Tax plan from Republicans outlines 5 sweeping changes for individuals
The tax-plan proposal outlined by Congressional Republicans would affect Americans across the board, with big changes for certain tax breaks and the outright elimination of others.
Still, certain bold provisions got scaled back and the whole package is sure to face further tinkering.
Fewer brackets, lower rates:
The GOP plan envisions reducing the current seven tax brackets for individuals to the following: 12%, 25%, 35% and 39.6%.
Mark Luscombe, principal federal tax analyst at Wolters Kluwer CCH in suburban Chicago, said retaining the 39.6-percent bracket was notable. “They had been saying the focus would be on middle-class tax cuts,” he said. “They probably stuck that in to skew the cuts more to the middle class.”
That 39.6% bracket would kick in above $1 million in income for married couples, or $500,000 for others.
Radical changes on deductions:
A core element of the GOP plan would be a major downsizing of the many deductions that have cluttered up the nation’s tax code over the years. Many individual write-offs would disappear, though the charitable-donation deduction would be retained and homeowners would keep at least some of their key breaks.
Deductions that would be eliminated include those for state and local income taxes, casualty losses and medical expenses (though current law allows medical write-offs only above 10 percent of income). Also, the plan would scrap the personal exemption.
Also repealed: deductions for alimony payments and moving costs. In addition, the bill would scale down some higher-education benefits, including the interest deduction on student loans and a deduction for tuition expenses.
To compensate, the House Republican proposal would roughly double the standard deduction, which would benefit about 70 percent of Americans who utilize this tax break rather than itemizing deductions separately. The new standard deduction would jump to $12,000 from $6,350 for single taxpayers, with a rise to $24,000 from $12,700 for married couples filing jointly. It would be indexed for inflation, meaning the 2018 amount for married couples, for example, actually would be set at $24,400.
The two key housing write-offs — those affecting mortgage interest and property taxes — would change for some people. Existing homeowners still would be able to deduct their mortgage interest, as is currently the case. But buyers of homes in the future would be limited to deducting interest on up to $500,000 in debt. That’s down from a current cap of $1 million, Luscombe noted.
The mortgage-interest changes would apply to housing loans incurred after Nov. 2. This deduction would be limited to primary residences only (compared with one primary residence and one other home, under current law). So someone buying a property for $550,000 and making a $50,000 downpayment could still write off interest in full on the remaining $500,000 debt.
The property-tax deduction is another key item, especially in states like New Jersey and Illinois, where rates are high, and those like California where seven-figure home values are common. Under the proposal, homeowners would be able to deduct up to $10,000 a year in state and local property taxes.
The proposal also would curtail Americans’ ability to avoid taxes on housing capital gains.
Currently, people can skirt taxes on up to $250,000 of gains (singles) or $500,000 of gains (married couples) if they both own and use a residence for at least two of the prior five years. The new plan would require homeowners to own and use a personal residence for five of the previous eight years. Also, this break would phase out for singles earning above $250,000 and couples making in excess of $500,000.
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