A House and Senate conference committee agreed on a final tax reform bill that is expected to pass this week. The uniform tax package was finalized and presented to Congress for a final vote in the House and Senate. The legislation is being advanced with a budget reconciliation process that allows the Senate to pass the tax bill with a simple majority vote.
Under the agreement, individual and estate and gift tax provisions will sunset after 2025. As part of the deal, the individual mandate to purchase health insurance under the Affordable Care Act will be repealed beginning in 2019.
Additionally, while the Senate version required investors selling individual stock positions to use the first-in, first-out method (FIFO) for calculating cost basis, this provision was not included in the final package.
Lastly, here are some key changes to business-related taxes:
- The corporate tax rate is reduced to 21% (from 35% currently)
- Businesses operating as pass-through entities (LLCs, partnerships, sole proprietorships) can deduct, with limitations, 20% of pass-through income
- Corporations can apply 100% expensing on capital expenditures over the next five years, with a gradual phase-out afterwards. There are also enhanced expensing rules for small businesses
- The deduction for net interest payments on corporate debt is limited to 30% of adjusted taxable income
- Profits held overseas are repatriated at a tax rate of 15.5% for cash and 8% for non-liquid assets
Once approved by Congress and signed by the president, the tax reform provisions will go into effect for the 2018 tax year.