Small Business Accounting Method Reform and Simplification
  • Repatriation Tax Rate as high as 12%
  • Small business Exception from Limitation on Deduction of Business Interest
  • Under the Provision, Taxpayers Would be Able to Deduct an NOL Carryover or Carryback Only to the Extent of 90 Percent of the Taxpayer's Taxable Income
  • Allow for Like-kind Exchanges Only With Respect to Real Property
  • Repeal of Deduction for Income Attributable to Domestic Production Activities
  • Changes to Entertainment Expenses
  • Changes to Deferred Compensation

As you can see the proposal affects a lot of special interest groups. With so many people affected, the winners and losers may not even know what category they are in until the dust settles.

President Trump is behind the bill and said we "will work tirelessly to make good on our promise to the working people who built our Nation and deliver historic tax cuts and reforms — the rocket fuel our economy needs to soar higher than ever before." Representative Kevin Brady offered “we just finished the World Series of tax reform, and the American people won.” According to the Built for Growth press release, “with this bill, a typical middle-income family of four, earning $59,000 (the median household income), will receive a $1,182 tax cut.”

Time will tell how this all shakes out. But fasten your seat belt. It will be quite a ride.

Lee Reams II, writes for TaxBuzz, a tax news and advice website. Reach him at [email protected] or on LinkedIn.

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Lee Reams II

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