On the evening of Dec. 15, congressional leaders unveiled the final conference committee report for Tax Cuts and Jobs Act.
As with any major piece of legislation, there are positive and negative aspects. However, the final agreement contains many of AED’s recommendations to the conference committee, including a lower rate for most pass-throughs (including trusts and estates), the ability for construction equipment dealers to take advantage of full expensing of new and used equipment and business interest initially capped at 30 percent of earnings before interest, tax, depreciation and amortization (EBITDA), as opposed to significantly more restrictive proposals.
Additionally, the final agreement is a significant benefit to your customers and manufacturers, which should spur growth in the broader construction sector. The House and Senate are poised to approve the bill and send it to the president’s desk by the end of the week.
AED strongly encourages you to have your CPA/tax attorney review the final agreement to determine its effect on your company. Be sure to join AED in Las Vegas, Jan. 15-19, for the 2018 Summit & CONDEX where there will be educational sessions on the new tax law and its impact on AED members.
Highlights of the Tax Cuts and Jobs Act final conference agreement include:
Rates. For pass-through entities, there will be a 20 percent deduction for business income. This deduction is subject to a limit based on the greater of 50 percent of W-2 wages paid in your business or the sum of 25 percent of W-2 wages plus 2.5 percent of the basis of your depreciable property (expires after 2025). There is no limitation on trusts and estates receiving the 20 percent deduction. A permanent corporate rate of 21 percent is effective January 1, 2018.
Dealer floor plan. “Construction machinery and equipment” was omitted from the dealer floor plan provision in the final agreement, ensuring construction equipment dealers can take advantage of the conference report’s full expensing provision (the House-passed proposal would have carved out construction dealers from utilizing full expensing in exchange for higher business interest).
Expensing. Full expensing for new and used property acquired between September 28, 2017 and December 31, 2022. Thereafter, the bonus depreciation percentage decreases by 20 points per year, phasing out entirely by 2027. Section 179 expensing levels were also increased to $1 million with a $2.5 million phaseout.
Interest deductibility. The final bill caps business interest at 30 percent of EBITDA through 2021 before moving to a 30 percent of EBIT formula thereafter. Disallowed business interest is allowed to be carried forward indefinitely.
Estate tax. Doubles the estate tax exemption levels to about $11 million per individual/$22 million per couple through 2025.
AMT. Corporate AMT is repealed
LKE. Repeals LKE for personal property. The provision doesn’t apply to an exchange if (A) the property disposed of by the taxpayer in the exchange is disposed of on or before December 31, 2017, or (B) the property received by the taxpayer in the exchange is received on or before December 31, 2017
The final conference report doesn’t touch LIFO and also continues to permit the tax exempt status of private activity bonds, an important tool for infrastructure investment.
For questions about this or other legislative issues, please contact AED’s Vice President of Government Affairs Daniel B. Fisher.