Proposed Legislation. (Passed House 11/13/2017 and Senate 12/2/2017 awaiting Conference Committee and revote)

Transcription

1 Proposed Legislation (Passed House 11/13/2017 and Senate 12/2/2017 awaiting Conference Committee and revote) 1

2 Senate Version Revenue Losers (in Billions) Reduce Individual Rates -$ Increase Standard Deduction Domestic Non-Service Pass- Thru* Business Deduction 17.4% 23% of QBI (ag. & horti. coopts. added) Child Tax Credit Increase Double Estate Tax Exemption AMT: House Repeals Senate Reinstates with increased exemptions and phase-outs * Sole Proprietorships, PSPs and S Corps. 3 Senate Rates (modified 12/2/2017) Single TI Over MFJ T.I. Over Indiv. Bracket Rate on QBI % 7.7% 9,525 19,050 12% 9.24% 38,700 77,400 22% 16.94% 70, ,000 24% 18.48% 160, ,000 32% 24.64% 200, ,000 35% 26.95% 500,000 1,000, % 29.64% 4

3 Student Loan Discharge at Death Double Above-AGI Ded. For Educators 529 Plan Contrib. for Utero Mississippi River Delta Flood Retirement Plan Distribution Relief Whistleblower Awards % Corp. Rate Beg Modify S to C Conversions--12/2/2017 Corporate 20% Reinstated 12/2/2017 Section 179 $1 mil. 100% Bonus Deprecation 100% Expensing for Film, TV, and Theater Simplified Accounting for Small Business -1,

4 Luxury Car limit Increase Farm Property Machinery and Equip. Recovery Period Drops from 7 to 5 + Real Prop. Recovery Period for Resid. And Non-Resid. Real Property 25 Years (30 ADS) and 10 Years for QIP (20 ADS) Tax Credit to Employers Who Provide Family and Med. Leave (Sunset 12/31/2019) Treatment of Qualified Equity Grants Length of Service Awards for Public Safety Volunteers Modify Tax Treatment of Alaska Corps and Trusts Included Above Allow Nonresidents to Be Benficiaries of ESBTs Craft Beverage Modernization Created Qualified Opportunity Zone 100% Dividends Received Deduction for Dividends Received by Domestic Corp. from at least 10% owned Foreign Corp. Deduction for foreign intangible income derived from U.S. T or B Transfers of Intangible Property from CFC to U.S. Shareholders

5 Subpart F Modifications re Foreign Base Company Inc. Look Thru Rule for CFCs Made Permanent Deduction for Dividends from CFCs Exempt from Subpart F to investments in U.S. Property Acceleration of election to allocated interest, etc. on a worldwide basis Sourcing Rules for U.S. Territories Original 11/16/2017 Senate Finance Committee Target Deficit Gross Revenue Losers -5, Gross Revenue Gainers 4, Net Revenue Loser -1,

6 Senate Version Big (over $20 Billion) Revenue Raisers (in Billions) Alternative Inflation Measure Repeal of Personal Exemption 1,220.6 Disallowed active pass-thru* losses over <$500K> MFJ and <$250,000> Other (Senate Only) Repeal of itemized dec. for income tax, personal use prop. taxes over 10K, interest on home equity debt, non-disaster casualty losses, tax prep expenses (House same), and all misc. itemized deductions (medical exp. retained) * Sole Proprietorships, PSPs and S Corps. 11 Repeal of ACA Individual Mandate Limit Net Interest Deduction to 30% of T.I., and carryforward. Exception if gross receipts under $15 mil. and farmers and ag.& horti. coopts NOL Modification: No carrybacks and 90% of TI. Farmers allowed carrybacks. (80% after 2023)

7 Like Kind Exchanges OK only for Real Estate Amortization of Research Expenses in 2026 and 2027 Repeal of Domestic Production Activity Deduction (Sec. 199) Repeal of Employer deduction for meals (modified) and Entertainment Require valid SSN for child to claim refundable child credit Modification of Credit for Clinical Testing for certain rare diseases or conditions Insurance Industry: Capitalization of policy acquisition expenses

8 Each U.S. Shareholder owning at least 10% of most foreign corporations must include as Subpart F income the shareholder s share of non-previously taxed post-1986 earnings (Rate: 10%/5%) Senate now 14.5%/7.5% International Stick: Current Year Inclusion of Global Intangible low-taxed income (GILTI) 135 International Stick: Base Erosion and Anti-abuse tax Other Selected Proposed Senate Revenue Raisers (in Billions) Sale of Residence Exclusion Requires 5 of 8 Years Repeal moving expense deduction Repeal exclusion for employer-provided qualified moving expense reimbursement (except armed forces) Non-Wagering costs limited to Wagering Gains.8 (800 mil.)

9 Reduce Dividend Received Deduction Percentages Limit Employer deduction on Qualified Transportation Fringes Modify Rehabilitation Credit Modification of limit on excessive employee remuneration 20% Excise on Excess Tax-Exempt Org. Excecutive Comp Tax Nonresident Partner s Gain on Sale of PSP Interest Charity and foreign taxes reduce partner s outside basis for losses Tax Exempts Excise Tax on Investment Income of Colleges and Univ Name and Logo Royalties are UBTI UBTI separately computed for each T or B

10 Repeal Tax-Exempt Status for Pro Sports Leagues No Charity Deduction For College Athletic Event Seating Rights Conformity of contribution limits on 457(b), 403(b), and 401(k) Repeal special rule allowing recharacterization of Roth IRAs Expand provision on nondeductibility of fines and penalties Repeal deduction for local lobbying expenses Three-year holding period for LTCG treatment on certain partnership profits interest received in connection with the performance of investment services.6 (600 mil.)

11 Deny deduction for settlements subject to a nondisclosure agreement paid in connection with sexual harassment or sexual abuse 50 mil. Attorneys must deduct otherwise allowable litigation costs paid in contingency fee cases when the contingency ends. 21 Termination of DISC rules. TYBA 12/31/2018. Senate Reinstated 12/2/

12 Individual Tax Rates Senate Version House Version For MFJ Top Rate = 38.5% over $1,000,000 For Others Top Rate 38.5% over $500,000 Trusts and Estate Top Rate 38.5% over $12,500 Replacing CPI-U with chained CPI-U Same breakpoint, but 39.6% 12% rate phaseout at $1.2 mil. Same breakpoint but 39.6% 12% rate phaseout at 1 mil. Same but 39.6% Same Dividends, Capital Gains, NIIT same breakpoints as current law (inflation adjusted) Kiddie s Unearned income taxed at Trusts Rates Same Same, but limits on lower rates 23 New Law and Regs. Chapter 1

13 Rev. Proc (04/20/2017) 1-2 IRS Guidance on Path Act Changes to Sections 179 and Section 179 Background 26

14 For 2017 $510,000 $2,030, Rev. Proc Taxpayers can make, revoke, or modify the section 179 election on an amended return. The PATH Act (12/18/2015) made this permanent. 28

15 New For 2016 The flush language in section 179(d)(1) that excludes air conditioning and heating units from the definition of qualifying property is removed. 29 Rev. Proc Clarifies that portable air conditioners and heaters (section 1245 property) are now eligible for section

16 For example, portable air conditioners, such as window air conditioning units, and portable heaters, such as portable plug-in unit heaters, that are placed in service by the taxpayer in a taxable year beginning after 2015 may qualify [for the section 179 expense] 31 If a component of a central air conditioning or heating system of a building meets the definition of qualified real property, as defined in 179(f)(2), placed in service after 2015, the component may qualify as 179 property 32

17 Qualified Real Property (QRP) 33 For tax years beginning on or after 2016, the $250,000 cap attributable to qualified real property is removed. So the $500K Cap Applies 34

18 Qualified Real Property 1) Qualified Leasehold Improvement Property 2) Qualified Retail Improvement Property 3) Qualified Restaurant Property 35 Depreciation of Qualified Real Property 15 yrs. Straight-line Instead of 39 yrs. (Section 168(e)(3)(E)(iv), (v), and (ix)) 36

19 Qualified Leasehold Improvement Property ( 168(e)(6)) Improvement to an interior portion of a building. Nonresidential real property. 37 Made pursuant to a lease to an unrelated person. Portion occupied exclusively by the lessee (entire bldg. if one lessee). Improvement is placed in service more than 3 years after the date the building was first placed in service. 38

20 Not a building enlargement. Not an elevator or escalator. Not a structural component benefiting a common area (i.e., area used by different lessees per reg (k)- 1(c)(3)(ii))). Not the internal structural framework of the building. 39 Qualified Retail Improvement Property ( 168(e)(8)) Improvement to an interior portion of a building. Nonresidential real property. 40

21 Open to the general public Used in the retail business of selling tangible personal property to the public. Improvement is placed in service more than 3 years after the date the building was first placed in service. 41 Not a building enlargement. Not an elevator or escalator. Not a structural component benefitting a common area (i.e., area used by different lessees per reg (k)- 1(c)(3)(ii))) Not the internal structural framework of the building. 42

22 Qualified Restaurant Property (QRP) A building, or ( 168(e)(7)) An improvement to a building. (interior or exterior). 43 More than 50% of the building's square footage must be devoted to preparation of, and seating for on-premises consumption of, prepared meals. 44

23 Expensing of Qualified Real Property must be elected. 45 Form 4562 Instructions [Y]ou must elect the application of section 179(f) in order for the term section 179 property to include qualified real property placed in service during the tax year. 46

24 The section 179 restriction on residential lodging remains in the law. (exception for solar) 47 Qualified Leasehold Improvement Property (QIP) ( 168(k)(3)) Bonus Depreciation on 39 Year MACRS Property 48

25 Rev. Proc provides several interesting examples of bonus depreciation for qualified improvement property. 49 Property placed in service after Dec. 31, 2015 and before

26 The bonus depreciation percentage is: 50% for property placed in service during 2015, 2016 and 2017 and 40% in % in QIP: Nonresidential real prop. building improvement. Interior portion Place in service after the building is first placed in service. 52

27 Not a building enlargement. Not an elevator or escalator. Not an internal structural framework. 53 Definition of internal structural framework. For purposes of this [Reg.] section, the term internal structural framework includes all load-bearing internal walls and any other internal structural supports, including the columns, girders, beams, trusses, spandrels, and all other members that are essential to the stability of the building. (Reg (b)(3)(iii)) 54

28 QIP Examples Qualified Leasehold Improvement Property Qualified Retail Improvement Property Qualified Restaurant Property only if QIP. ( 168(e)(7)(B)) 55 Additional QIP Examples: Common area improvements in multitenant buildings Interior improvements in an owner occupied building (i.e., no lease). 56

29 Rev Proc Example (1) In 2010, A places in service a new office building. In February 2016, A sells this office building to B at fair market value. B uses the office building in its trade or business. 57 In March 2016, B begins to construct improvements to the interior portion of the office building and places the improvements in service in December

30 Because the office building was first placed in service in 2010 and the improvements made by B to the interior portion of the office building are placed in service after that date, the improvements that are 1250 property are qualified improvement property, assuming all other requirements [are satisfied] 59 Rev Proc Example (2) In 2015, C, a corporation and manufacturer, enters into a written contract with X for X to construct a new building for use by C in its trade or business. The building will house a manufacturing operation and office space. 60

31 The initial construction plans did not include a private restroom for the owner of C. During the construction of the building, C enters into a written contract with Y to construct a private restroom in the new building for the owner of C. On May 27, 2016, C places in service the building, except for the private restroom. 61 On May 28, 2016, the private restroom in the building for the owner of C is placed in service. Because the building is first placed in service on May 27, 2016, and the private restroom is placed in service on May 28, 2016, the assets in the private restroom that are 1250 property are qualified improvement property [may qualify as QIP]. 62

32 Rev Proc Example (3) Same facts as Example (2) except the private restroom is constructed by the original contractor X pursuant to an amendment to the existing written contract. Same answer as Example (2). 63 Rev Proc Example (4) D is engaged in the commercial building rental business. In March 2015, D enters into a written contract with Z to construct a multi-story building. Pursuant to this contract, Z constructs a completely finished exterior of the building and a minimally finished interior of the building with only elevators, 64

33 heating, ventilation, and air conditioning systems, plumbing, restrooms, and concrete floors. In December 2015, D and E entered into a lease agreement providing that E will lease one floor of the new building and E will install on that floor drop ceilings, lighting, interior walls, electrical outlets, carpeting, and trade fixtures necessary for the operation of E's trade or 65 business (collectively referred to as a build-out). On February 8, 2016, D places in service the new building. On June 4, 2016, E places in service the build-out. Because the building is first placed in service on February 8, 2016, and the build-out is placed in service after that date, the assets of the build-out that are 1250 property are [QIP]. 66

34 Rev Proc Example (5) In 2016, F constructs and places in service an improvement to a restaurant building [interior] and that improvement meets the definitions of both qualified restaurant property under 168(e)(7) and qualified improvement property under 168(k)(3). 67 Accordingly, the improvement is eligible for the additional first year depreciation deduction provided by 168(k). 68

35 Rev Proc Example (6) In 2016, G constructs and places in service a new restaurant building and that building meets the definition of qualified restaurant property under 168(e)(7). However, that building is not qualified improvement property under 168(k)(3). Accordingly, the building is not eligible for the additional first 69 Rev Proc Example (6) Accordingly, the building is not eligible for the additional first year depreciation deduction provided by 168(k). But is eligible for: 15 year straight-line deprec. Section

36 Proposed Legislation on Section 179 and Bonus Depreciation Section 179 Senate Version House Version Expense $1Mil. $5 mil. Phase-Out at $2.5 mil. $20 mil. Expanded to Included Lodging No Change Expanded qualified real property definition for nonresidential property For property placed in service in TYBA 12/31/2017 Similar, with special relief for energy efficient heating and air-conditioning after Nov. 2, Same generally but only for 5 years. 72

37 Bonus Depreciation Senate Version House Version Extends Existing Bonus Depreciation through 2022 at 100% Property placed in service; or, planted or grafted after 9/27/2017 Includes qualified film, TV and live theatrical productions after 9/27/2017 Thru 2023 for longer production property and certain aircraft. Same, plus allows for used property Same No Change Same Special Rules for Cars and longterm contracts and excludes property used in a RPTorB under 469(c)(7)e 73