Senators scrambled Saturday, December 2, to muster the necessary 51 votes to pass its version of the Tax Cuts and Jobs Act of 2017, effectively laying down a marker to jump start negotiations with the House of Representatives on a final package. While details related to the senate bill continue to emerge, please see the below highlights of key provisions that will impact the equine industry. Many of these provisions diverge from the House-passed version and could be subject to changes during the House and Senate conference, which congressional leadership will organize this week:
* Corporate Tax Rate: The senate bill delays reduction of the corporate tax rate from 35% to 20% until 2019. By contrast, H.R. 1 provides an immediate corporate tax cut, effective in 2018. Lawmakers will have to bridge this gap during the conference committee.
* Small Business: The senate vehicle establishes a 23% deduction for small business income of “pass-thru entities,” or small companies which opt to pay taxes under the individual rate. Senators included this deduction to address concerns from lawmakers who claimed that previous versions of the bill did not create sufficient tax relief for small business.
* Expensing: While the House bill and a previous version of the senate vehicle provided 100% bonus depreciation, the final senate bill appears to modify treatment of bonus depreciation to “phase down … the percentage from 100% by 20% per calendar year.” AHC largely supports the House treatment of expensing, which according to Hill sources, includes a broad legislative definition to allow full expensing of horses.
* Alternative Minimum Tax (AMT) – According to Hill sources, the senate vehicle preserves a 20% corporate, alternative minimum tax. The House bill repeals the unpopular provision altogether, laying the groundwork for a major discussion point during negotiations for a final package.
* Name and Logo Royalties: The senate bill strikes a provision from a previous version of the bill that treated “name and logo royalties” as unrelated business taxable income.
* Wagering Losses: A previous version of the senate bill states that it amends the existing tax code provision that addresses treatment of gambling winnings, without specifying how. The current senate vehicle does not appear to clarify this provision, which AHC will continue to monitor.
* Estate Tax: The Senate preserves it commitment to double the estate tax exemption, currently valued at $5.49 million for individuals, without full repeal. By contrast, H.R. 1 eliminates the estate tax within six years of enactment.
* State and Local Taxes (SALT) – Senators agreed to an itemized deduction for up to $10,000 in state and local property taxes, which resembles a compromise included in the House bill.
* Mortgage Interest: The senate version will cap the deduction for mortgage interest indebtedness at $1 million. H.R. 1, however, establishes a $500,000 cap on interest from new home purchases, a provision drawing criticism from the homebuilders.
* Charitable Contributions: In cases of individual cash contributions, the senate bill increases the percentage-limit deduction from the current rate of 50% to 60%.
Heading to the Finish Line
When congressional leaders appoint conferees, who will be recruited from the Senate Finance Committee and the House Ways and Means Committee, serious negotiations will begin, with a goal of presenting a final package to the president for his signature before Christmas. To view a copy of a four-page table outlining highlights related to the various revenue impacts of the bill's key provisions, please click here: http://www.horsecouncil.org/wp-content/uploads/2017/12/Table-Revenue-Impacts.pdf
New to the Paulick Report? Click here to sign up for our daily email newsletter to keep up on this and other stories happening in the Thoroughbred industry.
Copyright © 2018 Paulick Report.