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How Could a Tax Change Affect You? This Is What the Senate and House Propose How Could a Tax Change Affect You? This Is What the Senate and House Propose
(about 3 hours later)
On Thursday, Senate Republicans will issue a tax bill. It differs from last week’s House of Representatives bill on a number of important issues. For instance, the Senate plan will completely eliminate the ability to deduct state and local taxes; there is no exception for up to $10,000 in property taxes each year, as there is in the House bill. On Thursday, Senate Republicans unveiled their tax bill. It differs from last week’s version in the House of Representatives on a number of important issues. For instance, the Senate plan would completely eliminate the ability to deduct state and local taxes; there is no exception for up to $10,000 in property taxes each year, as there is in the House bill.
It’s still too soon to predict what, if anything, will come of all this. In the coming days and weeks, we will see which proposals survive as Congress moves toward possible full votes on these or modified bills. In the meantime, here’s a guide to some of the consumer-facing issues under consideration. It’s too soon to predict what, if anything, will come of all this. In the coming days and weeks, we will see which proposals survive as Congress moves toward possible full votes on these or modified bills. In the meantime, here’s a guide to some of the consumer-facing issues under consideration.
What’s in place now:What’s in place now:
Seven brackets, with a top rate of 39.6 percent, which people pay on income they earn beyond $480,050 for couples filing their taxes jointly.Seven brackets, with a top rate of 39.6 percent, which people pay on income they earn beyond $480,050 for couples filing their taxes jointly.
What the House proposed:What the House proposed:
Four brackets, with a top rate of 39.6 percent. But that top rate doesn’t begin until a couple hits $1 million in annual income.Four brackets, with a top rate of 39.6 percent. But that top rate doesn’t begin until a couple hits $1 million in annual income.
What the Senate proposed:What the Senate proposed:
Seven brackets, with a top rate of 38.5 percent. The Senate bill’s lowest tax bracket is at 10 percent for individuals, while the House bill had raised it to 12 percent. Seven brackets, with a top rate of 38.5 percent that you pay on income beyond $1 million annually if you’re married or $500,000 if you’re single. The Senate bill’s lowest tax bracket is at 10 percent for individuals, while the House bill had raised it to 12 percent.
What’s in place now:What’s in place now:
If you’re single, the current standard deduction is $6,350. Add in exemptions and you’re up to $10,400.If you’re single, the current standard deduction is $6,350. Add in exemptions and you’re up to $10,400.
Married without children? That’s $12,700 for the deduction and $20,700 with exemptions.Married without children? That’s $12,700 for the deduction and $20,700 with exemptions.
If you’re married with two kids, the deduction-plus-exemptions figure goes up to $28,700. There is also a $1,000 tax credit per child.If you’re married with two kids, the deduction-plus-exemptions figure goes up to $28,700. There is also a $1,000 tax credit per child.
What the House proposed:What the House proposed:
The House bill calls for simplification: If you’re single with no children, your standard deduction would be $12,000. If you’re married, it would be $24,000 no matter how many kids you have. The child tax credit, however, would rise to $1,600 per child. There is also another $300 credit for each parent and nonchild dependent, though that would expire after 2022. The House bill calls for simplification: If you’re single with no children, your standard deduction would be $12,000. If you’re married, it would be $24,000 no matter how many kids you have. The child tax credit, however, would rise to $1,600 per child. There is also an additional $300 credit for each parent and nonchild dependent, though that would expire after 2022.
What the Senate proposed:What the Senate proposed:
The same $12,000/$24,000 standard deductions as the House. Single parents would see their deductions go to $18,000 from $9,300. The child tax credit would rise to $1,650.The same $12,000/$24,000 standard deductions as the House. Single parents would see their deductions go to $18,000 from $9,300. The child tax credit would rise to $1,650.
What’s in place now:What’s in place now:
You can generally deduct the amount you pay for state and local tax income taxes, including property taxes, on your federal income tax return. You can also deduct the interest you pay each year on mortgage debt up to $1 million, a cap that can cover multiple homes. Plus, you can generally deduct up to $100,000 in interest you pay on a home-equity loan or line of credit.You can generally deduct the amount you pay for state and local tax income taxes, including property taxes, on your federal income tax return. You can also deduct the interest you pay each year on mortgage debt up to $1 million, a cap that can cover multiple homes. Plus, you can generally deduct up to $100,000 in interest you pay on a home-equity loan or line of credit.
What the House proposed:What the House proposed:
No more state and local tax deductions, though you could continue to deduct up to $10,000 each year in interest you pay toward your home mortgage. For people buying in the future (which the bill defines as Nov. 2, 2017, or later), mortgage interest deductions would be allowed only on loans up to $500,000. Moreover, only debt from primary residences would count toward that limit, and you could not include any interest from home equity loans or lines of credit that you took out on that new home.No more state and local tax deductions, though you could continue to deduct up to $10,000 each year in interest you pay toward your home mortgage. For people buying in the future (which the bill defines as Nov. 2, 2017, or later), mortgage interest deductions would be allowed only on loans up to $500,000. Moreover, only debt from primary residences would count toward that limit, and you could not include any interest from home equity loans or lines of credit that you took out on that new home.
What the Senate proposed:What the Senate proposed:
No more state and local tax deductions and no exception for property taxes, either. The mortgage interest deduction, however, would survive in its current form.No more state and local tax deductions and no exception for property taxes, either. The mortgage interest deduction, however, would survive in its current form.
What’s in place now:What’s in place now:
For the moment, you can deduct out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income (but not the expenses that amount to the first 10 percent). This is particularly useful for elderly people and others with lower incomes who need regular assistance and care.For the moment, you can deduct out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income (but not the expenses that amount to the first 10 percent). This is particularly useful for elderly people and others with lower incomes who need regular assistance and care.
What the House proposed:What the House proposed:
The House wants to do away with the deduction in 2018.The House wants to do away with the deduction in 2018.
What the Senate proposed:What the Senate proposed:
The Senate would keep the deduction.The Senate would keep the deduction.
What’s in place now:What’s in place now:
Currently, people with incomes below certain thresholds can deduct up to $2,500 of student loan interest each year.Currently, people with incomes below certain thresholds can deduct up to $2,500 of student loan interest each year.
What the House proposed:What the House proposed:
The House wants to do away with the student loan interest deduction.The House wants to do away with the student loan interest deduction.
What the Senate proposed:What the Senate proposed:
The Senate would keep things as they are now.The Senate would keep things as they are now.
What’s in place now:What’s in place now:
In general, you pay taxes on inherited property at a 40 percent rate, but current rules waive that tax for estates up to $5,490,000.In general, you pay taxes on inherited property at a 40 percent rate, but current rules waive that tax for estates up to $5,490,000.
What the House proposed:What the House proposed:
The House seeks to nearly double that exemption to $10 million and repeal it altogether after 2024 — a year later than the House first proposed. The House seeks to nearly double that exemption and repeal it altogether after 2024 — a year later than the House first proposed.
What the Senate proposed:What the Senate proposed:
The Senate wishes to double the exemption but has not proposed any full repeal.The Senate wishes to double the exemption but has not proposed any full repeal.
What’s in place now:What’s in place now:
In 2017, when an employer pays for up to $13,570 in qualified adoption expenses for an employee, the employee pays no taxes on that assistance. There’s also a separate adoption credit, which generally provides taxpayers with a credit of up to $13,570 per eligible child. Under the current rules, the credit phases out for taxpayers with adjusted gross income between $203,540 and $243,540.In 2017, when an employer pays for up to $13,570 in qualified adoption expenses for an employee, the employee pays no taxes on that assistance. There’s also a separate adoption credit, which generally provides taxpayers with a credit of up to $13,570 per eligible child. Under the current rules, the credit phases out for taxpayers with adjusted gross income between $203,540 and $243,540.
What the House proposed:What the House proposed:
The bill had proposed getting rid of the adoption credit altogether, but on Thursday afternoon, the Republican leadership changed its mind and left it intact.The bill had proposed getting rid of the adoption credit altogether, but on Thursday afternoon, the Republican leadership changed its mind and left it intact.
What the Senate proposed:What the Senate proposed:
The Senate would keep things as they are now.The Senate would keep things as they are now.
What’s in place now:
Your money grows tax-free (you can put in $2,000 per year with certain income limits), and then you can withdraw it tax-free to pay for private school from kindergarten through 12th grade (in addition to college). Potential changes to this maneuver were last considered in 2012.
What the House proposed:
The House wants to neuter Coverdells but let people pull up to $10,000 out of 529 plans tax-free to use for private school. (You could still use that same 529 plan to save for college the same way you always have.) Wealthy families can gain a $30,000-plus tax break from this.
What the Senate proposed:
The Senate did not propose any changes.
What’s in place now:
If you’re a victim of a house fire, flood, burglary or similar event, you can deduct those losses.
What the House proposed:
The House did away with these so-called “casualty” deductions. That means you would be out of luck, unless legislators passed a one-time bill offering relief for victims of particular weather or other events that affected a lot of people.
What the Senate proposed:
Starting in 2018, you could only claim a deduction if the loss happened during an event that the president later officially declared to be a disaster.
What’s in place now:
Alimony is a deductible expense for people paying it, and those who receive it must pay income taxes.
What the House proposed:
Divorce would become a bit more burdensome for the ex-spouse who pays alimony because it would no longer be a deductible expense. But the party receiving the payments would no longer need to pay tax on the income received. The change would take effect for divorce and separation agreements (and any changes to current agreements) executed after 2017.
What the Senate proposed:
The Senate bill would make no changes to alimony rules.
What’s in place now:
As it stands, taxpayers can deduct moving expenses — even if they do not itemize their tax returns — as long as the new workplace is at least 50 miles farther from the old home than the old job location was from the old home. (If you had no workplace, the new job must be at least 50 miles from your old home.)
What the House proposed:
Relocating for a new job? Moving costs would no longer be a deductible expense in 2018.
What the Senate proposed:
The Senate’s bill is similar to the House’s, though it allows some exceptions for members of the military.
What’s in place now:
You can usually deduct the amount your tax preparation specialist billed you or any similar tax-related expenses, like software you purchase and the fee you pay to file your forms electronically.
What the House proposed:
Taxpayers would no longer be able to take this deduction. Since the bill aims to reduce the number of taxpayers who itemize (and all the complexity that goes with that), in theory fewer people should require professional tax help (with the exception of wealthier people, who can afford to lose this break).
What the Senate proposed:
The Senate’s proposal is similar to that of the House.
What’s in place now:
Buyers of qualifying plug-in electric vehicles, like the Chevrolet Bolt or Volt and Tesla’s cars, can sometimes get a tax credit for up to $7,500.
What the House proposed:
The House would do away with the credit.
What the Senate proposed:
The Senate proposed no change.