Earlier today, the House of Representatives passed the final version of its tax bill (H.R. 1) by a 227-205 vote. The Senate Finance Committee is scheduled to vote this week on its version of a tax reform bill. The current Senate version differs significantly from the House bill on several key items. Once the Senate version of the bill is finalized, a conference committee reconciliation of the differences between the two bills likely will be necessary before a final bill is presented to the entire Congress for voting.
Changes Included in the Final House Bill
The final version of the House bill differs from the original version released by the House Ways and Means Committee (See
Whitley Penn Tax Alert: House Ways and Means Committee Releases Comprehensive Tax Reform Bill - November 8, 2017). Some of the key differences between the final and original versions of the House bill include:
The final bill provides that the first $75,000 of net pass-through business taxable income would be subject to a 9% tax rate. The benefit of the lower rate would be phased out between $150,000 and $225,000 of taxable income. The lower rate would gradually be phased in over a five-year period (11% in 2018 and 2019, 10% in 2020 and 2021, and 9% beginning in 2022).
The original bill's provisions for self-employment tax on income from pass-through businesses are eliminated. The current tax law regarding the applicability of self-employment tax to income from pass-through entities would be retained.
The 12% and 5% rates that applied to the mandatory repatriation of deferred foreign earnings and profits would be changed to 14% for liquid assets and 7% for illiquid assets, respectively.
The treatment of carried interests received by partners in exchange for services would require those partners to hold their partnership interests for three years in order to qualify for capital gain treatment.
The final bill provides an exception to the limitation on the deduction for net business interest expense for taxpayers that paid or accrued interest on "floor plan financing indebtedness". However, the 100% cost recovery deduction would not be allowed for any business that has "floor plan financing indebtedness".
The corporation 80% dividends received deduction would be lowered to 65% and the 70% dividends received deduction would be lowered to 50%.
Research and experimental expenditures paid or incurred during tax years beginning after the 2023 tax year would be required to be capitalized and amortized over a 5-year period.
The current adoption credit would be retained.
The exclusion for qualified moving expense reimbursements would be reinstated for members of the Armed Forces on active duty who move under military order.
Whitley Penn LLP will continue to monitor the status of the tax reform process, including the progress of the Senate version of tax legislation, and will issue additional alerts as significant developments occur. In the interim, if you have any questions or require any additional information, please feel free to contact your Whitley Penn tax advisor.