Tax reform cleared its first major hurdle in Congress on November 16 when the House passed its version of the bill by a 227-to-205 vote mainly along party lines. (No Democrats voted for it.) But the legislation, which would generally be effective for tax years beginning after 2017, still has a long way to go around the track before it hits the finish line.

The bill approved by the House contains many of the measures proposed during the past year by the Trump administration and GOP lawmakers. The following provisions may be of particular interest:

Individual Tax Provisions

Tax rates: The current tax rate structure of seven brackets would be replaced by just four brackets of 12%, 25%, 35% and 39.6%. (Note that the top rate will remain at 39.6%.)  In addition, a “bubble tax” of 6% would apply to a portion of adjusted gross income (AGI) above $1 million.

Standard deduction: The bill essentially doubles the standard deduction from $6,350 to $12,200 for single filers and from $12,700 to $24,400 for joint filers. Combined with other proposed tax law changes, many more taxpayers will be claiming the standard deduction in lieu of itemizing deductions.

Personal exemptions: Currently, a taxpayer is entitled to claim a personal exemption of $4,050 for himself or herself, a spouse and each qualified dependent. The bill eliminates all personal exemptions.

Itemized deductions: The bill repeals most itemized deductions while preserving tax breaks for charitable donations and disaster-area casualty losses. The deduction for mortgage interest would be reduced to cover $500,000 of acquisition debt, down from $1 million, but interest deductions for existing loans would be grandfathered. The state and local tax deduction, a lightening rod for controversy in high-tax states, would be limited to property taxes of up to $10,000.

Child tax credit: The child tax credit for children under age 17, which is currently $1,000, would be increased to $1,600, subject to certain restrictions. However, the extra $600 would not be refundable, unlike the $1,000 base credit.

Alternative minimum tax: The alternative minimum tax (AMT), which was designed to affect only the wealthiest taxpayers but has been a thorn in the side of millions of others, would be completely repealed.

Family tax credit: The new legislation would create a new $300 nonrefundable tax credit for each taxpayer as well as any non-child dependent such as an older child or an elderly relative. However, the credit would have a short shelf life and would expire after five years.

Recharacterizations: Although most retirement plan rules would remain intact, the House bill repeals the rule allowing a taxpayer to recharacterize a Roth IRA back into a traditional IRA. Typically, recharacterizations are used when the value of the taxpayer’s account drops.

Business Tax Provisions

Corporate tax rates: One of the main tent poles in the new legislation is a reduction in the top corporate tax rate from 35% to 20%. After much debate, lawmakers made the corporate tax rate permanent.

Repatriation tax: Under the House-approved bill, a one-time tax of 14% would apply to existing foreign profits being held in offshore accounts. In addition, foreign profits invested in non-cash assets offshore would be taxed at the rate of 7%. The law gives companies up to eight years to pay up.

Business deductions and credits: The new bill would add several key tax benefits for businesses while removing certain deductions and credits. For instance, it would effectively allow 100% Section 179 expensing of business property for a five-year period, but repeal the Section 199 manufacturing deduction and Work Opportunity Tax Credit (WOTC).

Finally, the new law would repeal the federal estate tax, a long-time target of GOP legislators, but not in one shot. The repeal would not completely take effect until 2024 and would be combined with a doubling of the estate tax exemption. Under current law, the exemption is $5 million (indexed to $5.49 million in 2017).

It’s still too early to take action based on these provisions, but the proceedings should continue to be monitored closely.  Stay tuned for significant developments.