Tax Reform – Where the House and Senate Differ
Berdon Tax Team
12.11.2017 | Client Alert
On December 2, 2017, the Senate approved – by a slim 51-49 margin – its tax reform bill. The bill now heads to a Senate-House conference that will sort through differences between the approved Senate bill and the bill the House passed on November 16, 2017.
Several significant changes were made to the initial Senate bill, outlined in our Client Alert, dated November 16, 2017. These include:
- Retention of the corporate and individual alternative minimum taxes with increased individual AMT exemptions and phase out thresholds;
- An increase in the proposed deduction for pass-through business income to 23% (originally 17.4%);
- A limited $10,000 deduction for individual state and local property taxes; and
- An increase in the tax rates proposed for repatriated foreign earnings
Several of the changes are revenue raisers designed to ensure that the cost of the tax reform package does not exceed $1.5 trillion over ten years. Failure to fall below that threshold may change the vote needed for passage from a simple majority to a requirement of at least 60 votes in favor, which would effectively kill the bill given the party line positions staked out thus far.
House – Senate Conference
Although the House and Senate bills are similar in many respects, material differences remain and will need to be resolved in conference. Several key differences include:
- Alternative Minimum Tax – the House bill eliminates both the corporate and individual AMT, but as noted above, the Senate bill, in a last minute amendment, retains both (though at higher threshold and exemption amounts). Ways & Means Chairman Brady has already commented that the AMT must be repealed;
- Treatment of Pass-Through Income – both bills specially treat certain business income derived through pass-through entities, but they do so differently. The House bill provides for a 25% rate on certain pass-through income, whereas the Senate bill provides for a 23% deduction of certain qualified income;
- Corporate Tax Reform – both the House and Senate bills would tax corporations at a 20% rate, but the bills differ in when the reduced rate takes effect. The House bill reduced rate would be effective for calendar year 2018, whereas the Senate bill defers the rate reduction to 2019. There has been talk of a 22% corporate rate to pay for, among other tax benefits, the AMT repeal, but the White House has, to this point, insisted on a 20% corporate rate;
- Excess Business Losses – the Senate bill includes a provision limiting excess business losses beyond a specified threshold, but the House bill does not include a similar provision;
- Estate, Gift, and Generation Skipping Taxes (GST) – both the House and Senate bills double current exclusions (the Senate only through 2025) while the House bill ultimately repeals estate and GST taxes after 2024; and
- Tax Basis of Securities – the Senate bill would require taxpayers selling securities that have been purchased at different times and at different share prices to use the first-in, first-out method in determining the basis of securities sold. The House bill has no provision and, thus, the flexibility under current law would be preserved.
It is still not clear at this stage what the ultimate tax reform will look like post conference. The conferees have been selected, and work in conference is expected to begin shortly. We will provide updates of significant events as the bills move through conference.
For any questions, please contact:
Marc Ausfresser 212.331.7639 | email@example.com
Or your Berdon advisor
Berdon LLP New York Accountants