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Senate Tax Reform Bill Summary

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Senate Tax Reform Bill Summary Tax Cuts and Jobs Act | Senate Tax Reform Bill Summary Sec. Bill Proposal Current Law Proposed Change Notes Sector-Wide Provisions A-2. Increase in The standard deduction is Increases the standard deduction to $24,000 A similar policy that increased the standard standard deduction $6,350 for single individuals for joint filers and $12,000 for individual filers deduction to $11,000 for individual filers and and $12,700 for married $22,000 for married filers was estimated to individuals filing jointly decrease charitable giving by $11 billion each year. Introducing a universal charitable deduction would recoup this loss and increase giving by almost $6 billion (Indiana University) D-6 Increase A taxpayer may claim an The 50% AGI limit on cash contributions to Increasing AGI limits will incentivize high-income percentage limit for itemized deduction for public charities would be increased to 60% donors to give more to charity. Research is charitable charitable contributions. The and retains the 5-year carryover. required to understand the exact amount of contributions of deduction is limited to a additional giving this provision could generate or cash to public percentage of an individual’s the extent to which it may offset losses created by charities adjusted gross income and other provisions in tax reform. varies based on the type of gift. E Increase in Estate Property in an estate is The proposal doubles the estate and gift tax Research shows that the estate tax encourages and Gift Tax subject to a tax before it exemption amount. This is accomplished by charitable bequests and investments in the Exemption passes to beneficiaries. The doubling the amount from $5 sector. Under this provision, the estate tax will first $5 million worth of million to $10 million. apply to a very small number of households. transferred property is Therefore, it likely will reduce charitable bequests. exempt from estate, gift, and generation-skipping taxes. In 2010, when the estate tax was temporarily repealed, gross charitable bequests in IRS tax filings totaled $7.5 billion – a 37 percent drop from $11.9 billion the prior year. The tax returned in 2011 and charitable bequests increased by 92 percent, totaling $14.4 billion. 1 H-3 Excise tax on C corporations are not able Tax-exempt organizations would be subject This provision limits the ability of communities excess tax-exempt to deduct executive to a 20 percent excise tax for individual and volunteer boards to decide how to invest in organization compensation over $1 compensation (cash and benefits, except local solutions. It also may impact charities’ executive million for the top 5 retirement and health) in excess of $1 million ability to attract and retain talent and skills compensation employees. A similar type of for any one of the five highest compensated necessary to tackle society’s most difficult limitation does not apply to employees. The excise tax also applies to problems. tax-exempt entities. excess parachute payments, even if the remuneration doesn’t exceed $1 million. D-7 Repeal of overall Certain upper income Repeals the overall limitation on itemized Removing the Pease limitation and the AMT may & II-1 limitation on taxpayers are limited in the deductions as well as the individual and incentivize high-income taxpayers to increase itemized total amount of itemized corporate AMT. their charitable giving. Research is required to deductions; Repeal deductions they are able to understand the exact amount of additional giving alternative claim (known as the “Pease this provision could generate or the extent to minimum tax (AMT) limitation”). which it may offset losses created other provisions in tax reform. Taxpayers are obligated to pay the greater of either their regular tax liability or alternative minimum tax. D-1 Mortgage interest Taxpayers currently are able Repeals the deduction for home equity These changes may cause major shifts in the and Repeal of to deduct on their federal indebtedness. number of taxpayers that choose to file itemized Deduction for return home mortgage returns. If the provisions lower the number of Expenses Not Paid interest and state and local Taxpayers cannot deduct state and local people choosing to file itemized returns, there or Accrued by income and property taxes. income or sales taxes, unless they’re related also will be fewer taxpayers incentivized through Business Taxpayers also can choose to a trade, business or producing income. the tax code to give more to charity. to deduct state and local sales tax instead of income tax. J-3 Charitable For charitable contributions, For purposes of the basis limitation on a contributions and a partner’s basis is adjusted partner’s loss in a partnership, the Research is required to understand the exact foreign taxes taken by the partner’s distributed amount of additional giving this provision could into account in share of the adjusted basis partner’s share of charitable contributions generate or the extent to which it may offset determining of the contributed property. made and foreign taxes paid by the losses created other provisions in tax reform. limitation of partnership (similar to the treatment of partner’s share of Deductions for charitable these items by shareholders in an S loss contributions are not allowed corporation) are taken into account. to the partnership. Instead, a partner takes into account the distributive share of the charitable contributions made by the partnership L-1 Excise tax based Private foundations must Colleges and universities meeting certain There are questions whether this policy on investment pay an excise tax on net student and asset criteria will be required to establishes a precedent that will enable income of private investment income. This policymakers to dictate how all charitable 2 colleges and requirement does not apply pay an excise tax of 1.4 percent on net organizations distribute and expend their universities to public charities, including investment income. endowments. colleges and universities. L-2 Name and logo Charities must pay tax on Any sale or licensing of a name or logo will This provision will tax charities that generate royalties treated as income that is considered be treated as an unrelated trade or business revenue through the use of their logo or royalties. unrelated business “unrelated” to the and subject to taxation under UBIT. It may reduce the ability for some charities to use taxable income organization’s tax-exempt market-based solutions to advance their purpose. Certain types of charitable missions. royalties, interest, and rents are exempt from UBIT. L-3 Unrelated business Charities must pay tax on For organizations that operate more than one The provision is meant to correct for compliance taxable income income that is considered trade or business, they must calculate net challenges observed in an IRS study that found separately “unrelated to their tax- income for each business separately, rather some charities operating some activities at a loss computed for each exempt purpose. If they run than in aggregate. A loss can only be to offset income from other activities. The IRS trade or business multiple unrelated applied to the tax liability from the business ruled that in these cases, an activity that businesses, they calculate where it occurred. consistently operates as a loss should no longer their taxable income by be considered an unrelated business and aggregating income and therefore cannot be used to offset UBIT liability. deductions across all lines of business. Because the IRS issued clarification to correct for the problem, this provision is not needed to Charities can use a prevent abuse and it increases taxes on deduction related to one legitimate, market-based solutions that charities business to offset income rely upon for revenue. from another, thereby reducing their total UBI tax liability. L-4 Repeal of tax- Professional sports The provision strikes the phrase exempt status for organizations are 501(c)(6) “professional sports leagues” from section professional sports organizations that do not 501(c)(6) and extends the prohibition to “any leagues receive tax-deductible professional sports league, whether or not charitable contributions. administering a pension fund for players.” L-5 Modification of The tax code imposes If a disqualified person receives excess This set of provisions clarify the rules that prevent taxes on excess excise taxes on any benefit, the organization will be subject to a individuals from using charitable resources for benefit transactions transaction in which a tax that is equal to 10 percent of the excess private benefit. disqualified person receives benefit. “excess benefit” from a charity. A “presumption of reasonableness” no longer will be the standard use to evaluate excess benefit. Instead, organizations must exercise minimum standards of due diligence. 3 It eliminates special rules for knowing behavior by managers who receive professional advice. Investment advisors and employees of donor advised funds and athletic coaches will be treated as disqualified persons. The application of these sanctions will be expanded to include 501(c)(5) and 501(c)(6). L-6 Denial of deduction Eighty percent of the cost of No charitable deduction will be allowed for for amounts paid in tickets to higher education the purchase of seating at an athletic event. exchange for athletic events can be college athletic claimed as a charitable seating rights deduction. D-10 Repeal of exclusion Taxpayers can exclude The bill repeals the ability to deduct moving These provisions may impact nonprofits’ capacity & 11 of qualified moving reimbursements for moving expenses or reimbursements. to recruit talent. expense expenses from their gross reimbursement; income calculation. They and Repeal of also can claim an above-the- deduction for line deduction for out-of- moving expenses pocket moving expenses for work. Issue-Specific Provisions C Reform of the Child Taxpayers can claim $1,000 Child tax credit would increase to $1,650 and Tax Credit credit per child, but the a new $500 credit for non-child dependents aggregate amount is phased would be added.
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