The GOP Tax Plan: Winners and Losers

On Thursday, the House GOP released their initial version of the tax bill. But let’s not get too far ahead of ourselves. The bill will be updated and revised time and time again over the next few months. However, from the first glance, we can see where the GOP intends to go with the bill.

Business Winner and Losers—The GOP wants business to invest in itself, so it will allow full write-off of capital investments, up to $1M, for five years.  This will be great for businesses looking to grow and may also inspire more bank financing opportunities for small businesses.  Of course, cutting the top rate on pass-through businesses, from 39.6 to 25 percent will be beneficial.  To what extent? We will have to wait for more details. In this case, the “devil” will be in the law’s details. Also, service businesses, such as law, accounting, consulting, engineering, financial services, and performing arts, will not be benefitting from the special reduced business bracket.

Individuals (Most of Us Will Be Losers)—Most of our clients are in the mid-atlantic region and are in high-tax states (namely Maryland, DC, New Jersey, and New York). Losing the state and local tax deduction could be extremely detrimental to their tax bill.  However, that would depend on their specific tax situation.  If a client had been subject to the Alternative Minimum Tax (AMT), then they actually may be in the same or even better situation because AMT has been eliminated. AMT had previously eliminated the state tax deduction in the AMT tax computation. Now, at least, such clients would be able deduct up to $10,000 of their personal property taxes.  However, it looks like the fight for this deduction will be ongoing during the bill’s mark-up and reconciliation phases.

The biggest losers if this bill becomes law could potentially be homeowners, both new ones and existing ones.  First, the proposed change to the mortgage interest deduction, which would apply to mortgages limited to $500,000 for new home purchases, would limit the ability for many buyers to get into more desirable homes.  That would also impact the ability to sell these homes, lowering overall home values.  We would expect real estate agents and mortgage brokers to suffer, as well as luxury home builders.  However, we may see an uptick for moderately-priced homes. We could also see less demand for vacation homes and second homes.

As the GOP bill moves through the mark-up phase in the House prior to any vote, we expect changes to many of the provisions. As of today, the Senate has released their own version of the tax law. We will take a look at the proposal and share our analysis over the coming days.  Stay tuned right here as we assist you in your business, tax, and financial planning, especially in light of the future changes in tax law.