In the early hours of Saturday, December 2, 2017, the United States Senate voted narrowly in favor of GOP tax reform legislation, the Tax Cuts and Jobs Act (“TJCA”). The 51-49 vote comes after some notable changes were made to the previous version of the bill released by the Senate Finance Committee on November 16. Last minute changes were necessary both to garner the requisite number of votes to pass the legislation, and bring the legislation closer to the House on key provisions as the legislation now heads to Conference.
The following highlights noteworthy changes present in the December 2, 2017 version of the legislation as compared to prior versions. For additional information highlighting how the Senate plan measure up against the House’s, please see our previous alerts entitled “Senate Finance Committee Unveils Its Version of GOP Tax Overhaul” and “Senate Finance Committee Passes Tax Cuts and Jobs Act with Additional Changes.”
- Alternative Minimum Tax – Individuals: Unlike the original Senate bill which repealed the individual AMT, the latest draft now provides for its retention. While the AMT will still exist, both the exemption and phase-out amounts will be increased from the current law.
- Alternative Minimum Tax – Corporations: Surprisingly, the Senate bill retains the Corporate AMT without altering the exemption and phase-out amounts. Under the Senate bill, the Corporate AMT rate would be 20%, equal to that of the standard corporate tax.
- Pass-Through Qualified Business Income: The Senate’s bill increases the permissible deduction available to pass-through entities for domestic qualified business income from 17.4% to 23%. The Senate and the House have significantly different approaches to tax reform as it relates to pass-through income, and this provision may be a source of contention in Conference.
- Repatriation Rates: The Senate bill increases the rates applicable to mandatory repatriation on cash and cash equivalents to 14.49% and 7.49% respectively. This is an increase over the Senate’s previous rates of 10% and 5%, bringing it closer in line with what the House provided for in its own plan (14%/7%).
- State and Local Property Tax: The Senate restored the deduction for state and local property taxes up to $10,000 per year. This brings the Senate bill in line with that of the House bill.
- Capital Investment Expensing: Rather than have the full-expensing provision applicable to business property currently subject to bonus depreciation sunset immediately after 2022, the Senate altered the bill to provide for a 20% per year phase-out over a 5 year period.
Passing the above-described legislation through the Senate represents a major step toward seeing substantial tax reform by the end of 2017. The legislation next heads to Conference, where the House and Senate versions will be reconciled by members of both chambers.
A few topics that will need to be resolved in Conference include: Whether the corporate rate cut will go into effect for 2018 or 2019, the repeal of the ACA individual mandate, the retention of the estate tax, the mortgage interest deduction limit, the retention of the alternative minimum tax, and treatment of pass-through businesses.
Mazars USA continues to monitor the legislative process and will provide updates as necessary. If you have any questions related to specific provisions, or are interested in how tax reform will impact you and your business, please reach out to your Mazars USA professional.