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, | Wealth Planning Insights - November 2, 2017

  • On November 2, the House Ways and Means Committee released draft tax reform legislation.
  • Congress is making concrete progress on tax reform, and we anticipate that the changes will go into effect in 2018.
  • We now have a baseline for the planning decisions to be made as 2017 draws to a close and as we look ahead to 2018.

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On November 2, the House Ways and Means Committee released draft tax reform legislation. What does this mean for you and your family? For starters, it means that Congress is making concrete progress on tax reform, and we anticipate that the changes will go into effect in 2018. In contrast, it also means that much uncertainty remains, and we can expect that any tax reform legislation that ultimately becomes law will differ from the draft bill the House released today. We do, however, now have a very clear baseline that can inform the planning decisions to be made as 2017 draws to a close and we look ahead to 2018.

Highlights of the Draft Legislation:

  • There would be four individual income tax brackets — 12%, 25%, 35% and 39.6%. This is in contrast to the seven brackets we have under current law, but the top ordinary income tax rate remains 39.6%. The 39.6% bracket would apply to taxable income over $500,000 for individuals or $1 million for married couples. The individual alternative minimum tax (AMT) would be repealed.
  • No change is proposed for individual capital gain tax rates or in the 3.8% net investment income tax.
  • The top corporate income tax rate would be reduced from 35% to 20%. The corporate AMT would be repealed.
  • Business income derived by individuals (and trusts and estates) through pass-through entities like LLCs and S-corporations would be subject to a top income tax rate of 25%. However, wages or guaranteed payments paid to business owners and professionals who work for a business would continue to be taxed at ordinary income tax rates of up to 39.6%.
  • Current law provides for three education tax credits — the American Opportunity Tax Credit, the Hope Scholarship Credit, and the Lifetime Learning Credit. Under the draft legislation, the Hope and Lifetime Learning credits would disappear and only the American Opportunity credit would remain. Student loan interest would not be deductible.
  • Current law provides that taxpayers lose the benefit of up to 80% of their itemized deductions if their income exceeds $261,500 (for individuals) or $313,800 (for married taxpayers). The draft legislation at once limits the types of deductions that may be itemized and gets rid of the phase-out rule for the remaining deductions, allowing taxpayers the full benefit of these deductions.
    • Itemized deductions that would be eliminated include the state and local income/sales tax deduction, casualty loss deduction, tax preparation expense deduction, medical expense deduction, alimony payment expense deduction and the moving expense deduction, among others. There would be a limited deduction for up to $10,000 of property tax.
    • The mortgage interest deduction currently allows a taxpayer to deduct mortgage interest on a principal residence and a second residence. Itemizers may deduct interest payments on up to $1 million in acquisition indebtedness. Under the draft legislation, the deduction for mortgage interest would be limited to $500,000 in acquisition indebtedness on a principal residence only. Debt incurred before November 2, 2017 would be grandfathered under the old rules.
    • The charitable contribution deduction would stay and would be slightly more taxpayer favorable under proposed law.
  • Beginning after 2023, the estate and generation-skipping transfer taxes would be repealed. Beneficiaries would continue to benefit from a step up in tax basis in estate property.
    • In the intervening years, the exclusion / exemption amount would be doubled from $5 million per individual (adjusted each year for inflation) to $10 million per individual. This means that a married couple would be able to transfer well in excess of $20 million at death.
    • The gift tax would remain in effect and the top tax rate would be lowered to 35% upon repeal of the estate tax. The annual exclusion amount for gifts would remain unchanged. The lifetime exclusion amount would increase to $10 million per individual in 2018, indexed each year for inflation.


The House Ways and Means Committee plans to debate and revise (markup) its draft bill in the coming days. The revised bill then will go to the full House for a vote.

Meanwhile, the Senate will run a parallel process. The Senate Finance Committee plans to release its own draft tax reform legislation next week, sometime around November 8. The Senate Finance Committee will mark up the Senate’s tax reform bill, and the amended bill will go to the full Senate for a vote. Significant amendments could be introduced on the Senate floor.

If the House and the Senate each were to pass their respective versions of tax reform, then Congress would convene a conference committee, made up of select representatives and senators. Those representatives and senators would reconcile and consolidate the two bills. The House and Senate then each would vote again, this time on the consolidated bill. If each chamber passed the consolidated bill, it would be presented to President Trump for signature.


The road ahead is long, and the House and Senate have a lot of work to do. The best course of action? Watch and listen. We will continue to monitor and provide updates on these tax reform developments.



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