New details on the tax bill

[Brian Schmelzlen]

For those of you who do not an alert set up for whenever news breaks about the new tax bill, details are coming out about what will be contained in the final version of the bill (coming out of committee).

Here are the major details: the top tax rate for individuals will be 37%.  Presumably that will start for single filers at $500,000 of income and $1 million for couples filing jointly, but that part has not been confirmed.  This rate is less than the rates included in both the House and Senate versions of the bill.

The pass-through deduction for sole proprietors, partnerships, LLCs, and S-corporations will be 20% of qualified domestic pass-through income.  This deduction is limited to your pro rata share of the business' W-2 income, and is not available to certain service industries.  However, there is an exception for people with less than $250,000/$500,000 of income.

There will not be a special business rate (or special rate for "passive" buy and hold investors) for sole proprietors or pass-through entities.  You will get a deduction instead.

The Section 121 exclusion of capital gains for the sale on a principal residence is being modified.  The new holding period (to have owned and used the house as a principal residence) will now be 5 out of the last 8 years rather than 2 out of the last 5.   There is an exception for any houses under contract by 12/31/17 but that haven't closed.

Finally, mortgage interest will still be deductible for your principal residence.  However, the amount allowed to be deducted is being reduced.  You can now (starting in 2018) only deduct the interest on the first $750,000 of acquisition debt.