On the verge of a historic overhaul of the U.S. tax system

Transcription

1 J.P. MORGAN WASHINGTON WATCH On the verge of a historic overhaul of the U.S. tax system By Thomas McGraw, Head of Tax Advisory, and Jordan Sprechman, Practice Lead of U.S. Wealth Advisory, J.P. Morgan Private Bank Dec. 6 Republican lawmakers appear poised to enact major tax reform before Christmas. The U.S. Senate approved a tax bill on December 2, and the House of Representatives passed its version on November 16. Now, the two chambers are forming a committee to iron out differences to produce a single bill, which is likely to lean more toward the Senate version. That bill must pass each chamber before President Trump can sign it into law. Despite these hurdles, we already know a good deal about the shape of the potential law. Therefore, now is a good time for you to consider taking advantage of aspects of the current law that may change significantly on January 1. To give you a sense of what s at stake, here are highlights of the two bills. For a more detailed look at how current law compares to the proposed bills, which are still subject to change, see the attached Tax Change Watch List. THINGS TO DO? Speak with your accountant now about whether it makes sense for you to: 1. Prepay 2017 state and local income taxes in 2017 or complete purchases of expensive items subject to sales tax if you will not be faced with the alternative minimum tax (AMT) 2. Review holding periods to determine whether any securities should be sold in 2017, before a new first-in, first-out (FIFO) rule may be imposed (see below) 3. Ask local property tax authorities for bills to pay in 2017 (if you are not subject to the AMT) 4. Make charitable donations in Exercise deep-in-the-money nonqualified stock options (NQSOs) and stock appreciation rights (SARs) with little time value if you are in the AMT system in Start like-kind exchanges of art or other personal property before December 31 (if possible) 7. Avoid making transfers in 2017 that would result in payment of gift tax HIGHLIGHTS OF PROPOSED CHANGES Virtually all individual U.S. taxpayers would be affected: The top ordinary income tax rate would stay the same, or nearly so But the levels at which the top rate applies would increase. The top rate would be 39.6% (House) or 38.5% (Senate) starting at $1 million for married couples filing jointly (up from $470,700), and at $500,000 for single filers (from $418,400) Long-term capital gains and qualified dividends The top rate of 20% is retained in both bills The standard deduction would roughly double to $24,000 But the personal exemption would be repealed Deductions for itemized expenses would largely be eliminated or capped Lost itemized deductions include those for: State and local income and sales taxes Property taxes in excess of $10,000 Mortgage interest in excess of $500,000 principal only on primary residences (House bill only) Interest on home equity lines of credit Two key deductions would be preserved For donations to charity and for investment interest paid AMT A version is retained in the Senate bill The Pease limitation, which further reduces the value of itemized deductions, would be eliminated Determining cost basis Owners of specified securities would have to sell, gift or otherwise dispose of their shares based on a strict FIFO rule, rather than choose lots based on economic advantage Transfer taxes Amounts that can transfer free of gift, estate and generation-skipping transfer (GST) taxes would be doubled for individuals to $10 million (plus annual adjustment for inflation). The House also would repeal the estate and GST taxes starting in The Senate would sunset its transfer tax provisions after 2025 Potential changes for corporations and pass-through entities are substantial: Corporations current top income tax rate of 35% would be reduced to a flat rate of 20% Effective on January 1, 2018 (House), or January 1, 2019 (Senate) Pass-through entities would see a tax rate drop to 25% (House) or reduced via a 23% deduction (Senate), but only for certain types of income from certain types of businesses For more, see the attached TAX CHANGE WATCH LIST. Your J.P. Morgan team is available to help answer questions you may have about these issues and to address any of your financial planning needs. This material has been prepared for informational purposes only and is not intended make value judgments or guarantees on the outcome of any government decision. JPMorgan Chase & Co., its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions. INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE Please read all Important Information at the end of the material.

2 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 2 INDIVIDUAL INCOME TAXES Ordinary Income Brackets Seven brackets. Maximum rate is 39.6% for single filers earning more than $418,400 and married couples filing jointly earning more than $470,700 Reduces the number of brackets to four. Maximum rate is 39.6% for single filers earning more than $500K and married couples filing jointly earning more than $1MM (with those couples earning more than $1.2MM and singles with income over $1MM subject to an additional 6% surcharge rate to take away the benefit of the lower 12% tax bracket) Preserves seven brackets. Maximum rate is 38.5% for single filers earning more than $500K and married couples filing jointly earning more than $1MM Relative rate parity at top marginal rate, though the top rate is imposed at significantly higher levels. Benefit to many of lower marginal rate is offset by loss of most itemized deductions Historically, changes to personal income tax rates (1980s and 2000s) have had less of an effect on municipal market yields. The smaller changes at the margins likely will not impact the market as much as the larger corporate tax rate changes Ordinary Income Cost Basis Investors may choose which tax lots to sell Silent Cost basis of specified securities sold, exchanged, or otherwise disposed of must be determined on a first-in-first-out ( FIFO ) basis rather than through specific identification as of 1/1/18 (but RICs and most ETFs are exempt and may use cost averaging) Before 1/1/18, taxpayers may want to take advantage of specific identification rules for multi-lot individual security holdings (which may be unavailable next year) by selling high-basis lots to minimize capital gains, or (a) donating low-basis shares to charity, or (b) selling low-basis lots to facilitate the harvesting of losses on other investments Ordinary Income Tax-Exempt Bond Treatment Retains tax-exempt bond treatment, except for private activity bonds and advance refunding bonds. Effective for bonds issued after 12/31/17 Retains tax-exempt bond treatment, except for advance refunding bonds. Effective for bonds issued after 12/31/17 Would hinder historic borrowing ability of exempt borrowers (such as hospitals, universities, airports, etc.) to finance infrastructure Private activity bonds comprised approximately 20% of the issuance in the tax-exempt market in Combined with advance refunding bonds, approximately 40% of the market would be affected

3 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 3 Ordinary Income Like-Kind Exchanges No gain or loss is currently recognized for private property used in a business or held for investment when exchanged for like-kind property Limits like-kind exchanges to real property Limits like-kind exchanges to real property not held primarily for sale Before 1/1/18, taxpayers may want to initiate like-kind exchanges with personal property (e.g., artwork), as both bills grandfather exchanges of personal property if the taxpayer has disposed of the relinquished property, or acquired replacement property, in 2017 Long-Term Capital Gains (LTCG) and Qualified Dividend Income (QDI) Maximum rate for both forms of income is 20% Silent on LTCG and QDI rates Keeps same top rates but changes bracket breakpoints after 2017 based on chained CPI (so for joint filers in 2018, 15% bracket begins at $77,200 and 20% bracket at $479,000 [$38,600 and $425,800 for unmarried individuals, respectively]) Relative parity with current tax rates should result in minimal implications for investment allocations and the use of certain hedging transactions, such as qualified covered calls Capital Gains Exclusion on Sale of Principal Residence Taxpayers may exclude $250K ($500K for joint filers) of gain from the sale of a personal residence if property was owned and used as a principal residence for two out of the last five years. May use exclusion once every two years Same as current law, except (a) property must be owned and used as a principal residence for five out of the last eight years, (b) exclusion available only once every five years, and (c) exclusion phased out for taxpayers with AGIs over $250K ($500K for joint filers) Same as House bill, except requirement (c) not present. Also, if taxpayer fails five-out-of-eight-year test due to change of employment, health or unforeseen circumstances, under regulations may exclude a pro rata amount of sales proceeds from tax Limitations on exclusion should generally reduce value of more expensive personal residences

4 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 4 Affordable Care Act (including Medicare Surtax) 3.8% on net investment income above certain income thresholds. A 0.9% additional Medicare tax applies to wage income above certain income thresholds Imposes a penalty ( individual responsibility payment ) on those who can afford to buy health insurance but choose not to ( individual mandate ) Silent Effectively repeals individual mandate by reducing the amount of individual responsibility payment to zero Comprehensive repeal or reform of the Medicare surtax would be part of any healthcare reform legislation and not tax reform law Repeal of the individual mandate was added relatively late in the legislative process, likely in part because of the significant savings its repeal is projected to generate (over $300B over 10 years). Loss of revenue from individual responsibility payment is projected to be more than offset by elimination of subsidies to low-income taxpayers, who would now not buy insurance at all The targeted high-net-worth 3.8% annual excise tax on net investment income for individual taxpayers with AGI of $250,000 (joint filer) or trusts with AGI of $12,500 remains in effect Alternative Minimum Tax The AMT is a separate income tax system created to ensure that taxpayers do not completely avoid tax through the use of deductions, exemptions, losses and credits. The maximum AMT rate is 28%. Many expenses treated as deductible under the regular tax system are not deductible under the AMT system. Conversely, certain preference items are taxable under the AMT system, but not under the regular tax system Repeals the AMT. AMT credit carryforwards could be used to offset regular tax liability and are partially refundable over several years AMT retained, with increases in the income levels at which it would apply Eleventh-hour addition of the AMT in the Senate bill likely driven by the need to assuage Republican deficit hawks without whose support passage would have been impossible Proposed elimination of most itemized deductions may render this more limited Senate version of AMT system less relevant than the AMT under current law Due to the higher thresholds and the loss of most itemized deductions (notably SALT), many taxpayers may be subject to AMT in 2017, but not in 2018

5 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 5 Alternative Minimum Tax, cont. Executives subject to AMT this year but not anticipated to be subject to it next year may want to, before 12/31/17, exercise deep-in-the-money nonqualified stock options or stock appreciation rights with little time value up to their AMT breakeven point to take advantage of the lower tax rate and SALT deductibility against the Medicare surtax. (Of course, non-tax factors such as stock outlook, intrinsic and time value, diversification, cash needs and dividends should inform decisions about whether to exercise) Carried Interest Carried interest income (typically earned by principals of investment funds and also common in certain industries such as real estate, and oil and gas) is generally treated as capital gain income, and therefore subject to a lower effective tax rate Would extend the holding period for long-term gains treatment for carried interest and attributable gain realizations on fund assets to three years Same as House bill Preserves preferential taxation Impact on hedge fund principals could be significant if the fund typically generates material long-term capital gains. Private equity firms generally have longer holding periods and should be less affected Operating partnerships in other industries that are not engaged primarily in capital market and investment transactions would be excluded Deductions Standard Deduction Standard deduction is $6,350 for single taxpayers and $12,700 for married taxpayers filing jointly Roughly doubles the standard deduction for married couples to $24,400, subject to a phase-out Roughly doubles standard deduction for married couples to $24K; adds separate deduction for single parents; preserves enhanced standard deduction for the blind and elderly Increase in standard deduction may reduce the need for many affluent taxpayers to itemize deductions; ripple effect could be to decrease donations to charity, as the benefits of itemized deductions would diminish, and the requirements to itemize would be more limiting Deductions Personal Exemptions The personal exemption is $4,050, reduced incrementally once a threshold is exceeded Repeals Repeals Repeal of personal exemption is thought to be largely if not entirely compensated for by increases in the standard deduction except for larger families (four or more children or other dependents)

6 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 6 Deductions ized Deductions ized deductions may be taken for a variety of expenses, including: Donations to charity Payments of state and local taxes ( SALT ) Mortgage interest Investment interest expenses Investment management expenses Unreimbursed medical expenses in excess of 10% of adjusted gross income (AGI) Eliminates most itemized deductions Preserves charitable deduction; increases limitation on deductibility of cash donation to a public charity from 50% of AGI to 60% of AGI Caps deduction for state and local property taxes at $10K; eliminates the deduction for state and local income and sales taxes Reduces deduction cap on mortgage indebtedness from $1MM to $500K for new mortgages incurred after 11/2/17 and limited to primary residence Eliminates $100K home equity line of credit (HELOC) deduction Seemingly preserves deduction for investment interest expense (based on silence) Eliminates Pease limitation on itemized deductions Silent on deductibility of miscellaneous itemized deductions Repeals deduction for alimony paid Treats as income tuition not paid by graduate students in exchange for teaching other students Eliminates most itemized deductions Same as House bill regarding charitable deduction Same as House bill regarding state and local property taxes, and state and local income and sales taxes Maintains $1MM mortgage deduction for newly purchased homes (primary residence and one other residence) Same as House bill regarding HELOC deduction Same as House bill regarding deduction for investment interest expense Same as House bill regarding the Pease limitation Repeals all miscellaneous itemized deductions subject to the 2% floor under current law Preserves deductions for medical expenses in excess of 7.5% of AGI for 2017 and 2018, as well as current law treatment with respect to tuition waivers for graduate students Preservation of the charitable deduction helps all charities, including donor-advised funds (DAFs) But charities fear that taxpayers impetus to donate would be reduced by higher hurdles to itemizing Repeal of deductibility of state and local taxes would affect high-income earners in high-tax states the most. These individuals may benefit from adding to their portfolios insurance-dedicated funds or municipal bonds, which generate non-taxable or tax-exempt income Taxpayers should consider paying, by 12/31/17, state and local taxes normally not due until 2018, but not pay so much as to tip into AMT and lose the SALT deduction (unless there is certainty of SALT repeal in 2018, in which case, 2017 payment can still reduce the effect of the 3.8% Medicare surtax) Taxpayers who would be limited by the proposed mortgage caps should consider paying down mortgages in excess of the deductible amounts under a final bill, as well as HELOCs, and sometime later borrowing against those properties and investing the proceeds in a trade or business, or in taxable investments. Investment interest on such debt should be fully deductible Preservation of the deductibility of investment interest expenses preserves taxpayers incentives to borrow for investment purposes

7 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 7 Retirement Plans Contributions to traditional IRAs and qualified plans are deductible (subject to certain limitations); assets in these accounts are generally taxable only when distributions are made Preserves current tax rules, including contribution limits, to IRAs, 401(k)s, and other qualified plans Repeals Roth recharacterization No change to non-qualified deferred compensation and equity-based award tax rules Same as House bill Both bills had originally eliminated the main benefits of non-qualified deferred compensation plans (likely as an alternative to a discussed alteration to 401(k) rules, but without the public scrutiny), but later those provisions were struck from both the House and Senate bills Sunset None All provisions on the individual side of the tax code would sunset after 2025, restoring pre-2018 law, with the exception of the so-called chained CPI change that would index the tax brackets and other parameters to a slower measure of inflation, which would be implemented on a permanent basis Under the Senate bill, sunsetting of individual tax relief provisions would help the bill comply with Senate budget rules and fund permanent corporate tax reform, which likely would be largely ineffective if perceived as temporary

8 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 8 CORPORATIONS & PARTNERSHIPS Domestic C Corporations Max Rate Maximum rate = 35% Permanently cuts the corporate rate from 35% to flat 20% effective 1/1/18 Repeals corporate AMT Permanently lowers corporate tax rate from 35% to flat 20% after 12/31/18 Corporate alternative minimum tax retained The Senate s delay of the corporate rate reduction by one year could create an odd year where corporations are affected by revenue raisers that are not yet offset by a lower rate Retention of corporate AMT may undo many of the benefits of other corporate reform provisions, although there are indications that this is not the intent and will be addressed in the Joint (House-Senate) Conference Committee version Reducing the corporate tax rate could have a modestly negative impact on demand for munis from corporations such as banks and insurance companies A lower corporate income tax rate should serve to increase after-tax free cash flow, while at the same time making debt issuance more expensive relative to equity. All else equal, this is a positive for credit markets and should serve to tighten credit spreads Domestic C Corporations Dividends Received Deduction Corporations may deduct a fraction of the dividends received from their taxable income as follows: If corporation receiving the dividend owns <20% of the stock of the corporation paying the dividend, then deduction = 70% Reduces the 70% deduction to 50% and the 80% deduction to 65% after 12/31/18 Same as House bill These proposals reflect the proposed reduction in the corporate income tax rate to 20% (from 35%) If receiving corporation owns 20%, then deduction = 80% If both corporations are in the same affiliated group, deduction = 100%

9 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 9 Domestic Corporations CAPEX Expensing Generally, new business capital investments may be depreciated over a term of years, or expensed immediately, subject to certain limits Allows immediate expensing of cost of new and used investments for five years Allows immediate expensing of 100% of the cost of new investments for five years, then reduces by 20% each year until 2026 (e.g., 80% in 2022, 60% in 2023, 40% in 2024, 20% in 2025) Provision is designed to promote greater capital investments and stimulate economic growth Provision increases existing bonus depreciation percentage; qualifying assets for expensing generally mirror those eligible for bonus Domestic Corporations Interest Deduction Corporations generally have an unlimited deduction for business interest as incurred Caps corporate interest deduction at 30% of adjusted taxable income (roughly defined as EBIDTA) with five-year carryforward; real-estate firms and small businesses (defined as those with <$25MM of average gross receipts) are exempt from this cap Caps deduction for business interest at 30% of adjusted taxable income (roughly defined as EBIT) with indefinite carryforward; real-estate firms and small businesses (defined as those with <$15MM of average gross receipts) are exempt from this cap Greater limitations on the interest deduction may cause many companies to alter their capital structures For the interest deduction limit calculation, the House bill adds depreciation and amortization back in; the Senate bill does not. The effect of not doing so is to make the base on which the 30% limit is calculated smaller, making the Senate s version significantly stricter than the House s The vast majority of companies will not be impacted by this provision. However, profitable companies with high interest coverage ratios could see their tax bills increase Companies that use free cash flow to pay down debt could see credit spreads widen Domestic Corporations Compensation Deduction Public companies may not deduct applicable employee remuneration (generally salary, but not performancebased bonuses or commission) of any covered employee greater than $1MM per year Repeal exceptions to the $1MM deduction limitation for commissions and performance pay above $1MM Same as House bill Effect would be to discourage excessive compensation for public company CEOs and four other highly compensated officers through material limitation to corporate deduction even if the compensation is performance-based

10 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 10 Domestic Corporations Income Recognition Corporations may only use cash method accounting if their average annual gross receipts <$5MM for all prior years Threshold increased to $25MM Threshold increased to $15MM Requires that income be recognized no later than the year in which taken into account as income on financial statement Pass- Through Entities (Partnerships, LLCs, and S Corporations) There is generally no tax on pass-through entities at the entity level. Taxes are payable at the owner s or partner s individual tax rate Net operating losses (NOLs) can be carried back two years and forward 20 For passive participants: Reduces the tax rate for passive investors and for the capital portion of income of an active participant in a pass-through entity to 25% For active participants: Presumes that 70% of pass-through income is attributable to labor and 30% is attributable to capital, although taxpayers may elect to prove higher capital ratio through a facts-and-circumstances determination. Replaces 12% ordinary bracket with 9% rate for the first $75K in net business income of an active owner or shareholder earning less than $150K in taxable income through a pass-through In any case, professional services firms such as lawyers and financial services professionals are not eligible for the 25% rate No sunset Allows a 23% deduction for domestic qualified business income; deduction not available for specified service businesses, unless taxable income is <$500K for joint filers, $250K single Publicly traded partnerships, including master limited partnership unit holders, can claim the 23% deduction Qualified dividends from REITs are qualified business income eligible for the deduction Deduction limited to 50% of W-2 wages of taxpayer for high-income taxpayers (>$500K income for joint filers; >$250K single). W-2 wages includes deferred compensation arrangements Business interest deduction applied at partnership level Treats the sale by a non-u.s. person of an interest in a partnership that conducts a U.S. trade or business as effectively connected income (ECI) subject to tax in the U.S. to the extent it would have had ECI had the partnership sold all its assets The intent of these provisions is to encourage growth of small businesses Restrictions on specified/ professional services businesses in both bills address concern that professionals not targeted for these provisions would reorganize to allow income from their businesses to be taxed at the 25% rate Provisions in the House bill defining income attributable to capital versus labor similarly address anticipated attempted abuses involving the recharacterization of compensation as business profits State and local taxes deductible only in connection with carrying on a trade or business or activities relating to expenses for the production of income under IRC 212 All pass-through provisions would sunset after 2025

11 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 11 Pass- Through Entities NOLs Carryback up to two years and carryforward up to 20 years Repeals carryback for NOLs (except for one year for disaster and small business losses), but allows indefinite carryforward. Amount deductible limited to 90% of taxable income Repeals carryback for NOLs (except for one year for disaster and small business losses), but allows indefinite carryforward. Amount deductible limited to 90% of taxable income (80% after 2022) Mulit- National Business Operations Repatriation Profits earned by U.S. corporations in foreign jurisdictions are taxed by the U.S. at the U.S. corporate rate only when the corporations choose to repatriate those profits, subject to foreign tax credit calculation, if any Shifts to a hybrid territorial system with imposition of minimum global high return tax Exempts 100% of earnings from foreign-sourced dividends (assuming the corporation owns at least 10% of the foreign company), but imposes a 10% minimum tax on foreign high returns (i.e., on the excess of that aggregate income over routine returns (defined as 7% + the short-term applicable federal rate [AFR]) Deems historic unrepatriated earnings repatriated at 14% rate for cash and 7% for noncash assets payable over eight years Shifts to a hybrid territorial system with imposition of tax on minimum global intangible low-taxed income Exempts 100% of earnings from foreign-sourced dividends (assuming the corporation owns at least 10% of the foreign company), but imposes a minimum tax on global intangible low-taxed income (GILTI) U.S. corporate shareholders may deduct 37.5% of GILTI plus other foreign-derived intangible income, leading to an effective 12.5% GILTI tax rate Imposes a 10% base erosion tax on corporations with gross receipts in excess of $500MM and with deductions of more than 4% of their total expenses resulting from payments to related foreign persons A territorial tax system would benefit sectors with overseas operations and intellectual property (e.g., tech, healthcare) over sectors with largely domestic operations (e.g., utilities, industrials) Deemed repatriation would result in a one-time spike in revenue, though payments may be made over eight years Repatriation of U.S. corporate cash held overseas is likely to result in lower corporate credit issuance, all else equal Our investment bank estimates that over $2T is held overseas and subject to repatriation Imposes 35% tax on deemed repatriated earnings and profits (E&P) of U.S. shareholder that inverts within 10 years of enactment Deems historic unrepatriated earnings repatriated at 14.5% rate for cash and 7.5% for noncash

12 WASHINGTON WATCH: ON THE VERGE OF A HISTORIC OVERHAUL OF THE U.S. TAX SYSTEM 12 TRANSFER TAXES Gift Tax Maximum rate = 40%; exclusion amount = $5.49 million Lowers tax rate from 40% to 35% after 12/31/24 Increases exclusion on 1/1/18 from $5.49MM to $11.2MM Retains annual exclusion of $14K ($15K on 1/1/18) No change to gift tax rate Increases exclusion on 1/1/18 from $5.49MM to anywhere from $10MM to $11.2MM (the bill is ambiguous about the effective date of the inflation adjustment). Exclusion increase sunsets after 2025 Taxpayers with the means and desire to do so should consider sizable gifts early in 2018 to take advantage of the increased exclusions, whether outright or with tax-efficient, creditorprotected, long-term irrevocable trusts Retains annual exclusion of $14K ($15K on 1/1/18) Estate Tax Maximum rate = 40%; maximum exclusion amount = $5.49MM Increases exemption on 1/1/18 to $11.2MM per person; repeals tax after 12/31/24. Even after repeal, basis step-up treatment preserved No change to estate tax rate Increases exemption on 1/1/18 from $5.49MM to anywhere from $10MM to $11.2MM per person. Exclusion increase sunsets after 2025 Under House version, repeal of the estate tax while also retaining basis step-up treatment upon death would allow beneficiaries to sell assets without having to pay tax on appreciation from before they inherited the assets No repeal of estate tax Generation- Skipping Transfer Tax Maximum rate = 40%; exemption amount = $5.49MM Increases exemption on 1/1/18 to $11.2MM per person and repeals tax after 12/31/24 No change to GST tax rate Silent on exemption, but cross-reference in the Internal Revenue Code to estate tax exclusion makes it appear that the Senate also is proposing to increase this exemption amount to $11.2MM on 1/1/18. Would sunset after 2025 Under the Senate version, doubling the exemption amount and then sunsetting that provision so that it is halved after 2025 would result in different applicable exclusion amounts at the time of a gift versus at death. The bill directs Treasury to promulgate regulations instructing taxpayers on how to deal with this mismatch and prevent a claw-back JPMorgan Chase & Co. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your personal tax, legal and accounting advisors for advice before engaging in any transaction.

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