2. No more tax deductions for war profits. I learn something every day that I report from Capitol Hill. I did not recall that under current law, you are allowed to deduct: "State, local real and foreign property taxes; State and local personal property taxes; State, local and foreign income,
, and excess profits taxes." The Senate GOP tax reform plan specifically says no more deduction for war profits in the future - and I guess I didn't read the House plan closely enough, because the GOP tax reform bill would also do away with that deduction in the future. There is a reason that the fine print is important.
3. Changes dealing with your home. Under current law, you can deduct the interest on up to $100,000 of a qualifying home equity loan, but the House bill moved to end that write-off, and the Senate bill does the same. Also, the Senate takes a step in the direction of the House bill by extending the amount of time that you need to own (and live in) your principal residence, before you can sell it, and take advantage of the rules on tax-free capital gains ($250,000 for an individual, $500,000 for a couple). The Senate extends that time frame to five years, up from the current two.
4. A new category of income for tax reporting purposes. "The proposal creates a category of income defined as "passenger cruise gross income," it states in the explanation of the Senate tax reform bill. Think about this for a second. If you get on a cruise ship somewhere in Florida, and then you go around the Caribbean for a week, and then return to the U.S., what happens with all of the money that you and other passengers spend on that ship? Does it get taxed? Or is it just sort of in limbo, outside the reach of U.S. taxation? It's an interesting little thing to think about. It's estimated this provision would bring in $700 million over 10 years, so it's not a big moneymaker for Uncle Sam.
5. Tax simplification for business - not so much. There is a lot of talk about how this plan would simplify the tax code, and while that would be true in some respects for individuals (if you don't make enough money, and don't have investments, or large deductions to itemize), that's not true on the business side of the tax equation. Reading through the explanation of the Senate bill makes that brutally obvious. "The proposal addresses recurring definitional and methodological issues that have arisen in controversies in transfers of intangible property for purposes of sections 367(d) and 482, both of which use the statutory definition of intangible property in section 936(h)(3)(B)," it reads in one part. One thing is for sure, tax accountants and tax lawyers will still be a good place to make money in the future, as this Senate bill won't reform them out of business.
6. Wait, where is the bill? This is one interesting part about the Senate tax reform proposal. There really isn't a bill - there is a description and explanation of the GOP proposal, but no actual bill language. Back during the development of the Obama health law, Democrats did the same, as the chairman of the Senate Finance Committee steered that plan through by dealing in 'plain English' first, and then bill language later. But to this reporter, it always seems odd that the committee will release the details of a bill on miscellaneous tariffs, but not bill language on a major tax bill, where the technical language is so very important, as we saw in the House. Instead of the bill text, you can read the explanation of the Senate bill, which is still 253 pages in all.
Happy reading. The Senate Finance Committee markup starts on Monday.
The House is expected to vote on tax reform late next week; a Senate vote would come after Thanksgiving.