If passed, when would the GOP tax plan take effect?
The Republican tax plan released on Thursday has no shortage of lofty goals and major changes to the current tax code. So when should consumers be prepared for the impact?
First, it's far from certain that the proposal will make it into law. Some economists and analysts are skeptical of its chances in its current form. Because the GOP plan limits some popular deductions such as the home mortgage interest tax break, it's already facing strong opposition from industry groups such as the National Association of Home Builders.
Assuming the legislation does make it to the desk of President Donald Trump, who has said he wants to sign it before year-end, how and when will it affect individuals? Most of the provisions would kick in on Jan. 1, 2018, which means the changes wouldn't have any impact on 2017 tax filings, due by April 15, 2018. Yet some consumers might want to consider shifting deductions into the current tax year if those tax breaks are at risk for disappearing in 2018.
"The one thing that one has control over to some degree is when they pay for a deductible expense, like the real estate tax and medical expenses," said Neil Becourtney, CPA and partner at accounting firm CohnReznick. Individual taxpayers "are on a cash basis, which means you report income in the year you receive it, and you claim deductions in the year you pay for them."
But some deductions would disappear or get capped under the GOP proposal, such as the deduction for property taxes, which would be limited to $10,000. Some homeowners facing property tax bills that exceed $10,000 could consider prepaying a portion of their 2018 property taxes in 2017 because they could deduct it this year, Becourtney said.
Of course, that's based on the assumption the Tax Cuts and Jobs Act will pass as currently written, which is unlikely. The proposal will undergo changes before it faces final votes in the House Ways and Means Committee and then the full House. The Senate has to unwrap its own tax legislation draft, and the two chambers will then reconcile their plans.
Because of the uncertainty, NerdWallet expert Andrea Coombes said consumers should sit tight but keep informed.
"Don't make any sudden changes based on the proposed law," Coombes, a NerdWallet investing and retirement expert, said in an email. "If it does become law this year, then there might be an opportunity to make some moves toward the end of the year, for example pushing income into 2018 if your income tax rate is going to be lower than it is this year."
Another economic group, Oxford Economics, put the odds of the House proposal's success at 60 percent.
"It won't be easy as various interest groups -- as well as some members of Congress -- are already opposing the proposal," noted Oxford's Nancy Vanden Houten, CFA and senior economist, and Gregory Daco, head of US economics, in a research note.
They added, "Since Republicans are desperate for a major accomplishment after repeated failures on health care reform, we believe they will manage to find a compromise to pass tax cut legislation. Many major GOP donors have threatened to close their check books if Congress fails to get this done."
If the tax reform bill isn't signed into law until early 2018, it would still likely be retroactive to Jan. 1 because there are precedents for similar retroactivity, Becourtney said.
How taxpayers fare under the plan will depend on everything from their geographic location -- residents in high-tax states are expected to be worse off -- to their income bracket. The GOP is billing the proposal as providing a break to the middle class, but many analyses show the wealthy and corporations will overwhelmingly enjoy the benefits.
The corporate tax rate would be reduced to 20 percent from 35 percent, allowing the country's biggest businesses to retain more of their profits. The wealthy would also receive some boons, such as an eventual elimination of the estate tax and the repeal of the alternative minimum tax.
That's likely to please some wealthy families, Becourtney noted.
Under current tax law, the estate tax kicks in for married couples with estates worth more than $11 million, but the GOP proposal would double the threshold to $22 million. After six years, the estate tax would be entirely repealed.
Becourtney added: "If you're someone who's worth hundreds of millions of dollars, you are probably thrilled with the idea that's in the proposal."