Republicans in the U.S. Senate released details of their own plan for tax reform, and they differ from both the current tax system and the House-led tax reform bill in significant ways, especially for real estate.
Here are some of the big changes proposed by Senate Republicans in their tax reform bill, according to a summary released by the GOP-led Senate Finance Committee (via news website Axios). The House of Representatives and Senate will now have to reconcile their two differing bills before any tax reform bill can be passed into law.
Mortgage interest deduction preserved
The Senate plan preserves the current maximum mortgage interest deduction (MID) for new homes at $1 million (this is the amount you pay in interest on your mortgage debt every year, which you can subtract from your taxes). This differs from the House plan, which reduced the maximum MID you may claim for new homes to $500,000, as CNBC reported.
The House plan did keep the $1 million MID in place for current homeowners, but if the House plan was passed, new home would have had to take the reduced MID limit, which many believe would dis-incentivize people from buying new homes, as Inman contributor Joseph Rand wrote recently. So the Senate version seems like it could make critics of this part of the House plan happier.
State and local tax deductions eliminated
The Senate tax reform bill does away with state and local tax deductions entirely, which are “valuable” tax breaks to many Americans, as the New York Times puts it very understatedly. The House bill would allow for local property tax deductions up to $10,000.
Estate tax exemption doubled
The plan nearly doubles the current estate tax exemption — the maximum value your estate can be worth when you die without getting taxed — from $5.49 million for 2017 to $11 million, and preserves it ad-infinitum. The House GOP tax reform plan, which also doubled the current estate tax exemption according to Bloomberg, nonetheless called for a repeal of the estate tax in 2024, as The Wall Street Journal notes.
Other items in the Senate bill
- Retains the current number of income tax brackets (seven, versus simplified four in House, though the Senate bill reduces the top rate from 39.6 percent to 38.5 percent)
- Doubles standard deductions to $12,000 for individuals and $24,000 for married couples (same as House bill)
- Increases child tax credit from $1,000 currently to $1,650 (though this will reportedly be capped for those with $500,000 in annual income) ($50 more than proposed House increases)
- Preserves deductions for medical expenses that exceed 10 percent of gross income (differs from House, which would have repealed them — to much criticism)
- Preserves low-income housing credit (same as House bill)
- Alternative minimum tax (AMT) repealed (same as House bill)
- Preserves 401k maximum annual contributions at $18,000 (same as House)
Email Carl Franzen.