The sweeping tax reform bill has finally passed both houses of Congress and will soon make its way to the President for his expected signature. At the last minute, a number of provisions were removed from the bill, including a provision allowing Section 529 account funds to be used for home schooling expenses. Meanwhile, another bill was introduced in the Senate that would retroactively extend expired provisions, including a number of energy-related tax breaks and the deduction for qualified tuition.
One of the major new deductions in the bill is the pass-through deduction. Below is a summary of how the new pass-through limits work in the tax plan.
The House and Senate blended their provisions on a crucial piece of the new tax
break for pass-through businesses that aren’t in professional service industries.
The final version combines the two approaches. Now, the 20% deduction is capped at either 50% of wages or 25% of wages plus 2.5% of capital assets, whichever is greater.
Compared to the Senate bill, that’s a benefit for capital-intensive companies that don’t pay a lot of wages or any wages at all.
These limits only apply for businesses whose owners have individual income exceeding
$157,500 or joint filer income of $315,000.