How could a tax change affect you? This is what the Senate and House propose


On Thursday, Senate Republicans will issue a tax bill. It differs from last week’s House of Representatives bill on a number of important issues. For instance, the Senate plan will completely eliminate the ability to deduct state and local taxes; there is no exception for up to $10,000 in property taxes each year, as there is in the House bill. 

It’s still too soon to predict what, if anything, will come of all this. In the coming days and weeks, we will see which proposals survive as Congress moves toward possible full votes on these or modified bills. In the meantime, here’s a guide to some of the consumer-facing issues under consideration. 

TAX BRACKETS 

What’s in place now: Seven brackets, with a top rate of 39.6 percent, which people pay on income they earn beyond $480,050 for couples filing their taxes jointly. 

What the House proposed: Four brackets, with a top rate of 39.6 percent. But that top rate doesn’t begin until a couple hits $1 million in annual income. 

What the Senate proposed: Seven brackets, with a top rate of 38.5 percent. The Senate bill’s lowest tax bracket is at 10 percent for individuals, while the House bill had raised it to 12 percent. 

EXEMPTIONS, CREDITS, STANDARD DEDUCTIONS 

What’s in place now: If you’re single, the current standard deduction is $6,350. Add in exemptions and you’re up to $10,400. Married without children? That’s $12,700 for the deduction and $20,700 with exemptions. If you’re married with two children, the deduction-plus-exemptions figure goes up to $28,700. There is also a $1,000 tax credit per child. 

What the House proposed: The House bill calls for simplification. If you’re single with no children, your standard deduction would be $12,000. If you’re married, it would be $24,000 no matter how many children you have. The child tax credit, however, would rise to $1,600 per child. There is also another $300 credit for each parent and nonchild dependent, though that would expire after 2022. 

What the Senate proposed: The same $12,000/$24,000 standard deductions as the House. Single parents would see their deductions go to $18,000 from $9,300. The child tax credit would rise to $1,650. 

STATE AND LOCAL TAX DEDUCTIONS, AND MORTGAGE INTEREST 

What’s in place now: You can generally deduct the amount you pay for state and local tax income taxes, including property taxes, on your federal income tax return. You can also deduct the interest you pay each year on mortgage debt up to $1 million dollars, a cap that can cover multiple homes. Plus, you can generally deduct up to $100,000 in interest you pay on a home-equity loan or line of credit. 

What the House proposed: No more state and local tax deductions, though you could continue to deduct up to $10,000 each year in interest you pay toward your home mortgage. For people buying in the future (which the bill defines as Nov. 2, 2017, or later), mortgage interest deductions would be allowed only on loans up to $500,000. Moreover, only debt from primary residences would count toward that limit, and you could not include any interest from home equity loans or lines of credit that you took out on that new home. 

What the Senate proposed: No more state and local tax deductions and no exception for property taxes, either. The mortgage interest deduction, however, would survive in its current form. 

 

MEDICAL EXPENSES 

What’s in place now: For the moment, you can deduct out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income (but not the expenses that amount to the first 10 percent). This is particularly useful for elderly people and others with lower incomes who need regular assistance and care. 

What the House proposed: The House wants to do away with the deduction in 2018. 

What the Senate proposed: The Senate would keep the deduction. 

 

STUDENT LOAN INTEREST 

What’s in place now: Currently, people with incomes below certain thresholds can deduct up to $2,500 of student loan interest each year. 

What the House proposed: The House wants to do away with the student loan interest deduction. 

What the Senate proposed: The Senate would keep things as they are now. 

 

ESTATE TAXES 

What’s in place now: In general, you pay taxes on inherited property at a 40 percent rate, but current rules waive that tax for estates up to $5,490,000. 

What the House proposed: The House proposes to nearly double that exemption to $10 million and repeal it altogether after 2023. 

What the Senate proposed: The Senate wishes to double the exemption but has not proposed any full repeal. 

 

ADOPTION CREDITS 

What’s in place now: In 2017, when an employer pays for up to $13,570 in qualified adoption expenses for an employee, the employee pays no taxes on that assistance. There’s also a separate adoption credit, which generally provides taxpayers with a credit of up to $13,570 per eligible child. Under the current rules, the credit phases out for taxpayers with adjusted gross income between $203,540 and $243,540. 

What the House proposed: The bill had proposed getting rid of the adoption credit altogether, but on Thursday afternoon, the Republican leadership changed its mind and left it intact. 

What the Senate proposed: The Senate would keep things as they are now.

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