The House has passed their tax reform bill and the Senate has moved its version out of the Finance committee. Each chamber and the president would like a bill signed by the end of the year. If the bill were to pass, here are provisions that would affect individual taxpayers and investors that are common to both bills and therefore most likely to remain.
- STANDARD DEDUCTION AND PERSONAL EXEMPTION.Both bills would almost double the deduction taxpayers get if they don’t itemize write offs on Schedule A. For 2018 this amounts to about $24K for families and $12K for singles; however, the personal exemption per individual, which is $4,150, is also repealed in both versions of the bill.
- ESTATE TAX.Both bills would double the current estate-tax exemption of $5 million per person, adjusted for inflation.
- ALTERNATIVE MINIMUM TAX.Both bills repeal the AMT, a complex surtax that rescinds or postpones the value of many tax breaks.
- STATE AND LOCAL TAXES.Both bills repeal the deduction for state and local income and sales taxes.
- HOME SALES: Both bills would require sellers to live in the home five of the prior eight years, rather than the current provision of two out of the prior five years to get the exemption.
- RETIREMENT PLANS: Current law allows a saver with a traditional individual retirement account, or IRA, which typically has taxable payouts, to convert some or all assets to a Roth IRA, which typically has tax-free payouts. Taxes are usually due on such transfers. Current law also allows savers who do this Roth conversion to undo it, as long as the reversal is complete by Oct. 15 in the following year. This option has allowed savers whose assets drop in value after a Roth conversion to get out of owing tax on phantom income. Both bills would end the ability of savers who do these Roth conversions to reverse them.
It is still too early to advise you on how to respond to these changes since the bill is not finalized and very controversial. (Source: Wall Street Journal)
By Barry Jamieson, CFP, MA