Accounting 509—December 5, 2017 Analysis as of November 29, 2017 TAX CUTS AND JOBS ACT H.R. 1 Accounting 509—December 5, 2017 Analysis as of November 29, 2017

TAX CUTS AND JOBS ACT H.R. 1 Caution—this presentation is based on an analysis of the House and Senate versions of the bill as of November 29, 2017. It is likely that the final version of the bill will change and some of the changes may materially affect the accompanying calculations The following slides show the impact of the House and Senate versions of the bill on several taxpayers. Some of the slides are based on actual individuals Other slides are based on hypothetical taxpayers using IRS data to estimate deductions at various income levels A few slides are based on actual examples with modified facts to illustrate who wins and loses.

Sample taxpayer—millennial adult living at home with parents Single taxpayer Recently graduated college Has an entry level job Parents paid for college, so taxpayer has no student loans

Sample taxpayer—millennial adult living at home with parents 2016 RETURN HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI 26,334   ITEMIZED DEDUCTIONS HOME MORTGAGE INTEREST CHARITABLE CONTRIBUTIONS STD DEDUCTION (6,300) (12,200) (12,000) PERSONAL EXEMPTIONS (4,050) TAXABLE INCOME 15,984 14,134 14,334 INCOME TAX 1,933 1,696 1,534 AMT - NET TAX TAX INCREASE/DECREASE (237) (399)

Sample taxpayer—millennial adult living at home with parents Single taxpayer Recently graduated college Has an entry level job Has student loans

Sample taxpayer—millennial college graduate living at home with parents 2016 RETURN HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 SALARY 26,334 STUDENT LOAN INTEREST (2,200)   ITEMIZED DEDUCTIONS HOME MORTGAGE INTEREST CHARITABLE CONTRIBUTIONS STD DEDUCTION (6,300) (12,200) (12,000) PERSONAL EXEMPTIONS (4,050) TAXABLE INCOME 13,784 14,134 12,134 INCOME TAX 1,613 1,696 1,270 AMT - NET TAX TAX INCREASE/DECREASE 83 (343)

Sample taxpayer—millennial college graduate owns his home Single taxpayer Graduated college five years ago Has a job paying about $120K Owns a home Has itemized deductions of $17K $7K of state income taxes

Sample taxpayer—millennial college graduate owns his home HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI 119,141   ITEMIZED DEDUCTIONS (17,416) HOME MORTGAGE INTEREST CHARITABLE CONTRIBUTIONS STD DEDUCTION (12,200) (12,000) PERSONAL EXEMPTIONS (4,050) TAXABLE INCOME 97,675 106,941 107,141 INCOME TAX 20,266 23,935 20,985 AMT - NET TAX NET TAX INCREASE 3,669 719

Sample taxpayer—Bill & Betty Blue Collar Worker--renters with two young children Household income $75,000 Rent their residence Have two children under the age of 17 Claim the standard deduction

Sample taxpayer—Bill & Betty Blue Collar Worker--renters with two young children HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI 75,000   ITEMIZED DEDUCTIONS - HOME MORTGAGE INTEREST CHARITABLE CONTRIBUTIONS PROPERTY TAX DEDUCTION STD DEDUCTION (12,600) (24,400) (24,000) PERSONAL EXEMPTIONS (16,200) TAXABLE INCOME 46,200 50,600 51,000 INCOME TAX 6,026 6,072 5,739 CHILD TAX CREDIT (2,000) (3,800) (3,300) AMT NET TAX 4,026 2,272 4,072 2,439 3,739 TAX INCREASE/(DECREASE) (1,754) 46 (1,587) (287)

Sample taxpayer—Bill & Betty Blue Collar Worker--renters with three young children Household income $75,000 Rent their residence Have three children under the age of 17 Claim the standard deduction

Sample taxpayer—Bill & Betty Blue Collar Worker--renters with three young children EXISTING SITUATION HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI 75,000   ITEMIZED DEDUCTIONS - HOME MORTGAGE INTEREST CHARITABLE CONTRIBUTIONS PROPERTY TAX DEDUCTION STD DEDUCTION (12,600) (24,400) (24,000) PERSONAL EXEMPTIONS (20,250) TAXABLE INCOME 42,150 50,600 51,000 INCOME TAX 5,419 6,072 5,739 CHILD TAX CREDIT (3,000) (5,400) (4,950) AMT NET TAX 2,419 672 3,072 789 2,739 TAX INCREASE/(DECREASE) (1,747) 653 (1,630) 320

Sample taxpayer—Average Santa Clarita family--renters with two young children Household income $90,000 Rent their residence Have two children under the age of 17 Claim the standard deduction

Sample taxpayer—Average Santa Clarita family--renters with two young children HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI 90,000   ITEMIZED DEDUCTIONS - HOME MORTGAGE INTEREST CHARITABLE CONTRIBUTIONS PROPERTY TAX DEDUCTION STD DEDUCTION (12,600) (24,400) (24,000) PERSONAL EXEMPTIONS (16,200) TAXABLE INCOME 61,200 65,600 66,000 INCOME TAX 8,276 7,872 7,539 CHILD TAX CREDIT (2,000) (3,800) (3,300) AMT NET TAX 6,276 4,072 5,872 4,239 5,539 TAX INCREASE/(DECREASE) (2,204) (404) (2,037) (737)

Sample taxpayer—Average Santa Clarita family--renters with two young children Household income $90,000 Own their residence Have two children under the age of 17 Itemize their deductions Itemized deductions based on averages from IRS published data for 2015 for joint returns with an adjusted gross income of between $75,000 and $90,000

Sample taxpayer—Average Santa Clarita family--homeowners with two young children 2016 TAXES HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI 90,000   ITEMIZED DEDUCTIONS - SALT DEDUCTION (600) HOME MORTGAGE INTEREST (18,000) CHARITABLE CONTRIBUTIONS PROPERTY TAX DEDUCTION (3,000) STD DEDUCTION (24,400) (24,000) PERSONAL EXEMPTIONS (16,200) TAXABLE INCOME 52,200 65,600 66,000 INCOME TAX 6,926 7,872 7,539 CHILD TAX CREDIT (2,000) (3,800) (3,300) AMT NET TAX 4,926 4,072 5,872 4,239 5,539 TAX INCREASE/(DECREASE) (854) 946 (687) 613

Sample taxpayer—Jack & Dianne Professional--homeowners with two young children Married couple Two salaries-household income of $150,000 Two children under 17 Homeowners who itemize their deductions Itemized deductions based on averages from IRS published data for 2015 Income for 2016 and after 2023/2026 is too high to claim child credit

Sample taxpayer—Jack & Dianne Professional--homeowners with two young children 2016 TAXES HOUSE BILL 2018 SENATE BILL 2018 SENATE BILL 2026 AGI 150,000   ITEMIZED DEDUCTIONS - SALT DEDUCTION (5,500) HOME MORTGAGE INTEREST (22,000) CHARITABLE CONTRIBUTIONS (500) PROPERTY TAX DEDUCTION (5,000) STD DEDUCTION (24,400) PERSONAL EXEMPTIONS (16,200) TAXABLE INCOME 100,800 125,600 122,500 INCOME TAX 16,788 23,972 19,117 CHILD TAX CREDIT (3,800) (3,300) AMT NET TAX 20,172 15,817 TAX INCREASE/(DECREASE) 3,384 7,184 (971) 2,329

Sample taxpayer—George & Edna Sicko—retired homeowners with seriously ill spouse Married couple Retired with $90,000 of pension related income Couple is on a fixed income Homeowners who paid off their mortgage Wife suffered a stroke and requires nursing care that is not covered by Medicare Annual out of pocket medical expenses are about $69,000

Sample taxpayer—George & Edna Sicko—retired homeowners with seriously ill spouse 2016 TAXES HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI 95,000   ITEMIZED DEDUCTIONS HOME MORTGAGE INTEREST - CHARITABLE CONTRIBUTIONS (2,500) MEDICAL EXPENSE (59,500) (57,000) PROPERTY TAX DEDUCTION (7,000) STD DEDUCTION (24,400) PERSONAL EXEMPTIONS (8,100) TAXABLE INCOME 17,900 70,600 35,500 INCOME TAX 1,788 8,472 3,924 AMT NET TAX TAX INCREASE/(DECREASE) 6,684 2,136

Sample taxpayer—Mr. & Mrs. Stillworkinghard—Young partner in law firm Married couple in their late 30’s Husband and wife are attorneys No children Own their home Itemize their deductions Amounts are taken from an actual return Taxpayers are in AMT for 2016 Senate version assumes no AMT-based on bill that came out of Senate finance Committee—final version of Senate bill contains AMT provision

Sample taxpayer—Mr. & Mrs. Stillworkinghard—Young partner in law firm 2016 TAXES HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL-2018 SENATE BILL-2026 AGI 610,801 STATE TAX DEDUCTION (41,404)   HOME MORTGAGE INTEREST (5,160) CHARITABLE CONTRIBUTIONS (10,744) PROPERTY TAX DEDUCTION (12,000) (10,000) STD DEDUCTION - (24,000) PERSONAL EXEMPTIONS TAXABLE INCOME 541,493 584,897 586,401 INCOME TAX 155,654 167,014 161,751 AMT 4,206 NET TAX 159,860 TAX INCREASE/(DECREASE) 7,154 1,891

Sample taxpayer—Mr. & Mrs. Thomas Ego--Senior law firm partner— Married couple in their late 50’s Husband is senior attorney in a major law firm No children Own their home Itemize their deductions

Sample taxpayer—Mr. & Mrs. Thomas Ego--Senior law firm partner— 2016 TAXES HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI 1,307,426   ITEMIZED DEDUCTIONS STATE INCOME TAX (43,774) HOME MORTGAGE INTEREST (5,160) CHARITABLE CONTRIBUTIONS (10,774) (10,744) PROPERTY TAX DEDUCTION (10,000) STD DEDUCTION - (24,000) PERSONAL EXEMPTIONS TAXABLE INCOME 1,237,718 1,281,522 1,331,826 INCOME TAX 406,296 423,782 434,790 AMT NET TAX TAX INCREASE/(DECREASE) 17,486 28,494

Sample taxpayer—Mr. & Mrs. I. M Sample taxpayer—Mr. & Mrs. I.M. Passive—passive investor in family business— Assumed the same facts as the senior law firm partner except All income comes from family business which taxpayer’s brother runs Taxpayer does not participate in the business All income is passive income subject to the passthrough provisions

Sample taxpayer—Mr. & Mrs. I. M Sample taxpayer—Mr. & Mrs. I.M. Passive—passive investor in family business— 2016 TAXES HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 AGI (all passive) 1,307,426 QUALIFIED BUSINESS DEDUCTION   (227,492) ITEMIZED DEDUCTIONS STATE INCOME TAX (43,774) HOME MORTGAGE INTEREST (5,160) CHARITABLE CONTRIBUTIONS (10,774) (10,744) PROPERTY TAX DEDUCTION (10,000) STD DEDUCTION - (24,000) PERSONAL EXEMPTIONS TAXABLE INCOME 1,237,718 1,281,522 1,055,534 INCOME TAX 406,296 308,680 328,418 AMT NET TAX TAX INCREASE/(DECREASE) (97,616) (77,878)

Sample taxpayer—Mr. & Mrs Sample taxpayer—Mr. & Mrs. Warbucks—passive investor in numerous businesses— Earns $4.25 million annually from investments in several companies Does not materially participate in those businesses Income from those business enterprises is taxed at passthrough rate Donated $5 million to charity Under current law donation is limited to 50% of AGI Under proposals donation is limited to 60% of AGI

Sample taxpayer—Mr. & Mrs Sample taxpayer—Mr. & Mrs. Warbucks—passive investor in numerous businesses— 2016 TAXES HOUSE BILL 2018 HOUSE BILL 2023 SENATE BILL 2018 SENATE BILL 2026 INCOME FROM PASSIVE INVESTMENTS 4,250,000 PASSIVE INCOME ADJUSTMENT   (977,500) ITEMIZED DEDUCTIONS STATE INCOME TAX (273,692) HOME MORTGAGE INTEREST (6,000) CHARITABLE CONTRIBUTIONS (subject to AGI limitation) (2,125,000) (2,550,000) PROPERTY TAX DEDUCTION (17,500) (10,000) ITEMIZED DEDUCTION PHASEOUT 81,887 62,337 PERSONAL EXEMPTIONS - TAXABLE INCOME 1,909,695 1,684,000 706,500 768,837 INCOME TAX 700,710 409,300 204,312 219,896 AMT NET TAX TAX INCREASE/(DECREASE) (291,411) (496,398) (480,814)

Impact of individual provisions by income level Source: https://www.nytimes.com/interactive/2017/11/28/upshot/what-the-tax-bill-would-look-like-for-25000-middle-class-families.html?_r=0 The red bars in the $50K-$1M range are principally homeowners in states with high taxes. The blue bars for that range are people who live in states with low SALT deductions.