Yesterday members of the House of Representatives announced their version of income tax reform.  The Senate is expected to offer its own version as early as next week.

Assuming each passes without changes (and that’s a big assumption) there will still likely be changes as the legislation moves through the reconciliation process before being presented to President Trump for signature.

Said another way don’t make too much of yesterday’s proposals.  Nonetheless below highlights changes that will impact individual income taxpayers.

TAX BRACKETS:  The current rates of 10%, 15%, 25%, 28%, 33%, 35% and 39.6% will be replaced by four brackets.  Incomes less than $24,000 will not be subject to federal income taxes.  The remainder of incomes will be taxed as follows:

12% – $24,000 to $90,000

25% – $90,000 to $260,000

35% – $260,000 to 1,000,000

39.6% – $1,000,000 and above

PERSONAL EXEMPTION:  The $4,050/person exemption will be repealed.

STANDARD DEDUCTION:  For most taxpayers a new, larger $24,000 standard deduction will be available.

ITEMIZED DEDUCTIONS:  The Pease limitations will be removed so that itemized deductions (i.e. state/local income taxes, real estate taxes, mortgage interest, etc) will no longer be capped.  Then again…

STATE/LOCAL INCOME TAXES:  The deduction will be repealed.

STATE/LOCAL REAL ESTATE TAXES:  Capped at $10,000.

HOME MORTGAGE INTEREST:  Interest on “acquisition indebtedness” of up to $1,000,000 is available under the current tax system.  The proposal limits it to interest on up to $500,000 of debt for new purchases.  It’s unclear if the provision will apply to refinancing.

MISC ITEMIZED DEDUCTIONS:  Deductions will be repealed for medical expenses, moving expenses, tax return preparation and personal casualty losses unless related to a special disaster-relief program.

AMT:  The much-hated Alternative Minimum Tax will be repealed.

PASS-THROUGHS:  The top rate for so-called pass-through entities (e.g. S-Corps/LLCs) will be 25%.  Professional services such as law, accounting, consulting, engineering, financial services and performance art will not automatically qualify.  Qualified pass-through business owners can choose to count 70% of income as wages (subject to individual tax rates) and 30% as business income (subject to the pass-through tax rate) or use a ratio consistent with how much capital was invested in the business.

ESTATE/GIFT TAXES:  The estate tax will be repealed effective January 2024.  In the interim the amount of assets exempt from taxation (currently $5.49 million per person) will double.  The maximum tax rate on gifts will be reduced from 40% to 35%.

CHILD TAX CREDIT:  The current $1,000/child credit will be increased to $1,600 for each child under the age of 17.  In addition a $300/parent credit will be available as part of a family tax credit.

Lastly while these final two points aren’t specifically targeted towards individuals they will nonetheless have an impact given individuals are often buyers of muni bonds and major donors to religious organizations.

MUNI BONDS:  The sale of tax-favored bonds to finance facilities for professional sports teams and privately-run infrastructure projects will be eliminated.

RELIGIOUS ORGANIZATIONS:  Churches and the like will be allowed to endorse political candidates and take stands on political issues without risking losing tax-exempt status as long as the speech “is in the ordinary course of the organization’s business” and the expenses are minimal.