On May 9, Republicans on the House Ways and Means Committee released the first wave of their tax proposals as part of the overall budget reconciliation process. The Committee has scheduled a markup of tax reconciliation measures for May 13. As this is just the opening salvo, we expect new proposals, changes, and constant updates until the president signs a final bill.
Some important proposals include making the rates for individuals, estates, and trusts enacted in the Tax Cuts and Jobs Act (TCJA) permanent with modifications for inflation. The expiration date of the standard deduction from TCJA is removed, and temporary increases in the standard deduction result in a deduction of $16,000 for individuals, $24,000 for heads of households, and $32,000 for joint returns. These increases would expire Jan. 1, 2029.
The personal exemption is permanently reduced to zero, while the child tax credit would increase to $2,500 through 2028. The expiration of the TCJA increase in the individual AMT exemption amounts and phaseout thresholds is also repealed, along with certain miscellaneous itemized deductions.
Of interest to homeowners, the $750,000 ($375,000 married individual filing separately) limitation on principal residence acquisition indebtedness is made permanent, as is the exclusion of interest on home equity indebtedness from the definition of qualified residence interest. In addition, the temporary limitation on personal casualty losses in section 165(h)(5) is made permanent. The deduction for moving expenses, except in the case of a member of the Armed Forces (or their spouse or child), is repealed.
The proposal also makes five modifications to qualified business deductions for pass-through entities under section 199A. These include making the deduction permanent and increasing the calculation amount from 20% to 22%. There is also the opportunity in some instances to apply the benefit to income derived from a specified service trade or business, which has historically been unavailable. An inflation index is also added after 2025.
The unified estate and gift tax exemption is made permanent to an inflation-indexed $15 million for taxable years beginning after Dec. 31, 2025. The generation-skipping transfer tax exemption is also permanently increased to an inflation-indexed $15 million.
In international taxation, the proposal lowers the preferential rates on GILTI and FDII by increasing the deduction for corporations for taxable years beginning after Dec. 31, 2025, from 37.5% to 50% of their GILTI (including section 78 gross-up amount) and from 21.875% to 37.5% of their FDII. For BEAT, the special rules of subsection 59A(b)(2), which would have increased the rate to 12.5% and reduced regular tax liability by all credits, are repealed.
This first set of tax proposals did not address other areas that have been under discussion, including items such as:
- the state and local tax limitation (SALT) cap (Note that on May 12, the Ways and Means Committee proposed a $30,000 limitation, with income phaseouts),
- exclusion of tip, overtime, and Social Security income,
- increased rate for high-income individuals,
- capital gains rates,
- taxation of Social Security payments,
- treatment of research and experimentation expenses,
- bonus depreciation,
- business interest expense,
- carried interests in partnership-taxed entities, and
- corporate tax rates.
Please note that a larger draft has since been released. CBIZ will provide an update on May 13.
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