Tax Law Signed into Law – How Pass-Through Limitations Work
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.