Sweeping tax changes are one step closer to reality now that the Senate has passed its own tax bill. But there’s still a lot that could change before the legislation is final, because the bill that passed the Senate is different than what passed the House earlier this year. While some provisions are the same and likely to be a part of the final package, others will need to get worked out in a conference committee, led by leaders from both the House and Senate.
This is a big one: Tax brackets will likely be changing. The House and Senate both want to change the current tax brackets, but they disagree on how to do it. The Senate would keep seven tax brackets and change the percentage of each bracket to 10, 12, 22, 24, 32, 35 and 38.5 percent. The House bill has four brackets (12, 25, 35 and 39.6 percent).
This is a key provision to watch as it’s one of the main ways the government determines how much you will pay in taxes each year.
THE STANDARD DEDUCTION
Both the House and Senate bills are in general agreement on raising the standard deduction. This change would substantially increase the standard deduction. For married couples filing jointly, the Senate would increase the deduction from $12,700 to about $24,000 and the House would increase it to $24,400. For single taxpayers the House bill would increase the deduction to $12,200 and the Senate bill would increase it to $12,000.
CHILD TAX CREDIT
Both plans would raise the child tax credit, but they differ on the amount. The Senate bill ups the child tax credit to $2,000. The House bill would raise it to $1,600. The Senate bill also greatly expands who could claim the credit. Today, if you’re married filing jointly and make more than $110,000, the credit starts to phase out. The Senate would raise the phase out limit to $500,000.
MORTGAGE INTEREST DEDUCTION
Both the House and Senate would cap the amount of mortgage interest you can deduct. Mortgages that are eligible for the interest deduction are limited to $500,000 under the House bill, while the Senate bill keeps the current limit of $1 million.
PROPERTY TAX DEDUCTION
Both the House and Senate bills still allow a deduction for local property taxes, but only up to $10,000. This is a change as initially the Senate bill got rid of this all together.
They’re gone. Both bills repeal the $4,050 personal exemption you could claim for yourself and each of your dependents.
THE ALTERNATIVE MINIMUM TAX
Although the House bill would repeal the AMT — an additional tax initially intended to keep high earners from using loopholes to avoid paying taxes — the Senate version proposes keeping it.
While the House and Senate bills differ on whether to eventually eliminate the estate tax, both would raise it immediately to more than $10 million dollars. The House bill would eventually repeal the estate tax by 2024. The Senate version leaves it in place.
The House bill drops the top rate on pass-through businesses income — which are businesses whose income passes through to its owners’ personal tax returns — to 25 percent. The Senate bill would let most business owners deduct 23 percent of their income.
CORPORATE TAX RATE
Both the House and Senate would cut the corporate tax rate from today’s 35 percent to 20 percent. But the two bills differ on timing. The House bill would cut the rate in 2018. The Senate plan would wait until 2019 for it to go into effect.
This publication is not intended as legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.