Senate Tax Bill Gets Industry ScrutinyDecember 5th, 2017 by Trey Barrineau
The tax-reform bill that passed in the Senate late last week includes provisions that are more favorable to housing and the door and window industry than the bill approved by the House of Representatives in mid-November.
The Senate version of the bill preserves the current $1 million cap on the mortgage interest deduction. The House bill caps the mortgage interest deduction at $500,000. The Senate bill disallows interest deductions for home equity loans and increases the time homeowners must live in a house to get the tax-free exclusion on gains when it’s sold.
Additionally, both bills keep the itemized deduction for property taxes but only up to $10,000.
The Window and Door Manufacturers Association (WDMA) offered qualified praise for the Senate bill.
“While WDMA feels that the home ownership provisions of this bill need to be improved, the Senate has taken a step in the right direction compared to the House bill,” said WDMA president and CEO Michael O’Brien. “In particular, we are pleased that the Senate has retained the current $1 million cap for the mortgage interest deduction, in addition to keeping the deduction for second homes. As Congress moves to reconcile the two bills, we urge the conference committee to protect the mortgage interest deduction, including the ability to deduct interest for home equity loans, which are frequently used to replace windows and doors with energy-efficient replacements.”
The House and Senate bills double the standard deduction, which means the number of taxpayers who file for the mortgage interest deduction could plummet.
The Senate bill doubles the standard deduction from $6,350 if single and $12,700 if married to $12,000/$24,000. The House bill sets the standard deduction at $12,000/$24,000. The House bill eliminates the estate tax and the alternative minimum tax, while the Senate bill doubles the exemption level for the estate tax and sets the threshold for the alternative minimum tax at a higher level.
Both the House and Senate bills cut the corporate tax rate from 35 percent to 20 percent, and the Senate bill preserves the Historic Rehabilitation Tax Credit (HTC) at 20 percent. The Senate didn’t resolve the future of the Research and Development (R&D) tax credit.
The House tax plan creates a 25 percent tax rate for so-called pass-through businesses, most of which are set up as sole proprietorships or partnerships. In 2014, about 95 percent of the 26 million businesses in the U.S. were pass-throughs, according to the Brookings Institution. They’re called that because the income they generate “passes through” to their owners, who are then taxed under the individual income tax system. However, the bill would limit the kind of income that would fall under the 25-percent rate. Professional services such as accountants, lawyers and doctors wouldn’t automatically qualify for it.
The Senate bill lets pass-through filers deduct 23 percent of their income for a maximum tax rate of 29.6 percent. That deduction would exclude those in professional services who have taxable incomes above $500,000 if married or $250,000 if single.
The Senate bill has tax seven brackets for individual filers, with income limits. They are: 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).
The House bill has only four brackets: 12 percent, 25 percent, 35 percent and 39.6 percent.
The House and Senate will now move to a conference committee to reconcile the two bills before sending a final bill to President Trump, who has indicated he will sign it into law. WDMA will continue to work with the House and Senate to ensure a final tax reform package is crafted to facilitate economic growth, in addition to including incentives for home ownership.