Changes to the Individual Income Tax (effective tax year 2018)
Lowers most individual income tax rates, including the top marginal rate, from 39.6% to 37%.
Retains the current seven-bracket structure, but bracket widths are modified. (refer to the tables)
Indexes tax brackets and other provisions by the chained CPI measure of inflation.
Increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers in 2018 (compared to $6,500, $9,550, and $13,000 respectively under current law).
Eliminates the personal exemption.
Retains the charitable contribution deduction.
Limits the mortgage interest deduction to the first $750,000 in principal value.
Limits the state and local tax deduction to a combined $10,000 for income, sales, and property taxes. Taxes paid or accrued in carrying on a trade or business are not limited.
Limits or eliminates a number of other deductions.
Expands the child tax credit from $1,000 to $2,000, while increasing the phase-out from the current $110,000 to $400,000 for married couples. The first $1,400 would be refundable.
Effectively repeals the individual mandate penalty, by lowering the penalty amount to $0, effective January 1, 2019.
Raises the exemption on the alternative minimum tax from $86,200 to $109,400 for married filers, and increases the phase-out threshold to $1 million.
The majority of individual income tax changes would be temporary, expiring on December 31, 2025. Several, such as the adoption of chained CPI and functional repeal of the individual mandate, would be permanent.
Changes to Business Taxes (effective tax year 2018)
Lowers the corporate income tax rate permanently to 21%.
Establishes a 20% deduction of qualified business income from certain pass-through businesses. Specific service industries, such as health, law, and professional services, are excluded. However, joint filers with income below $315,000 and other filers with income below $157,500 can claim the deduction fully on income from service industries. This provision would expire December 31, 2025.
Allows full and immediate expensing of short-lived capital investments for five years. Increases the section 179 expensing cap from $500,000 to $1 million.
Limits the deductibility of net interest expense to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30% of earnings before interest and taxes (EBIT) thereafter.
Eliminates net operating loss carrybacks and limits carryforwards to 80% of taxable income.
Eliminates the domestic production activities deduction (section 199) and modifies other provisions, such as the orphan drug credit and the rehabilitation credit.
Enacts deemed repatriation of currently deferred foreign profits, at a rate of 15.5% for cash and cash-equivalent profits and 8% for reinvested foreign earnings.
Moves to a territorial system with base erosion rules.