What’s Different (And What’s The Same) In The Senate And House Tax Reform Proposals

Senate Republican leaders have now released their version of a tax bill, the Tax Cuts and Jobs Act.

You can review the Senate’s bill summary here and you can review the first version of the House bill here. (Links will download as a pdf). You can read my summary of the House plan here.

It would appear that there’s still some work to be done to reconcile the Senate and House bills. Here are the key differences (as well as similarities) between the two:

Tax rates

We currently have seven (7) tax brackets: 10{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}, 15{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}, 25{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}, 28{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}, 33{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}, 35{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}, and 39.6{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267} (you can see the brackets for 2018 – absent reform – here).

 

The House bill proposed four (4) tax rates: 12{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}, 25{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}, 35{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267} and 39.6{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}.
The Senate bill would keep seven (7) brackets and reduce the top marginal rate to 38.5{8139253ca906d8d68487924acd2bd6dddc706794ed2ab7afbf93cd9cbc023267}.
Standard Deduction

The standard deduction amounts for 2018 – absent reform – are $6,500 for individuals, $9,550 for heads of households (HOH), and $13,000 for married couples filing jointly.

Under the House bill, the standard deduction would increase to $12,200 for individuals, $18,300 for heads of household (HOH), and $24,400 for married couples filing jointly.
Under the Senate bill, the standard deduction would be $12,000 for individuals, $18,000 for heads of household (HOH), and $24,000 for married couples filing jointly.
Additional Standard Deduction & Personal Exemptions

Under both plans, these would be “consolidated into this larger standard deduction” – meaning they disappear.

Mortgage Interest Deduction

Currently, you can deduct qualifying mortgage interest for purchases of up to $1,000,000 plus an additional $100,000 for equity debt. The $1,000,000 cap applies to a mortgage on your primary residence plus one other home.

Under the House bill, current mortgages would be grandfathered – meaning they won’t be affected – but new mortgages would be capped at $500,000 for purposes of the deduction. Additionally, the deduction would only apply to your primary residence.
Under the Senate bill, the deduction would remain in place for mortgages up to $1,000,000 but the deduction for equity debt (meaning re-fis not related to improving your home) would be eliminated.
State and Local Income Tax Deduction

Currently, you can deduct state and local income taxes or sales taxes. Both proposals would eliminate the state and local income tax or sales tax deduction for those taxpayers not engaged in trade or business.

Property Tax Deduction

Currently, you can deduct state and local property taxes.

Under the House bill, the property tax deduction would remain in place but would be capped at $10,000. This was a compromise after Republicans in high tax states made noise (and voted against the budget proposal).
Under the Senate bill, the property tax deduction would be eliminated.
Charitable Donation Deduction

Currently, you can deduct certain donations to qualified charitable organizations. The charitable donation deduction would remain in place under both bills.

Itemized Deductions

If you itemize your deductions, under current law, you can write off certain expenses. Under both proposals, other than those mentioned above (mortgage and charitable), certain itemized deductions for individuals, such as the deductions unreimbursed employee expenses, home office expenses, and tax preparation expenses, would be eliminated.

Under the Senate bill, the deduction for medical expenses would remain (thanks to Laurence Vance for the correction).
Above The Line Deductions

Currently, you can claim certain above-the-line expenses (meaning that you can claim them even if you do not itemize). Under both proposals, most above-the-line deductions would be eliminated, including those for student loan interest, moving expenses and out of pocket expenses for teachers.