Five on Fridays: 5 Things to Know About the House GOP Tax Plan
Yesterday, the House Republicans unveiled their historical tax reform proposal. The plan awaits approval/modification by the Senate and the President.
As part of STLTaxLawyer.com's new Five on Fridays insights, here are five things you need to know about the proposal:
- The bill would cap the corporate tax rate at 20%, limit the income tax rate on pass-through entities to 25% (a huge boon for small business owners, which in many cases would result in a 14.6% tax decrease), and reduce the number of individual tax brackets from seven to four, with rates of 12%, 25%, 35%, and 39.6% (rate for top bracket remains in tact).
- Schedule A deductions:
- Deductions for state and local property taxes would be capped at $10,000, but eliminate the state income tax deduction. The bill does not, as some had sought, outright eliminate the deductibility of state and local taxes. Representatives from high-income tax states, such as New York and California, adamantly opposed eliminating the deduction altogether.
- Mortgage interest deductions would remain, but be limited to interest paid on home loans under $500,000 (interest on loans under the previous limit of $1,000,000 would be grandfathered in and remain fully deductible).
- The standard deduction would be doubled. For single taxpayers, for example, the standard deduction would increase from $6,350 tot $13,700. This has the practical effect of making Schedules A less common, as fewer taxpayers' total itemized deductions would exceed their standard deduction.
- There would be no change on tax-deferred contributions to 401(k) retirement plans. Talk of eliminating this sacred cow was harshly criticized in the past few weeks as an attack on the middle class, who frequently rely solely on employer-sponsored 401(k) plans for their retirement.
- The alternative minimum tax (AMT) (immediately) and estate tax (by 2024) would be eliminated. The AMT, a very unpopular and extremely difficult to comprehend tax, will no longer punish higher-earning taxpayers. The estate tax exemption amount would be doubled for six years, before finally being eliminated by 2024.