Tax Reform & Relocation: What You Need to Know

While tax reform is still being debated and nothing has been finalized, we’ll take a closer look at the differences between the House’s original bill passed on November 16 and the Senate’s version passed on December 2. Congress has begun the process of trying to reconcile the differences with hopes of having a final bill by the end of this week. The Tax Cuts and Jobs Act would then be sent to the House and Senate for a final vote probably next week.

Relocation would be greatly affected if the tax bill becomes law. Most significantly, moving expenses (most shipment, storage and final move costs) that currently are deductible/excludable would become non-deductible/non-excludable to transferees except for those in the military. Both versions of the bill eliminate this deduction/exclusion for non-military moves. For companies that gross up for taxable reimbursements, this will mean several thousand dollars more in gross-up per transferee.

Key Items Discussed in Tax Reform:

Moving Expense Deduction (most shipment, storage, and final move costs)

  • Currently excludable/deductible
  • House & Senate both eliminate the exclusion/deduction

Federal Tax Brackets & Rates

  • Currently have seven brackets with top rate of 39.6%
  • House reduces to four brackets, adjusts bracket levels and some rates, and maintains top rate of 39.6%; new rates made permanent
  • Senate maintains seven brackets, adjusts bracket levels and some rates, and reduces top rate to 38.5%; new rates expire after 2025
  • The latest compromise would lower the top rate to 37% and might keep the number of brackets at seven

Standard Deduction Amounts

  • Currently $12,700 if MFJ and $6,350 if SNG in 2017
  • House increases amounts to $24,400 if MFJ and $12,200 if SNG
  • Senate increases amounts to $24,000 if MFJ and $12,000 if SNG

Mortgage Interest Deduction

  • Currently can deduct up to $1,000,000
  • House caps deduction at $500,000 on newly purchased homes; eliminates deduction for second homes
  • Senate retains full deduction up to $1,000,000 on newly purchased homes and retains deduction for second homes
  • The latest compromise would cap the deduction at $750,000

State/Local Income/Sales Tax

  • Currently deductible
  • House & Senate both eliminate deduction

Property Tax Deductions

  • Currently deductible
  • House & Senate both cap deduction at $10,000

Exemption Deduction

  • Currently $4,050 per exemption in 2017
  • House & Senate both eliminate exemption deduction

Child Tax Credit

  • Currently $1,000 per eligible child but subject to phaseout (threshold of $110,000 if MFJ)
  • House increases credit to $1,600, adds a $300 credit for non-child dependents, and raises phaseout threshold (threshold of $230,000 if MFJ)
  • Senate increases credit to $2,000, adds a $500 credit for non-child dependents, and raises phaseout threshold (threshold of $500,000 if MFJ)

Medical Tax Deduction

  • Currently allows deduction for amount exceeding 10% of AGI
  • House eliminates deduction
  • Senate retains deduction and lowers threshold to 7.5% of AGI for 2017 and 2018, and reverts back to 10% in 2019

Gain on Sale of Home

  • Currently can exclude gain of up to $500,000 if MFJ / $250,000 if SNG if primary residence for at least 2 of previous 5 years (with exceptions)
  • House & Senate both exclude gain of up to $500,000 if MFJ / $250,000 if SNG if primary residence for at least 5 of previous 8 years (with exceptions)

Individual Alternative Minimum Tax (AMT)

  • Currently some taxpayers subject to AMT
  • House eliminates tax
  • Senate retains AMT but raises exemption amounts

Health Care Mandate

  • Currently requires buying insurance and imposes penalty on those who don’t
  • House keeps mandate and penalty
  • Senate eliminates mandate and penalty

Corporate Tax Rates

  • Currently top rate of 35%
  • House lowers top rate to 20% starting in 2018
  • Senate lowers top rate to 20% starting in 2019
  • The latest compromise would put the top rate around 21%-22%

Recommendations

You could avoid paying extra gross-up for van line bills (or other moving expenses) by paying them before the end of the year, rather than waiting until January. By paying in 2017, you could still treat the payment as excludable/deductible. If you wait until January, then they likely will follow 2018 tax laws and these payments would be taxable income to transferees, if tax reform is passed and if no ‘transition relief’ is given by Treasury or Congress.

We’ll keep you updated; if you have questions, please contact us at tax@orionmobility.com.

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