As you know, Congress is aiming to reform our tax code for next year. The headlines are all about higher standard deductions, less complexity, and more globally competitive corporate tax rates.
It is really important to emphasize that absolutely nothing is final at this stage. The U.S. House of Representatives passed one version of a tax reform bill. The U.S. Senate will theoretically consider its version in the near future. If the Senate passes its version a conference committee will be formed.
Conference committees have incredible powers. Technically a conference committee is tasked with resolving any differences between the House and Senate bills, but in practice they typically add new provisions that weren’t in either bill, delete provisions that were in both bills, and generally do whatever they need to do to create a final bill that will pass both chambers. Some bills never make it out of a conference committee.
Understanding that these are subject to change or may never become law, here are a few nuggets included in the House tax reform bill that may have flown under your radar (until now):
• The current child tax credit could rise to $1,600 and more families could be eligible as the income eligibility is raised.
• College tax credits could be consolidated from three separate credits into one credit.
• 529 college savings plans could be expanded to cover elementary and secondary education expenses, but contributions to Education Savings Accounts could be eliminated.
• The mortgage interest deduction could be limited only to primary residences.
• The limitation on deducting cash charitable contributions could increase from 50% of Adjusted Gross Income (AGI) to 60%.
• To avoid taxes on gains from the sale of your primary residence, you may have to live there in five of the last eight years (instead of two of the last five years under current law).
• You may no longer be able to reverse a Roth IRA conversion when the account value declines after your conversion.
• The Alternative Minimum Tax (AMT) may be repealed.
• Tax exempt bonds could not be used to finance sports stadiums.
• Large private university endowments could be subject to a 1.4% excise tax on income.
It is unknown whether these provisions will ever become law, but it is important to understand these nuggets are being considered by your elected representatives.
Always consult with your tax professional before making any tax decisions.
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