Tax Cuts and Jobs Act (H.R. 1) | House Bill Summary

Section Bill Proposal Current Law Proposed Change Notes

Sector-Wide Provisions Sec. 1002 Enhancement of The is Increases the standard A similar policy that increased the standard standard $6,350 for single individuals and deduction to $24,000 for joint deduction to $11,000 for individual filers and deduction $12,700 for married individuals filers and $12,000 for individual $22,000 for married filers would decrease filing jointly filers 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) Sec. 1306 Charitable A taxpayer may claim an The 50% AGI limit on cash Increasing AGI limits will incentivize high-income Contributions itemized deduction for charitable contributions to public charities donors to give more to charity. Research is contributions. The deduction is would be increased to 60% and required to understand the exact amount of limited to a percentage of an retains the 5-year carryover. additional giving this provision could generate or individual’s adjusted gross Taxpayers also cannot deduct the extent to which it may offset losses created by income and varies based on the any percentage of a purchase of other provisions in tax reform. type of gift. college athletic tickets

A volunteer is able to deduct 14 The amount deductible for Adjusting volunteer mileage deductions to cents per mile in mileage on volunteer mileage would be inflation helps ensure that future legislation is not behalf of a charitable adjusted for inflation. needed in order to update the value of the organization deduction.

A donee organization can waive Donee returns no longer can be the need for a taxpayer to used by a donor to substantiate substantiate a gift for tax a gift for federal tax purposes purposes if the gift is recorded on the organization’s return. Sec. 5201 Churches are Tax-exempt 501(c)(3) All charities will be allowed to This provision opens all charities up to additional permitted to organizations are prohibited from endorse or oppose political scrutiny by the IRS using ambiguous rules as well make statements endorsing or opposing a candidates, as long as it is in the as risk of becoming an instrument of electoral relating political candidate for public office – a normal course of action and politics. campaign in policy known as the Johnson spends a “de minimus” amount ordinary course Amendment. of charitable funds. Any proposals to weaken the Johnson of religious Amendment threatens the public’s trust in the sector, the charitable deduction, and donor 1

services and privacy. The provision also sows confusion activities regarding how to comply with political activity rules, which would discourage charities’ participation in the public policy process. Sec. Increase in credit Property in an estate is subject The threshold for triggering an Research shows that the estate tax encourages 1601- against estate, to a tax before it passes to estate, gift, or generation- charitable bequests and investments in the 1602 gift, and beneficiaries. The first $5 million skipping tax will be raised to $10 sector. generation worth of transferred property is million beginning in 2017. skipping transfer exempt from estate, gift, and In 2010, when the estate tax was temporarily tax; Repeal of generation-skipping taxes. After 2023, the estate and repealed, gross charitable bequests in IRS tax estate and generation-skipping taxes will be filings totaled $7.5 billion – a 37 percent drop from generation repealed while maintaining the $11.9 billion the prior year. The tax returned in skipping transfer beneficiary’s stepped up basis in 2011 and charitable bequests increased by 92 tax estate property. percent, totaling $14.4 billion. Sec. 3803 tax on C corporations are not able to Tax-exempt organizations would This provision limits the ability of communities excess tax- deduct executive compensation be subject to a 20 percent excise and volunteer boards to decide how to invest in exempt over $1 million for the top 5 tax for individual compensation local solutions. It also may impact charities’ organization employees. A similar type of (cash and benefits, except ability to attract and retain talent and skills executive limitation does not apply to tax- retirement and health) in excess necessary to tackle society’s most difficult compensation exempt entities. of $1 million for any of the top 5 problems. employees. Sec. 1301 Repeal of overall Certain upper income taxpayers Overall limitation on itemized Removing the Pease limitation may incentivize limitation on are limited in the total amount of deductions would be repealed. high-income taxpayers to increase their charitable itemized itemized deductions they are giving. Research is required to understand the deductions able to claim (known as the exact amount of additional giving this provision “Pease limitation”) could generate or the extent to which it may offset losses created other provisions in tax reform.

Sec. 1302 Mortgage interest Taxpayers currently are able to Applies new limitations on the These changes may cause major shifts in the and 1303 and Repeal of deduct on their federal return amount of home mortgage number of taxpayers that choose to file itemized Deduction for home mortgage interest and interest taxpayers can deduct returns. If the provisions lower the number of Expenses Not state and local income and (lower acquisition indebtedness, people choosing to file itemized returns, there Paid or Accrued property taxes. Taxpayers also limit to principle residence, etc.) also will be fewer taxpayers incentivized through by Business can choose to deduct state and the tax code to give more to charity. local sales tax instead of income Taxpayers cannot deduct state tax. and local income or sales taxes, unless they’re related to a trade, business or producing income. Taxpayers would continue to be able to deduct property taxes up to $10,000.

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Sec. 5002 Exclusion of Research is exempt from UBIT Only fundamental research with Additional information is needed to understand research income if: 1) performed for U.S./state publicly available findings how this provision may impact mission-related limited to publicly government; 2) performed by remains exempt from UBIT research for the charitable community. available college, university or hospital; research and 3) performed by a research In particular, charities may want to consider how organization with results this provision may impact financing of health available to the public research and research that could help governments and charities make evidence-based or data-driven decisions Sec. 5101 Simplification of Private foundations are subject Private foundations would be This provision streamlines the rules governing excise tax on to an excise tax rate (either 2 subject to a flat excise tax rate of private foundations excise tax. private percent or 1 percent) on net 1.4 percent. investment investment income that is income determined by the organizations’ prior distributions.

Sec. 5103 Excise tax based Private foundations must pay an Colleges and universities There are questions whether this policy on investment excise tax on net investment meeting certain student and establishes a precedent that will enable income of private income. This requirement does asset criteria will be required to policymakers to dictate how all charitable colleges and not apply to public charities, pay an excise tax of 1.4 percent organizations distribute and expend their universities including colleges and on net investment income. endowments. universities.

Sec. 5001 Clarification of It is unclear if entities under both All entities under 501(a) would The provision clarifies (and possibly expands) the UBIT treatment of section 115(1) and 501(a) are be subject to UBIT entities required to comply with UBIT rules. entities exempt subject to UBIT rules. from taxation under 501(a) Sec. 5104 Private A private foundation may not Private foundations will be This is a relatively narrow provision designed to foundation own more than a 20 percent exempt from this provision if: 1) allow for-profit businesses or subsidiaries that excess business interest in a nonprofit. If it the foundation owns all for-profit distribute all profits to charity to be owned by a holding tax for violates this rule, the foundation voting stock; 2) the interest was foundation that meets certain criteria. philanthropic is subject to a 200 percent not acquired through purchase; business excise tax. 3) the for-profit distributes all Policymakers have attempted to protect the holdings profits to the foundation in 120 original purpose of current law, which is to ensure days; 4) for-profit executives are charities will not be misused by corporations to not substantial contributors to the circumvent tax law. foundation.

Sec. 5102 Private operating Private operating foundations Art museums must be open to foundation may -free donations to the public at least 1,000 hours requirements fund their work and are exempt per year to qualify for private related to from a 30 percent excise tax on operating foundation status and undistributed earnings benefits 3

operation of art museum Sec. 5202 Additional The public charities that manage Charities that sponsor donor This policy is less burdensome on DAF reporting donor advised funds are not advised funds would be required sponsoring organizations than past proposals. requirements for required to distribute the funds to annually disclose their policies donor advised on any particular timeframe. to address inactive DAFs and the fund sponsoring average amount of grants made organizations from their DAFs. Sec. 3307 Entertainment, Taxpayers may deduct up to No deduction would be allowed This provision may impose an unrelated business etc. expenses 50% of entertainment, for entertainment, amusement or income tax on charity if it provides a amusement, or recreational recreational activities or transportation benefit, gym facilities, etc. activity expenses if they are membership dues relating to directly related to the taxpayer’s such activities. This extends to It also could have a negative impact on both trade or business. Taxpayers fringe benefits not directly related commercial and nonprofit arts organizations. also can deduct the cost of to the employer’s trade or fringe benefits like transportation business. 50% limitation would and employee discounts, apply to food and beverage reimbursed expenses, etc. expenses.

Sec. 3601 Termination of Interest from government bonds New private activity bonds, This provision removes one of the few private activity that fund public goods like parks including 501(c)(3) bonds, issued mechanisms available to finance nonprofit capital bonds and schools are excluded from after 2017 will be subject to projects, such as the creation of an affordable gross income (i.e. tax exempt). taxation. housing development, health clinic, etc. Some private activity bond interest, like 501(c)(3) bonds, also qualify for this benefit.

Issue-Specific Provisions

Sec. 1101 Enhancement of Taxpayers can claim $1,000 Child tax credit would increase to child tax credit credit per child, but the $1,600 and a new $300 credit for and new family aggregate amount is phased out non-child dependents would be tax credit as AGI increases. The child tax added. A $300 family flexibility credit is refundable equal to 15% credit is available for each of earned income over $3,000. individual that isn’t a child or dependent.

The credits will be phased out based on income thresholds and eliminate the in current law.

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Filers do not have to provide a Filers must provide a SSN to SSN to claim the refundable claim the refundable portion of credit the credit

Sec. 1103 Refundable credit Refundable tax credits require Taxpayers must file a “work- program integrity taxpayers to file different types eligible SSN” for the refundable of authenticating information portion of the child tax credit and American Opportunity Tax Credit. A similar requirement would apply to the EITC.

Sec. 1308 Repeal of Taxpayer can claim an itemized Repeal the itemized deduction medical expense deduction for out-of-pocket for medical expenses deduction medical expenses

Sec. 3311 Certain self- Current law provides parameters The bill changes tax treatment of This provision is relevant to members of the arts created property around the tax treatment of creative products and property. and culture community not treated as creative products, like music capital asset Sec. 3406 Termination of New Market Tax Credits No new tax credits will be issued The idea for a New Market Tax Credit originated new markets tax incentivize businesses and real after 2017 with foundations and think tanks seeking to use credits estate investment in low-income market-driven solutions to help disadvantaged communities. communities. Sec. 3407 Repeal of credit Small-businesses can claim a The tax credit would be repealed for expenditures tax credit for expenditures to provide access incurred when providing access to disabled to disabled individuals individuals Subtitle C Simplification and Current law has 15 different tax These three credits will be reform of benefits related to education. combined into a single credit for education 100% of the first $2,000 in incentives The American Opportunity Tax expenses and a 25% credit for Credit provides a maximum the next $2,000 in expenses. It credit of $2,500. Taxpayers may would be available for a fifth year choose to claim the Hope at half the rate as the first four Scholarship Credit and Lifetime years. The ability for students to Learning Credits, which use claim a Lifetime Learning Credit different criteria. without limits on the number of years it takes to earn a degree Contributions to Cloverdell will be eliminated. education savings accounts are exempt from tax, but they are Cloverdell education savings not deductible and may not accounts after 2017 would be 5

exceed $2,000 per beneficiary prohibited, but tax-free rollovers per year. Distributions from an from Cloverdell accounts to 529 account are excludable from plans would be allowed. gross income of the beneficiary if Expenses for elementary and use to pay for qualified high school expenses up to $10K education expenses (K-Higher would be qualified 529 Education) expenses.

Any debt that is forgiven, Any income from discharging including student loans, become student loan debt on account of income – even on account of death or total disability of the death or disability. student would be excluded from taxable income (excluding Current education provisions income repayment of a also include deduction of interest taxpayer’s loans pursuant to the payments on qualified education Indian Health Service Loan loans and tuition related Repayment Program). expenses. It also allows tax exclusions for interest on U.S. All of these provisions would be savings bonds, qualified tuition repealed. reductions, and employer- provided education assistance.

For more information, visit independentsector.org/policy.

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