A Look at the Proposed Tax Legislation

There have been a multitude of articles, discussions, and opinions about the House and Senate tax overhaul bills. Until now, we have not weighed in on the various proposals due to the high level of uncertainty about what may be included in the final bill. But this week there appears to be significant movement within the conference committee which leads us to believe that tax reform is very close to becoming a reality. With that in mind, we sat down with our Director of Tax, Matthew R. Hilbert, CPA/PFS for a brief Q&A.

1. What is the status of the tax legislation today?

The situation is completely fluid, but as of right now here are the details that have been made public about a number of the major compromises in the new version of the bill:

  • The top individual rate would be 37 percent
  • An aggregate deduction of $10,000 for state and local taxes (SALT)
  • The individual Alternative Minimum Tax (AMT) would be retained, but at a much higher income level than the Senate proposal
  • 21 percent corporate tax rate beginning in 2018
  • The mortgage interest deduction would be capped at $750,000
  • 20 percent deduction on pass-through income rate
  • The FIFO provision for sales and transfers of stock has been removed from the final legislation
  • The estate tax exemption would be doubled and remain unified with the gift tax and generational skipping transfer (GST) tax

2. What are the key aspects of the legislation that Pitcairn is focusing on?

The aspects of legislation that we believe will be most relevant to our clients are:

  • AMT – Based on how the bill is shaping up, AMT is likely to impact fewer of our clients moving forward
  • SALT – There is a limitation to $10,000. For our clients who have been subject to the AMT, this element of tax reform will not be a major factor. For those taxpayers in the highest tax brackets not subject to AMT, the loss of the SALT deduction is mitigated by the reduction in the highest marginal tax rate
  • Dates of provisions – It is critical that we understand when the provisions go into effect as some will not be applicable until 2018, but others may apply to 2017

3. Is there anything that may be done in 2017 in anticipation of the passing of new tax reform?

If you are subject to AMT, it is important to run the numbers to determine if there is an impact on your total tax liability for the following items: prepayment of SALT, acceleration of income, deferral of charitable contributions, etc. Our recommendation is “Don’t follow blanket rules” because your particular situation may result in different conclusions.

If you are not subject to AMT with the limitation on tax deductions going forward, it is beneficial to prepay your 2017 state and local income and property taxes prior to December 31. While the magnitude of the benefits of doing this will vary based on your individual circumstances, there is generally no downside to prepaying them.

4. When will we have an update?

As soon as a final bill is passed. We will be poised in the final days of 2017 to take action that we believe will benefit our clients. The Pitcairn team will update you as more information is available.


About Pitcairn

Pitcairn is a true family office and leader in helping families navigate the challenges and opportunities created by the interplay of family and financial dynamics. Through Wealth Momentum®, an experience-based family office model, Pitcairn helps families achieve a more effective and complete experience. Since its inception, Pitcairn has partnered with some of the world’s wealthiest families to meet their needs and drive better outcomes – year to year, decade to decade, generation to generation. Today, Pitcairn is recognized as an innovator, guiding families through generational transitions and redefining the industry standard for family offices. The firm is located in Philadelphia, with offices in New York and Washington, DC and a network of resources around the world.