The Senate passed their version of tax reform legislation during the early morning hours of Saturday, Dec. 2, by a vote of 51-49.
This comes on the heels of the House passing a tax reform package last month. Both chambers will now come together and work out the differences between the two pieces of legislation in order to get a final product to President Trump’s desk for his signature.
Some of the highlights in the Senate version of the tax reform legislation include:
Business Tax Highlights
NMMA’s goal is to see a decrease from the top corporate rate of 35 percent to a flat rate of 20 percent. Both the House and Senate bills have a 20 percent flat rate. However, under the Senate proposal, this shift would occur in 2019, rather than 2018.
Pass-through business refers to how individual owners of a business pay taxes on income derived from that business on their personal income tax returns. Pass-through taxation applies to sole proprietorships, partnerships, and s-corporations. Many small businesses approach taxes as a pass-through business. NMMA supported an across-the-board rate reduction to 25 percent. Currently, pass-through businesses see a top marginal rate of 39.6 percent.
Under the final Senate bill, taxpayers would generally be able to deduct 23 percent of domestic qualified business income from a partnership, s-corporation, or sole proprietorship.
There was significant pushback and lobbying from the small business community, and the deduction was raised to 23 percent from an earlier proposal of 17.4 percent.
Individual Tax Highlights
NMMA has asked for three tax income brackets: 12 percent, 25 percent, and 35 percent. The final Senate version has seven brackets, while also changing the rates on taxable income to:
10 percent (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly), 12 percent (over $9,525 to $38,700; over $19,050 to $77,400 for couples), 22 percent (over $38,700 to $70,000; over $77,400 to $140,000 for couples), 24 percent (over $70,000 to $160,000; over $140,000 to $320,000 for couples), 32 percent (over $160,000 to $200,000; over $320,000 to $400,000 for couples), 35 percent (over $200,000 to $500,000; over $400,000 to $1 million for couples), 38.5 percent (over $500,000; over $1 million for couples).
There is no new luxury tax on new boat sales in the Senate bill.
Second Home Mortgage Interest Deduction
The Senate version would eliminate the home equity deduction, but would not alter the rest of the deduction—including its application to second homes, boats, and RVs.
The Senate bill doesn’t eliminate the estate tax but instead would simply double the exemption.
NMMA’s federal affairs team will continue to be engaged with negotiations as they continue and will provide further updates to members. If you have questions or would like more information, please contact NMMA’s Director of Federal Government Affairs, Mike Pasko, at email@example.com.