H.R. 137 — TCJA Permanency Act

This section modifies the individual income tax rate schedules under section 1 of the Internal Revenue Code by replacing the existing bracket tables for married individuals filing joint returns and surviving spouses, heads of households, unmarried individuals, married individuals filing separate returns, and estates and trusts with new bracket thresholds and tax amounts. It sets the top marginal rate at 37 percent for taxable income over $600,000 for joint filers, over $500,000 for heads of households and unmarried individuals, over $300,000 for married individuals filing separately, and over $12,500 for estates and trusts. This section also revises the inflation adjustment rules for individual income tax brackets by changing the indexing base year to 2017 (from 2016), eliminating the prior phaseout-of-marriage-penalty heading, and requiring bracket increases to be rounded down to the nearest $25, or to the nearest $50 for joint returns and related filing statuses. It further revises the taxation of long-term capital gains and qualified dividends under section 1(h) by changing the reference rate from 25 percent to 22 percent, replacing the prior 39.6-percent threshold language with a reference to the maximum 15-percent rate amount, and establishing new maximum 15-percent rate amounts of $479,000 for joint returns and surviving spouses, $452,400 for heads of households, $425,800 for other individuals, and $12,700 for estates and trusts, with those amounts indexed for inflation beginning in calendar year 2017. It also sets the 0-percent capital gains bracket amount for estates and trusts at $2,600.

This section terminates the deduction for qualified business income under section 199A of the Internal Revenue Code by striking subsection (i). (Thus, taxpayers may no longer claim the 20 percent deduction for qualified business income for taxable years beginning after the date of enactment.)

This section makes permanent the limitation on excess business losses for taxpayers other than corporations by striking the current expiration date and providing that any excess business loss for a taxable year is not allowed. As background, the excess business loss limitation under section 461 of the Internal Revenue Code caps the amount of business losses that noncorporate taxpayers may use to offset other income in a given year, with disallowed losses generally carried forward under the net operating loss rules. The section also makes conforming changes to cross-references in sections 58, 464, 1256, and 1258 of the Code, and applies the amendments to taxable years beginning after the date of enactment.

This section increases the standard deduction under section 63(c) of the Internal Revenue Code to $18,000 for single filers and $12,000 for married individuals filing jointly, from $4,400 and $3,000, respectively. It also revises the inflation-adjustment formula so that these amounts, along with other specified dollar amounts in section 63(c) and the personal exemption amount under subsection (f), are indexed to inflation using updated base years of 2017, 1987, and 1997, depending on the provision, with any increase rounded down to the nearest $50. The section strikes section 63(c)(7) and applies these amendments to taxable years beginning after the date of enactment.

This section increases and revises the child tax credit under section 24 of the Internal Revenue Code by (1) setting the credit at $2,000 for each qualifying child and $500 for each qualifying dependent other than a qualifying child, (2) reducing the credit by $50 for each $1,000 of modified adjusted gross income above $400,000 for joint filers ($200,000 for other filers), and (3) defining a qualifying child as a dependent under age 17 with a name and Social Security number on the return. As background, the child tax credit is a nonrefundable individual income tax credit that reduces tax liability for families with children and other dependents. This section also revises the refundable portion of the credit by allowing refundability based on $1,400 of the $2,000 child credit (from $2,000), reducing the earned income threshold used in the refundable calculation to $2,500 (from $3,000), and adding an inflation adjustment for the $1,400 refundable amount, capped at a $600 increase. It further tightens the taxpayer identification requirement by allowing the credit only if the taxpayer’s identifying number was issued on or before the return due date, and repeals later-enacted child tax credit provisions in subsections (i), (j), and (k) of section 24, section 7527A, and related conforming references. The amendments apply to taxable years beginning after the date of enactment.

This section increases the limitation on deductible cash charitable contributions to public charities under section 170(b)(1)(G) of the Internal Revenue Code to 60 percent of the taxpayer’s contribution base for the taxable year, reduced by the amount of contributions allowable under section 170(b)(1)(A) for that year, and allows any excess to be carried forward for 5 succeeding years. It also revises the coordination rules for the 50 percent and 30 percent limitations under section 170(b)(1)(A) and (B) so that cash gifts subject to the new 60 percent rule are excluded from the 50 percent limitation and are counted in determining the 30 percent limitation, including a rule that permits charitable contributions under subparagraph (G) to fill up to 10 percent of the taxpayer’s contribution base within the combined limitation calculation. The amendments apply to contributions made in taxable years beginning after the date of enactment.

This section revises the contribution rules for Achieving a Better Life Experience (ABLE) accounts under section 529A of the Internal Revenue Code by removing the January 1, 2026, expiration date on the rule allowing certain contributions from the compensation of individuals with disabilities, and it also removes the January 1, 2026, expiration date on the saver’s credit for ABLE contributions made by an account holder under section 25B. (Thus, the higher contribution treatment and related tax credit remain available for taxable years beginning after the date of enactment, rather than ending before January 1, 2026.)

This section revises the rules for tax-free rollovers from qualified tuition programs under section 529 of the Internal Revenue Code to Achieving a Better Life Experience (ABLE) accounts by striking the January 1, 2026, expiration date for those rollovers. (Thus, eligible distributions made after enactment of this Act may continue to be rolled over from a 529 plan to an ABLE account without regard to the prior sunset date.)

This section revises the definition of a combat zone for tax purposes under section 112(c) of the Internal Revenue Code to include the Sinai Peninsula of Egypt, in addition to any area designated by the President as a combat zone. It also provides that service in the Sinai Peninsula qualifies for combat-zone tax treatment only during periods when one or more members of the Armed Forces are entitled to hostile-fire or imminent-danger special pay under 37 U.S.C. § 310 for service in that area. The section repeals section 11026 of the Tax Cuts and Jobs Act and applies the amendments to services performed on or after the date of enactment.

This section terminates the existing exclusion from gross income for certain student loan discharges after December 31, 2024, by moving the sunset date in 26 U.S.C. § 108(f)(5) to January 1, 2025 (from January 1, 2026). It also reinstates, for discharges after December 31, 2024, the tax exclusion for loan forgiveness on account of death or total and permanent disability. As background, this tax rule prevents borrowers from owing federal income tax on canceled debt when a student loan or private education loan is discharged because the borrower dies or becomes totally and permanently disabled. The new rule applies to discharges under the Higher Education Act of 1965, including repayment-related discharge authorities under section 437 and section 464(c)(1)(F), and to other discharges based on death or total and permanent disability.

This section expands the definition of qualified higher education expenses under section 529 of the Internal Revenue Code of 1986 to include, for students enrolled in or attending an elementary or secondary public, private, or religious school, (1) tuition, (2) curriculum and curricular materials, (3) books or other instructional materials, (4) online educational materials, (5) tutoring or educational classes outside the home if provided by an unrelated tutor or instructor who is licensed as a teacher in any State, has taught at an eligible educational institution, or is a subject matter expert in the relevant subject, (6) fees for nationally standardized norm-referenced achievement tests, advanced placement examinations, or college or university admission examinations, (7) fees for dual enrollment in an institution of higher education, and (8) educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies. This section also includes these same expenses for a homeschool, whether treated as a homeschool or a private school under applicable State law. (Thus, 529 account distributions may be used for a broader range of K-12 and homeschool expenses.) The amendment applies to distributions made after the date of enactment.

This section repeals the deduction for personal exemptions by repealing part V of subchapter B of chapter 1 of the Internal Revenue Code, redesignating section 152 as new section 7706 at the end of chapter 79, and making conforming changes throughout the Code to replace references to the former dependency rules and exemption amount with the new section 7706 framework. As background, the personal exemption deduction previously reduced taxable income for the taxpayer, spouse, and dependents, while the dependency rules determine who qualifies for tax benefits such as the child tax credit, the credit for other dependents, the earned income tax credit, the child and dependent care credit, and education credits. This section revises the rules for trusts and estates under section 642(b) by replacing the reference to “the exemption amount under section 151(d)” with “the dollar amount in effect under section 7706(d)(1)(B),” striking paragraph (3), and changing the heading from “Deduction For Personal Exemption” to “Basic Deduction.” It also strikes the nonresident alien exemption rule in section 873(b)(3). This section modifies the individual income tax return filing threshold under section 6012(a)(1) so that a return is not required for: (1) an unmarried individual whose gross income does not exceed the standard deduction under section 63, or (2) a married individual eligible to file jointly if the couple’s combined gross income does not exceed the joint standard deduction under section 63, the spouse does not file separately, and neither spouse is an individual described in section 63(c)(4) with unearned income above the amount in section 63(c)(4)(A). It also changes the filing rule for bankruptcy estates under section 6012(a)(8) from the sum of the exemption amount plus the basic standard deduction under section 63(c)(2)(C) to the standard deduction in effect under section 63(c)(1)(B), and strikes subsection (f) of section 6012. This section makes numerous conforming amendments across the tax code to replace references to section 152 and section 151 with the redesignated section 7706 and to substitute dependency-based references for references tied to the personal exemption deduction. These changes affect provisions governing filing status, the child tax credit, the credit for other dependents, the earned income tax credit, the child and dependent care credit, the American opportunity and lifetime learning credits, and related rules for identifying dependents and qualifying children.

This section revises the limitation on individual deductions for State and local taxes under section 164 of the Internal Revenue Code by (1) disallowing any deduction for foreign real property taxes and (2) capping the combined deduction for State and local income, sales, and property taxes, plus certain other specified taxes, at $10,000 ($5,000 for a married individual filing a separate return). The amendment applies to taxable years beginning after the date of enactment.

This section limits the deduction for qualified residence interest by revising the home mortgage interest rules under 26 U.S.C. § 163(h)(3). It replaces the current reference to interest on home equity indebtedness with a rule allowing a deduction only for interest on acquisition indebtedness secured by a qualified residence of the taxpayer. This section lowers the maximum amount of acquisition indebtedness eligible for the deduction to $750,000 ($375,000 for a married individual filing separately) from $1,000,000 ($500,000 for a married individual filing separately), while preserving separate treatment for pre-December 15, 2017, indebtedness. As background, the qualified residence interest deduction allows taxpayers to deduct interest on certain home loans; thus, the amendment reduces the principal amount of newer home mortgage debt that can generate deductible interest. This section also revises the grandfather rule for indebtedness incurred on or before December 15, 2017, by providing that such pre-December 15, 2017, indebtedness is not subject to the new $750,000 limit and may be treated as acquisition indebtedness up to $1,000,000 ($500,000 for a married individual filing separately), reduced by any outstanding pre-October 13, 1987, indebtedness. It defines pre-December 15, 2017, indebtedness as debt incurred on or before December 15, 2017, other than pre-October 13, 1987, indebtedness, and includes a binding written contract exception for taxpayers who contracted before December 15, 2017, to buy a principal residence before January 1, 2018, and purchased it before April 1, 2018. It also provides that refinancing debt is treated as incurred on the date of the original debt to the extent the refinancing does not exceed the refinanced amount, but only until the original term ends or, if the original debt was not amortized, until the first refinancing term ends or 30 years after that first refinancing, whichever is earlier. This section makes conforming changes to the coordination rules for pre-October 13, 1987, indebtedness and to the exclusion from income for discharge of indebtedness under 26 U.S.C. § 108(h)(2), substituting the new $750,000 ($375,000) limit for the prior $1,000,000 ($500,000) limit. It also strikes a now-obsolete conforming provision in 26 U.S.C. § 163(h)(3)(F). This section applies these amendments to taxable years beginning after the date of enactment.

This section revises the deduction for personal casualty losses under 26 U.S.C. § 165(h) by striking the limitation that applied only to taxable years beginning after December 31, 2017, and before January 1, 2026, and by conforming the subsection heading to apply to losses attributable to federally declared disasters. As a result, taxpayers may claim the personal casualty loss deduction for losses sustained in taxable years beginning after the date of enactment, rather than only for losses sustained during 2018 through 2025.

This section terminates miscellaneous itemized deductions for individuals by amending section 67 of the Internal Revenue Code to provide that, in the case of an individual, miscellaneous itemized deductions are not allowed, and by striking the existing 2-percent floor rules and related definitions. It also moves the adjusted gross income (AGI) computation rule for estates and trusts from section 67 to section 641, providing that an estate’s or trust’s AGI is computed in the same manner as an individual’s AGI, except that administration expenses and deductions under sections 642(b), 651, and 661 are treated as allowable in arriving at AGI. The section makes conforming changes to the alternative minimum tax rules, the definition of AGI, the estimated tax rules, and the net investment income tax provisions, and it renames section 67 to “Denial of miscellaneous itemized deductions.” These amendments apply to taxable years beginning after the date of enactment.

This section repeals the overall limitation on itemized deductions under section 68 of the Internal Revenue Code and makes conforming changes to related tax provisions. As background, the repealed limitation generally reduced certain itemized deductions for higher-income taxpayers. The section also revises the state and local tax deduction rules by replacing the current section 68-based income thresholds with new “applicable amount” thresholds of $300,000 for joint returns and surviving spouses, $275,000 for heads of household, $250,000 for single filers, and one-half of the joint-return amount for married individuals filing separately, with annual inflation adjustments beginning for taxable years after enactment. The amendments apply to taxable years beginning after the date of enactment.

This section terminates the exclusion for qualified bicycle commuting reimbursements under 26 U.S.C. § 132(f), which currently allows employees to exclude up to $20 per month from gross income for employer-provided bicycle commuting benefits. (Thus, amounts paid or reimbursed for bicycle commuting expenses will no longer be tax-free for taxable years beginning after the date of enactment.)

This section limits the qualified moving expense reimbursement exclusion under section 132(g) of the Internal Revenue Code to a qualified military individual, defined as a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station. (Thus, only active-duty service members moving under permanent change-of-station orders may exclude employer-reimbursed moving expenses from gross income for taxable years beginning after the date of enactment.)

This section limits the deduction for moving expenses under section 217 of the Internal Revenue Code to moving expenses paid or incurred by a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station. It also excludes from gross income any moving and storage expenses furnished in kind, or reimbursed or allowed to the extent of actual expenses, for such a member or the member’s spouse or dependents, and it extends that treatment to a spouse and dependents who move to or from a different location than the service member. (Thus, the deduction and related tax exclusion no longer apply to most taxpayers and are available only in connection with military moves.) This section also makes conforming changes to section 23 and section 7872 of the Internal Revenue Code, revises the heading of section 217 to “Certain moving expenses of members of Armed Forces,” and updates the table of sections accordingly. The amendments apply to taxable years beginning after the date of enactment of this Act.

This section revises the limitation on wagering losses under 26 U.S.C. § 165(d) by striking the rule that applies only to taxable years beginning after December 31, 2017, and before January 1, 2026. (Thus, the current limitation on deducting wagering losses would continue to apply to taxable years beginning after the date of enactment, rather than expiring after December 31, 2025.)

This section increases the unified estate and gift tax exemption under 26 U.S.C. § 2010(c)(3) to $10 million (from $5 million) and strikes the inflation-adjustment provision in 26 U.S.C. § 2010(c)(3)(C). (Thus, the amount that can be transferred during life or at death without incurring federal estate or gift tax is doubled for estates of decedents dying and gifts made after enactment.)