Tag Archives: deductions

U.S. House gives final approval to tax bill, delivers victory to Trump

President Trump celebrates with Congressional Republican on the South Lawn of the White House.

By David Morgan and Amanda Becker

WASHINGTON (Reuters) – The Republican-controlled U.S. House of Representatives gave final approval on Wednesday to the biggest overhaul of the U.S. tax code in 30 years, sending a sweeping $1.5 trillion tax bill to President Donald Trump for his signature.

In sealing Trump’s first major legislative victory, Republicans steamrolled opposition from Democrats to pass a bill that slashes taxes for corporations and the wealthy while giving mixed, temporary tax relief to middle-class Americans.

The House approved the measure, 224-201, passing it for the second time in two days after a procedural foul-up forced another vote on Wednesday. The Senate had passed it 51-48 in the early hours of Wednesday.

“We are making America great again,” Trump said, echoing his campaign slogan at a White House celebration with Republican lawmakers. “Ultimately what does it mean? It means jobs, jobs, jobs.”

Trump, who emphasized a tax cut for middle-class Americans during his 2016 campaign, said at an earlier Cabinet meeting that lowering the corporate tax rate from 35 percent to 21 percent was “probably the biggest factor in this plan.”

It was uncertain when the bill would be signed. White House economic adviser Gary Cohn said the timing depended on whether automatic spending cuts triggered by the legislation could be waived. If so, the president will sign it before the end of the year, he said.

The administration expects the waiver to be included in a spending resolution Congress will pass later this week, a White House official told reporters.

BUSINESS FRIENDLY

In addition to cutting the U.S. corporate income tax rate to 21 percent, the debt-financed legislation gives other business owners a new 20 percent deduction on business income and reshapes how the government taxes multinational corporations along the lines the country’s largest businesses have recommended for years.

Millions of Americans would stop itemizing deductions under the bill, putting tax breaks that incentivize home ownership and charitable donations out of their reach, but also making tax returns somewhat simpler and shorter.

The bill keeps the present number of tax brackets but adjusts many of the rates and income levels for each one. The top tax rate for high earners is reduced. The estate tax on inheritances is changed so far fewer people will pay.

Once signed, taxpayers likely would see the first changes to their paycheck tax withholdings in February. Most households will not see the full effect of the tax plan on their income until they file their 2018 taxes in early 2019.

In two provisions added to secure needed Republican votes, the legislation also allows oil drilling in Alaska’s Arctic National Wildlife Refuge and removes a tax penalty under the Obamacare health law for Americans who do not obtain health insurance.

“We have essentially repealed Obamacare and we’ll come up with something that will be much better,” Trump said.

Democrats were united in opposition to the tax legislation, calling it a giveaway to the wealthy that will widen the income gap between rich and poor, while adding $1.5 trillion over the next decade to the $20 trillion national debt. Trump promised in 2016 he would eliminate the national debt as president.

“PILLAGING”

“Today the Republicans take their victory lap for successfully pillaging the American middle class to benefit the powerful and the privileged,” House Democratic leader Nancy Pelosi said.

Opinion polls show the tax bill is unpopular with the public and Democrats promised to make Republicans pay for their vote during next year’s congressional elections, when all 435 House seats and 34 of the 100 Senate seats will be up for grabs.

“Republicans will rue the day they passed this bill,” Senate Democratic leader Chuck Schumer told reporters. “We are going to continue hammering away about why this bill is so unpopular.”

U.S. House Speaker Paul Ryan defended the bill, saying support would grow for after it passes and Americans felt relief. “I think minds are going to change,” Ryan said on ABC’s “Good Morning America” television program.

A few Republicans, a party once defined by fiscal hawkishness, have protested the deficit-spending encompassed in the bill. But most voted for it anyway, saying it would help businesses and individuals while boosting an already expanding economy they see as not growing fast enough.

In the House, 12 Republicans voted against the tax bill. All but one, Walter Jones of North Carolina, were from the high-tax states of New York, New Jersey and California, which will be hit by the bill’s cap on deductions for state and local taxes.

Despite Trump administration promises that the tax overhaul would focus on the middle class and not cut taxes for the rich, the nonpartisan Tax Policy Center, a think tank in Washington, estimated middle-income households would see an average tax cut of $900 next year under the bill, while the wealthiest 1 percent of Americans would see an average cut of $51,000.

The House was forced to vote again after the Senate parliamentarian ruled three minor provisions violated arcane Senate rules. To proceed, the Senate deleted the three provisions and then approved the bill.

Because the House and Senate must approve the same legislation before Trump can sign it into law, the Senate’s late Tuesday vote sent the bill back to the House.

Graphic: Republican tax bill’s tax brackets and rates – http://tmsnrt.rs/2BJnrIV

Graphic: U.S. debt level since 1950 – http://reut.rs/2B3Yl3C

(Reporting by David Morgan and Amanda Becker; Additional reporting by Richard Cowan, Roberta Rampton, Gina Chon and Susan Heavey; Writing by John Whitesides; Editing by Jeffrey Benkoe and Bill Trott)

U.S. home sales hit 11-year high in November, supply still tight

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012.

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. home sales increased more than expected in November, hitting their highest level in nearly 11 years, the latest indication that housing was regaining momentum after almost stalling this year.

The National Association of Realtors said on Wednesday that existing home sales surged 5.6 percent to a seasonally adjusted annual rate of 5.81 million units last month amid continued recovery in areas in the South ravaged by Hurricanes Harvey and Irma. That was the highest level since December 2006 and followed an upwardly revised 5.50 million-unit pace in October.

Economists polled by Reuters had forecast home sales rising 0.9 percent to a 5.52 million-unit rate in November from a previously reported 5.48 million-unit pace in October.

Existing home sales make up about 90 percent of U.S. home sales. They rose 3.8 percent on a year-on-year basis in November.

The NAR said sales in the South, which accounts for almost half of the existing homes sales market, increased 8.3 percent last month. Sales rose 6.7 percent in the Northeast and jumped 8.4 percent in the Midwest. They, however, fell 2.3 percent in the West, which has seen a strong increase in house prices.

Despite the recent gains, existing home sales remain constrained by a chronic shortage of houses at the lower end of the market, which is keeping prices elevated and sidelining some first-time buyers, who accounted for 29 percent of transactions last month.

Economists and realtors say a 40 percent share of first-time buyers is needed for a robust housing market.

The number of previously owned homes on the market dropped 7.2 percent to 1.67 million units in November. That was the second lowest reading since 1999. Housing inventory has dropped for 30 straight months on a year-on-year basis.

At November’s sales pace, it would take a record low 3.4 months to exhaust the current inventory, down from 3.9 months in October. A six-month supply is viewed as a healthy balance between supply and demand.

With supply still tight, the median house price increased 5.8 percent from a year ago to $248,000 in November. That was the 69th consecutive month of year-on-year price gains. In contrast, annual wage growth has struggled to break above 2.9 percent since the 2007/09 recession ended.

The report came on the heels of data this week showing homebuilder confidence vaulting to a near 18-1/2-year high in December and single-family homebuilding and permits rising in November to levels last seen in the third quarter of 2007.

TAX REVAMP WILL HURT HOUSE PRICES

The NAR said it anticipated a slightly negative impact on the housing market from the Republican overhaul of the U.S. tax code.

The biggest overhaul of the tax system in more than 30 years, which could be signed into law by President Donald Trump soon, will cap the deduction for mortgage interest at $750,000 in home loan value for residences bought from Jan. 1, 2018, through Dec. 31, 2025.

After Dec. 31, 2025, the cap would revert to $1 million in loan value. It suspends the deduction for interest on home equity loans from Jan. 1, 2018 until 2026. The NAR said about 94 percent of homeowners would fall under the $750,000 cap.

Moody’s Analytics chief economist Mark Zandi has warned that the tax revamp would weigh on house prices, with the Northeast corridor, South Florida, big Midwestern cities, and the West Coast suffering the biggest price declines.

“The hit to national house prices is estimated to be near 4 percent at the peak of their impact in summer 2019,” said Zandi. “That is, national house prices will be approximately 4 percent lower than they would have been if there was no tax legislation.”

The PHLX housing index was trading higher in line with a broadly firmer stock market. The dollar slipped against a basket of currencies. Prices for U.S. Treasuries fell.

The government reported on Tuesday that single-family homebuilding, which accounts for the largest share of the housing market, jumped 5.3 percent in November to the highest level since September 2007.

Permits for the future construction of these housing units rose 1.4 percent to a level not seen since August 2007. Housing completions continued to lag at a rate of 1.116 million units.

Realtors estimate that the housing starts and completions rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

An update on winners and losers on the U.S. tax scorecard

A man walks the campus of the City College of New York in the Harlem borough of New York, U.S., December 16, 2017. REUTERS/Eduardo Munoz

By Beth Pinsker

NEW YORK (Reuters) – In the lead-up to the conference agreement for the U.S. Tax Cut & Jobs Act released on Friday, there were too many moving parts for most Americans to know how it would affect them.

Until the bill is voted into law, the various provisions are still a moving target, but taxpayers now have a better sense of the real math of what it means to them.

Here is an update on what some of the key issues would mean to your wallet:

* EDUCATION

Graduate students pleaded with Congress not to adopt the U.S. House of Representatives’ proposal to make tuition waivers count as taxable income. In the end, the conference bill left that provision out.

The final bill still allows for individuals to deduct up to $2,500 in student loan interest and retains the current selection of higher education tax credits.

Teachers can continue to deduct up to $250 in supplies. Employees can still receive tuition without claiming it as income.

However, the bill changes the rules for the use of contributions to 529 college savings plans. In the past, the funds could only be distributed for higher education expenses. The final bill allows for $10,000 a year to be taken for each child’s K-12 expenses.

* CHARITABLE DEDUCTIONS

The charitable deduction was never going to go away, but experts predict many fewer people will itemize deductions under the new rules, which almost double the standard deductions and get rid of personal exemptions.

People who expect not to itemize their taxes in the future should think about making major donations before Dec. 31 to capture as many tax advantages as they can.

The compromise in the tax bill to double the estate tax exemption also would affect charitable giving because fewer wealthy people will need to donate assets to avoid going over the limit and sticking their heirs with a tax bill.

* CHILD TAX CREDITS

The conference bill settles on a $2,000 per child deduction, with $1,400 of it refundable to people with no income tax liability. The deduction is now phased out at a much higher income level.

These credits will help offset the tax bill’s removal of personal exemptions, which would hit families with children hard.

* MEDICAL DEDUCTIONS

There is good news for those worrying that the tax overhaul will do away with the itemized deduction for medical expenses.

The conference bill not only keeps the deduction, it also makes it available for expenses above 7.5 percent of adjusted gross income for the next two years, rather than the recently established 10 percent threshold.

* ALIMONY

Get ready for a flood of divorces in 2018. The final bill does away with a tax deduction for paying alimony and with the need for those receiving alimony to claim it as income, but it delays this until 2019.

Those who were rushing to get divorced by Dec. 31 can take a deep breath. But as the news sinks in, expect couples where one spouse is anticipating alimony to file for divorce sooner rather than later, or face tough negotiations on how much he or she might get.

* STATE AND LOCAL TAXES

The compromise in the final bill is that filers will be able to claim $10,000 in some combination of state and local taxes, including real estate taxes. The cap on mortgage interest was bumped down from $1 million to $750,000.

There has been a lot of worry that the proposed changes would dampen home sales because it will change the math on affordability. While the final bill ended up better for homeowners than expected, there are still lingering questions about its impact.

* BRACKETS AND AMT

For those on the lower end of the income scale, the change in brackets will probably not be top of mind, at least until the Internal Revenue Service sorts out the final tax tables and starts to adjust withholding rates, probably sometime in late winter.

Wealthy Americans are getting somewhat of a mixed bag, however. The top rate is dropping to 37 percent, but the Alternative Minimum Tax remains.

While this sounds like something to mourn, the AMT might not have as big an impact as people generally believe.

* RETIREMENT SAVINGS

When the tax overhaul process started, the way we save for retirement was on the table for big changes, including to workplace 401(k) retirement savings plans. In the end, however, Congress left it all pretty much alone.

(Editing by Lauren Young and Lisa Von Ahn)

Long-awaited U.S. Republican legislation calls for deep tax cuts

A congressional aide places a placard on a podium for the House Republican's legislation to overhaul the tax code on Capitol Hill.

By David Morgan and Amanda Becker

WASHINGTON (Reuters) – President Donald Trump’s drive for the deep tax cuts that he promised as a candidate reached a major milestone on Thursday, with his fellow Republicans in the House of Representatives unveiling long-awaited legislation to overhaul the tax code.

The bill called for slashing the corporate tax rate to 20 percent from 35 percent and cutting tax rates on individuals and families by consolidating the current number of tax brackets to four from seven: 12 percent, 25 percent, 35 percent and 39.6 percent, which is now the top rate and would be retained.

Largely in line with expectations for the tax-cut plan they have been developing behind closed doors for weeks, the House tax-writing Ways and Means Committee proposed roughly doubling the standard deduction for individuals and families.

It also called for preserving the home mortgage interest deduction for existing mortgages and for newly purchased homes up to $500,000, as well as continuing the deduction for state and local property taxes, capped at $10,000. It would retain the tax benefits of popular retirement savings programs including 401(k) and IRA.

The bill is the starting gun for a frantic race toward what Trump and Republicans in the House and Senate hope will be their first major legislative victory since he took office in January: the enactment this year of a package of deep tax cuts.

“This is the beginning of the end of this horrible tax code,” House Ways and Means Committee Chairman Brady told reporters on Thursday as he entered a meeting with Republican lawmakers ahead of the bill’s release.

The bill would create a new family tax credit, double exemptions for estate taxes on inherited assets and repeal the estate tax over six years, while also allowing small businesses to write off loan interest, according to the document.

The bill would cap the maximum tax rate on small businesses and other non-corporate enterprises at 25 percent, down from the present maximum rate on “pass-through” income of 39.6 percent. It would also set standards for distinguishing between individual wage income and actual pass-through business income to prevent tax-avoidance abuse of the new, lower tax level.

It would create a new 10-percent tax on U.S. companies’ high-profit foreign subsidiaries, calculated on a global basis, in a move to prevent companies from moving profits overseas, the Wall Street Journal reported.

Foreign businesses operating in the United States would face a tax of up to 20 percent on payments they make overseas from their American operations, the Journal added.

 

MARKET REACTION

U.S. equities have rallied in 2017 to a series of record highs, partly on expectations of deep corporate tax cuts. They were down slightly on Thursday as initial details of the Republican plan emerged. Housing stocks fell; bank stocks initially fell but then cut their losses.

Investors cautioned the tax plan was preliminary and it was too soon to gauge the effect on specific industries and asset classes. Long-dated bond yields and the U.S. dollar were down.

“This was what the market has been waiting for,” said Sean Simko, head of fixed-income management at Sei Investments Co in Pennsylvania. “It’s pretty much what the market has heard and priced in for. We are also waiting for the Fed chair nominee announcement and the payrolls number (Friday). Until then, the markets are going to be pretty contained.”

Congress has not succeeded with comprehensive tax changes since 1986, when Republican Ronald Reagan was in the White House and Democrats controlled the House. Bipartisan cooperation led to the passage of that plan, but Republicans have frozen Democrats out of the process of developing this legislation and passed a budget plan that would enable them to pass it with no Democratic votes.

Independent analysts have said that, based on an outline of the plan previously made public, corporations and the wealthiest Americans would benefit the most, and the federal deficit would be greatly expanded over the next decade because of a loss of tax revenue.

Trump said at the White House this week that he wanted Congress to pass the tax overhaul by the U.S. Thanksgiving holiday on Nov. 23.

Trump, House Republican leaders and Republican members of Brady’s panel will then meet at the White House on Thursday afternoon. Trump is also meeting separately with Republican senators, who must also unite to pass the tax plan.

“We’re going to get it done,” added House Republican leader Kevin McCarthy.

Brady himself predicts the initial legislation will change next week, when his panel is due to begin preparing it for an eventual House vote.

While Republicans control the White House and both chambers of Congress, intra-party differences have prevented them from passing major legislation sought by Trump, as exemplified by the collapse of their effort to dismantle the Obamacare law. Any failure to pass tax cuts legislation would call into question Republicans’ basic ability to deliver on promises.

The bill must also pass the Senate, where Republicans hold a slimmer 52-48 majority and earlier this year failed to garner enough votes to pass a major healthcare overhaul. Senate Republican leaders have said they aim to finish their work on taxes by year-end.

Democrats have criticized the proposed tax cuts as a giveaway to corporations and the wealthy that would harm workers and middle-class Americans.

 

 

(Reporting by Amanda Becker and David Morgan; Additional reporting by Richard Leong, Susan Heavey and Susan Cornwell; Writing by Will Dunham; Editing by Lisa Von Ahn and Nick Zieminski)