II 
Calendar No. 266 
115TH CONGRESS 
1ST SESSION 
H. R. 1 
IN THE SENATE OF THE UNITED STATES 
NOVEMBER 27, 2017 
Received; read the first time 
NOVEMBER 28, 2017 
Read the second time and placed on the calendar 
AN ACT 
To provide for reconciliation pursuant to titles II and V 
of the concurrent resolution on the budget for fiscal 
year 2018. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Tax Cuts and Jobs Act’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
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shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title; etc. 
TITLE I—TAX REFORM FOR INDIVIDUALS 
Subtitle A—Simplification and Reform of Rates, Standard Deduction, and 
Exemptions 
Sec. 1001. Reduction and simplification of individual income tax rates. 
Sec. 1002. Enhancement of standard deduction. 
Sec. 1003. Repeal of deduction for personal exemptions. 
Sec. 1004. Maximum rate on business income of individuals. 
Sec. 1005. Conforming amendments related to simplification of individual in-
come tax rates. 
Subtitle B—Simplification and Reform of Family and Individual Tax Credits 
Sec. 1101. Enhancement of child tax credit and new family tax credit. 
Sec. 1102. Repeal of nonrefundable credits. 
Sec. 1103. Refundable credit program integrity. 
Sec. 1104. Procedures to reduce improper claims of earned income credit. 
Sec. 1105. Certain income disallowed for purposes of the earned income tax 
credit. 
Subtitle C—Simplification and Reform of Education Incentives 
Sec. 1201. American opportunity tax credit. 
Sec. 1202. Consolidation of education savings rules. 
Sec. 1203. Reforms to discharge of certain student loan indebtedness. 
Sec. 1204. Repeal of other provisions relating to education. 
Sec. 1205. Rollovers between qualified tuition programs and qualified ABLE 
programs. 
Subtitle D—Simplification and Reform of Deductions 
Sec. 1301. Repeal of overall limitation on itemized deductions. 
Sec. 1302. Mortgage interest. 
Sec. 1303. Repeal of deduction for certain taxes not paid or accrued in a trade 
or business. 
Sec. 1304. Repeal of deduction for personal casualty losses. 
Sec. 1305. Limitation on wagering losses. 
Sec. 1306. Charitable contributions. 
Sec. 1307. Repeal of deduction for tax preparation expenses. 
Sec. 1308. Repeal of medical expense deduction. 
Sec. 1309. Repeal of deduction for alimony payments. 
Sec. 1310. Repeal of deduction for moving expenses. 
Sec. 1311. Termination of deduction and exclusions for contributions to medical 
savings accounts. 
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Sec. 1312. Denial of deduction for expenses attributable to the trade or busi-
ness of being an employee. 
Subtitle E—Simplification and Reform of Exclusions and Taxable 
Compensation 
Sec. 1401. Limitation on exclusion for employer-provided housing. 
Sec. 1402. Exclusion of gain from sale of a principal residence. 
Sec. 1403. Repeal of exclusion, etc., for employee achievement awards. 
Sec. 1404. Sunset of exclusion for dependent care assistance programs. 
Sec. 1405. Repeal of exclusion for qualified moving expense reimbursement. 
Sec. 1406. Repeal of exclusion for adoption assistance programs. 
Subtitle F—Simplification and Reform of Savings, Pensions, Retirement 
Sec. 1501. Repeal of special rule permitting recharacterization of Roth IRA 
contributions as traditional IRA contributions. 
Sec. 1502. Reduction in minimum age for allowable in-service distributions. 
Sec. 1503. Modification of rules governing hardship distributions. 
Sec. 1504. Modification of rules relating to hardship withdrawals from cash or 
deferred arrangements. 
Sec. 1505. Extended rollover period for the rollover of plan loan offset amounts 
in certain cases. 
Sec. 1506. Modification of nondiscrimination rules to protect older, longer serv-
ice participants. 
Subtitle G—Estate, Gift, and Generation-skipping Transfer Taxes 
Sec. 1601. Increase in credit against estate, gift, and generation-skipping trans-
fer tax. 
Sec. 1602. Repeal of estate and generation-skipping transfer taxes. 
TITLE II—ALTERNATIVE MINIMUM TAX REPEAL 
Sec. 2001. Repeal of alternative minimum tax. 
TITLE III—BUSINESS TAX REFORM 
Subtitle A—Tax Rates 
Sec. 3001. Reduction in corporate tax rate. 
Subtitle B—Cost Recovery 
Sec. 3101. Increased expensing. 
Subtitle C—Small Business Reforms 
Sec. 3201. Expansion of section 179 expensing. 
Sec. 3202. Small business accounting method reform and simplification. 
Sec. 3203. Small business exception from limitation on deduction of business 
interest. 
Sec. 3204. Modification of treatment of S corporation conversions to C corpora-
tions. 
Subtitle D—Reform of Business-related Exclusions, Deductions, etc. 
Sec. 3301. Interest. 
Sec. 3302. Modification of net operating loss deduction. 
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Sec. 3303. Like-kind exchanges of real property. 
Sec. 3304. Revision of treatment of contributions to capital. 
Sec. 3305. Repeal of deduction for local lobbying expenses. 
Sec. 3306. Repeal of deduction for income attributable to domestic production 
activities. 
Sec. 3307. Entertainment, etc. expenses. 
Sec. 3308. Unrelated business taxable income increased by amount of certain 
fringe benefit expenses for which deduction is disallowed. 
Sec. 3309. Limitation on deduction for FDIC premiums. 
Sec. 3310. Repeal of rollover of publicly traded securities gain into specialized 
small business investment companies. 
Sec. 3311. Certain self-created property not treated as a capital asset. 
Sec. 3312. Repeal of special rule for sale or exchange of patents. 
Sec. 3313. Repeal of technical termination of partnerships. 
Sec. 3314. Recharacterization of certain gains in the case of partnership profits 
interests held in connection with performance of investment 
services. 
Sec. 3315. Amortization of research and experimental expenditures. 
Sec. 3316. Uniform treatment of expenses in contingency fee cases. 
Subtitle E—Reform of Business Credits 
Sec. 3401. Repeal of credit for clinical testing expenses for certain drugs for 
rare diseases or conditions. 
Sec. 3402. Repeal of employer-provided child care credit. 
Sec. 3403. Repeal of rehabilitation credit. 
Sec. 3404. Repeal of work opportunity tax credit. 
Sec. 3405. Repeal of deduction for certain unused business credits. 
Sec. 3406. Termination of new markets tax credit. 
Sec. 3407. Repeal of credit for expenditures to provide access to disabled indi-
viduals. 
Sec. 3408. Modification of credit for portion of employer social security taxes 
paid with respect to employee tips. 
Subtitle F—Energy Credits 
Sec. 3501. Modifications to credit for electricity produced from certain renew-
able resources. 
Sec. 3502. Modification of the energy investment tax credit. 
Sec. 3503. Extension and phaseout of residential energy efficient property. 
Sec. 3504. Repeal of enhanced oil recovery credit. 
Sec. 3505. Repeal of credit for producing oil and gas from marginal wells. 
Sec. 3506. Modifications of credit for production from advanced nuclear power 
facilities. 
Subtitle G—Bond Reforms 
Sec. 3601. Termination of private activity bonds. 
Sec. 3602. Repeal of advance refunding bonds. 
Sec. 3603. Repeal of tax credit bonds. 
Sec. 3604. No tax exempt bonds for professional stadiums. 
Subtitle H—Insurance 
Sec. 3701. Net operating losses of life insurance companies. 
Sec. 3702. Repeal of small life insurance company deduction. 
Sec. 3703. Surtax on life insurance company taxable income. 
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Sec. 3704. Adjustment for change in computing reserves. 
Sec. 3705. Repeal of special rule for distributions to shareholders from pre- 
1984 policyholders surplus account. 
Sec. 3706. Modification of proration rules for property and casualty insurance 
companies. 
Sec. 3707. Modification of discounting rules for property and casualty insur-
ance companies. 
Sec. 3708. Repeal of special estimated tax payments. 
Subtitle I—Compensation 
Sec. 3801. Modification of limitation on excessive employee remuneration. 
Sec. 3802. Excise tax on excess tax-exempt organization executive compensa-
tion. 
Sec. 3803. Treatment of qualified equity grants. 
TITLE IV—TAXATION OF FOREIGN INCOME AND FOREIGN 
PERSONS 
Subtitle A—Establishment of Participation Exemption System for Taxation of 
Foreign Income 
Sec. 4001. Deduction for foreign-source portion of dividends received by domes-
tic corporations from specified 10-percent owned foreign cor-
porations. 
Sec. 4002. Application of participation exemption to investments in United 
States property. 
Sec. 4003. Limitation on losses with respect to specified 10-percent owned for-
eign corporations. 
Sec. 4004. Treatment of deferred foreign income upon transition to participa-
tion exemption system of taxation. 
Subtitle B—Modifications Related to Foreign Tax Credit System 
Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of 
section 960 credit on current year basis. 
Sec. 4102. Source of income from sales of inventory determined solely on basis 
of production activities. 
Subtitle C—Modification of Subpart F Provisions 
Sec. 4201. Repeal of inclusion based on withdrawal of previously excluded sub-
part F income from qualified investment. 
Sec. 4202. Repeal of treatment of foreign base company oil related income as 
subpart F income. 
Sec. 4203. Inflation adjustment of de minimis exception for foreign base com-
pany income. 
Sec. 4204. Look-thru rule for related controlled foreign corporations made per-
manent. 
Sec. 4205. Modification of stock attribution rules for determining status as a 
controlled foreign corporation. 
Sec. 4206. Elimination of requirement that corporation must be controlled for 
30 days before subpart F inclusions apply. 
Subtitle D—Prevention of Base Erosion 
Sec. 4301. Current year inclusion by United States shareholders with foreign 
high returns. 
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Sec. 4302. Limitation on deduction of interest by domestic corporations which 
are members of an international financial reporting group. 
Sec. 4303. Excise tax on certain payments from domestic corporations to re-
lated foreign corporations; election to treat such payments as 
effectively connected income. 
Subtitle E—Provisions Related to Possessions of the United States 
Sec. 4401. Extension of deduction allowable with respect to income attributable 
to domestic production activities in Puerto Rico. 
Sec. 4402. Extension of temporary increase in limit on cover over of rum excise 
taxes to Puerto Rico and the Virgin Islands. 
Sec. 4403. Extension of American Samoa economic development credit. 
Subtitle F—Other International Reforms 
Sec. 4501. Restriction on insurance business exception to passive foreign invest-
ment company rules. 
TITLE V—EXEMPT ORGANIZATIONS 
Subtitle A—Unrelated Business Income Tax 
Sec. 5001. Clarification of unrelated business income tax treatment of entities 
treated as exempt from taxation under section 501(a). 
Sec. 5002. Exclusion of research income limited to publicly available research. 
Subtitle B—Excise Taxes 
Sec. 5101. Simplification of excise tax on private foundation investment income. 
Sec. 5102. Private operating foundation requirements relating to operation of 
art museum. 
Sec. 5103. Excise tax based on investment income of private colleges and uni-
versities. 
Sec. 5104. Exception from private foundation excess business holding tax for 
independently-operated philanthropic business holdings. 
Subtitle C—Requirements for Organizations Exempt From Tax 
Sec. 5201. 501(c)(3) organizations permitted to make statements relating to 
political campaign in ordinary course of activities. 
Sec. 5202. Additional reporting requirements for donor advised fund sponsoring 
organizations. 
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TITLE I—TAX REFORM FOR 
INDIVIDUALS 
Subtitle A—Simplification and Re-
form of Rates, Standard Deduc-
tion, and Exemptions 
SEC. 1001. REDUCTION AND SIMPLIFICATION OF INDI-
VIDUAL INCOME TAX RATES. 
(a) IN GENERAL.—Section 1 is amended by striking 
subsection (i) and by striking all that precedes subsection 
(h) and inserting the following: 
‘‘SEC. 1. TAX IMPOSED. 
‘‘(a) IN GENERAL.—There is hereby imposed on the 
income of every individual a tax equal to the sum of— 
‘‘(1) 12 PERCENT BRACKET.—12 percent of so 
much of the taxable income as does not exceed the 
25-percent bracket threshold amount, 
‘‘(2) 25 PERCENT BRACKET.—25 percent of so 
much of the taxable income as exceeds the 25-per-
cent bracket threshold amount but does not exceed 
the 35-percent bracket threshold amount, plus 
‘‘(3) 35 PERCENT BRACKET.—35 percent of so 
much of taxable income as exceeds the 35-percent 
bracket threshold amount but does not exceed the 
39.6 percent bracket threshold amount. 
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‘‘(4) 39.6 PERCENT BRACKET.—39.6 percent of 
so much of taxable income as exceeds the 39.6-per-
cent bracket threshold amount. 
‘‘(b) BRACKET THRESHOLD AMOUNTS.—For pur-
poses of this section— 
‘‘(1) 
25-PERCENT
BRACKET
THRESHOLD 
AMOUNT.—The term ‘25-percent bracket threshold 
amount’ means— 
‘‘(A) in the case of a joint return or sur-
viving spouse, $90,000, 
‘‘(B) in the case of an individual who is 
the head of a household (as defined in section 
2(b)), $67,500, 
‘‘(C) in the case of any other individual 
(other than an estate or trust), an amount 
equal to 1⁄2 of the amount in effect for the tax-
able year under subparagraph (A), and 
‘‘(D) in the case of an estate or trust, 
$2,550. 
‘‘(2) 
35-PERCENT
BRACKET
THRESHOLD 
AMOUNT.—The term ‘35-percent bracket threshold 
amount’ means— 
‘‘(A) in the case of a joint return or sur-
viving spouse, $260,000, 
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‘‘(B) in the case of a married individual fil-
ing a separate return, an amount equal to 1⁄2 
of the amount in effect for the taxable year 
under subparagraph (A), and 
‘‘(C) in the case of any other individual 
(other than an estate or trust), $200,000, and 
‘‘(D) in the case of an estate or trust, 
$9,150. 
‘‘(3) 
39.6-PERCENT
BRACKET
THRESHOLD 
AMOUNT.—The term ‘39.6-percent bracket threshold 
amount’ means— 
‘‘(A) in the case of a joint return or sur-
viving spouse, $1,000,000, 
‘‘(B) in the case of any other individual 
(other than an estate or trust), an amount 
equal to 1⁄2 of the amount in effect for the tax-
able year under subparagraph (A), and 
‘‘(C) in the case of an estate or trust, 
$12,500. 
‘‘(c) INFLATION ADJUSTMENT.— 
‘‘(1) IN GENERAL.—In the case of any taxable 
year beginning after 2018, each dollar amount in 
subsections (b) and (e)(3) (other than any amount 
determined by reference to such a dollar amount) 
shall be increased by an amount equal to— 
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‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under this subsection for the calendar 
year in which the taxable year begins by sub-
stituting ‘2017’ for ‘2016’ in paragraph 
(2)(A)(ii). 
If any increase determined under the preceding sen-
tence is not a multiple of $100, such increase shall 
be rounded to the next lowest multiple of $100. 
‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of this subsection— 
‘‘(A) IN GENERAL.—The cost-of-living ad-
justment for any calendar year is the percent-
age (if any) by which— 
‘‘(i) the C-CPI-U for the preceding 
calendar year, exceeds 
‘‘(ii) the normalized CPI for calendar 
year 2016. 
‘‘(B) SPECIAL
RULE
FOR
ADJUSTMENTS 
WITH A BASE YEAR AFTER 2016.—For purposes 
of any provision which provides for the substi-
tution of a year after 2016 for ‘2016’ in sub-
paragraph (A)(ii), subparagraph (A) shall be 
applied by substituting ‘C-CPI-U’ for ‘normal-
ized CPI’ in clause (ii). 
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‘‘(3) NORMALIZED CPI.—For purposes of this 
subsection, the normalized CPI for any calendar 
year is the product of— 
‘‘(A) the CPI for such calendar year, mul-
tiplied by 
‘‘(B) the C-CPI-U transition multiple. 
‘‘(4) C-CPI-U TRANSITION
MULTIPLE.—For 
purposes of this subsection, the term ‘C-CPI-U tran-
sition multiple’ means the amount obtained by divid-
ing— 
‘‘(A) the C-CPI-U for calendar year 2016, 
by 
‘‘(B) the CPI for calendar year 2016. 
‘‘(5) C-CPI-U.—For purposes of this sub-
section— 
‘‘(A) IN GENERAL.—The term ‘C-CPI-U’ 
means the Chained Consumer Price Index for 
All Urban Consumers (as published by the Bu-
reau of Labor Statistics of the Department of 
Labor). The values of the Chained Consumer 
Price Index for All Urban Consumers taken 
into account for purposes of determining the 
cost-of-living adjustment for any calendar year 
under this subsection shall be the latest values 
so published as of the date on which such Bu-
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‘‘(1) IN GENERAL.—In the case of any child to 
whom this subsection applies for any taxable year— 
‘‘(A) the 25-percent bracket threshold 
amount shall not be more than the taxable in-
come of such child for the taxable year reduced 
by the net unearned income of such child, and 
‘‘(B) the 35-percent bracket threshold 
amount shall not be more than the sum of— 
‘‘(i) the taxable income of such child 
for the taxable year reduced by the net un-
earned income of such child, plus 
‘‘(ii) the dollar amount in effect under 
subsection (b)(2)(D) for the taxable year. 
‘‘(C) the 39.6-percent bracket threshold 
amount shall not be more than the sum of— 
‘‘(i) the taxable income of such child 
for the taxable year reduced by the net un-
earned income of such child, plus 
‘‘(ii) the dollar amount in effect under 
subsection (b)(3)(C). 
‘‘(2) CHILD TO WHOM SUBSECTION APPLIES.— 
This subsection shall apply to any child for any tax-
able year if— 
‘‘(A) such child— 
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‘‘(i) has not attained age 18 before 
the close of the taxable year, or 
‘‘(ii) has attained age 18 before the 
close of the taxable year and is described 
in paragraph (3), 
‘‘(B) either parent of such child is alive at 
the close of the taxable year, and 
‘‘(C) such child does not file a joint return 
for the taxable year. 
‘‘(3) CERTAIN CHILDREN WHOSE EARNED IN-
COME
DOES
NOT
EXCEED
ONE-HALF
OF
INDI-
VIDUAL’S
SUPPORT.—A child is described in this 
paragraph if— 
‘‘(A) such child— 
‘‘(i) has not attained age 19 before 
the close of the taxable year, or 
‘‘(ii) is a student (within the meaning 
of section 7706(f)(2)) who has not attained 
age 24 before the close of the taxable year, 
and 
‘‘(B) such child’s earned income (as de-
fined in section 911(d)(2)) for such taxable 
year does not exceed one-half of the amount of 
the individual’s support (within the meaning of 
section 7706(c)(1)(D) after the application of 
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section 7706(f)(5) (without regard to subpara-
graph (A) thereof)) for such taxable year. 
‘‘(4) NET UNEARNED INCOME.—For purposes 
of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘net un-
earned income’ means the excess of— 
‘‘(i) the portion of the adjusted gross 
income for the taxable year which is not 
attributable to earned income (as defined 
in section 911(d)(2)), over 
‘‘(ii) the sum of— 
‘‘(I) the amount in effect for the 
taxable year under section 63(c)(2)(A) 
(relating to limitation on standard de-
duction in the case of certain depend-
ents), plus 
‘‘(II) The greater of the amount 
described in subclause (I) or, if the 
child itemizes his deductions for the 
taxable year, the amount of the 
itemized deductions allowed by this 
chapter for the taxable year which are 
directly connected with the production 
of the portion of adjusted gross in-
come referred to in clause (i). 
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‘‘(B) LIMITATION BASED ON TAXABLE IN-
COME.—The amount of the net unearned in-
come for any taxable year shall not exceed the 
individual’s taxable income for such taxable 
year. 
‘‘(e) PHASEOUT OF 12-PERCENT RATE.— 
‘‘(1) IN GENERAL.—The amount of tax imposed 
by this section (determined without regard to this 
subsection) shall be increased by 6 percent of the ex-
cess (if any) of— 
‘‘(A) adjusted gross income, over 
‘‘(B) the applicable dollar amount. 
‘‘(2) LIMITATION.—The increase determined 
under paragraph (1) with respect to any taxpayer 
for any taxable year shall not exceed 27.6 percent of 
the lesser of— 
‘‘(A) the taxpayer’s taxable income for 
such taxable year, or 
‘‘(B) the 25-percent bracket threshold 
amount in effect with respect to the taxpayer 
for such taxable year. 
‘‘(3) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of this subsection, the term ‘applicable dollar 
amount’ means— 
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‘‘(A) in the case of a joint return or a sur-
viving spouse, $1,200,000, 
‘‘(B) in the case of a married individual fil-
ing a separate return, an amount equal to 1⁄2 
of the amount in effect for the taxable year 
under subparagraph (A), and 
‘‘(C) in the case of any other individual, 
$1,000,000. 
‘‘(4) ESTATES
AND
TRUSTS.—Paragraph (1) 
shall not apply in the case of an estate or trust.’’. 
(b) APPLICATION OF CURRENT INCOME TAX BRACK-
ETS TO CAPITAL GAINS BRACKETS.— 
(1) IN GENERAL.— 
(A) 0-PERCENT
CAPITAL
GAINS
BRACK-
ET.—Section 1(h)(1) is amended by striking 
‘‘which would (without regard to this para-
graph) be taxed at a rate below 25 percent’’ in 
subparagraph (B)(i) and inserting ‘‘below the 
15-percent rate threshold’’. 
(B) 15-PERCENT CAPITAL GAINS BRACK-
ET.—Section 1(h)(1)(C)(ii)(I) is amended by 
striking ‘‘which would (without regard to this 
paragraph) be taxed at a rate below 39.6 per-
cent’’ and inserting ‘‘below the 20-percent rate 
threshold’’. 
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(2) RATE
THRESHOLDS
DEFINED.—Section 
1(h) is amended by adding at the end the following 
new paragraph: 
‘‘(12) RATE THRESHOLDS DEFINED.—For pur-
poses of this subsection— 
‘‘(A) 15-PERCENT
RATE
THRESHOLD.— 
The 15-percent rate threshold shall be— 
‘‘(i) in the case of a joint return or 
surviving spouse, $77,200 (1⁄2 such amount 
in the case of a married individual filing a 
separate return), 
‘‘(ii) in the case of an individual who 
is the head of a household (as defined in 
section 2(b)), $51,700, 
‘‘(iii) in the case of any other indi-
vidual (other than an estate or trust), an 
amount equal to 1⁄2 of the amount in effect 
for the taxable year under clause (i), and 
‘‘(iv) in the case of an estate or trust, 
$2,600. 
‘‘(B) 20-PERCENT
RATE
THRESHOLD.— 
The 20-percent rate threshold shall be— 
‘‘(i) in the case of a joint return or 
surviving 
spouse, 
$479,000 
(1⁄2
such 
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amount in the case of a married individual 
filing a separate return), 
‘‘(ii) in the case of an individual who 
is the head of a household (as defined in 
section 2(b)), $452,400, 
‘‘(iii) in the case of any other indi-
vidual (other than an estate or trust), 
$425,800, and 
‘‘(iv) in the case of an estate or trust, 
$12,700. 
‘‘(C) INFLATION
ADJUSTMENT.—In the 
case of any taxable year beginning after 2018, 
each of the dollar amounts in subparagraphs 
(A) and (B) shall be increased by an amount 
equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under subsection (c)(2)(A) for 
the calendar year in which the taxable year 
begins, determined by substituting ‘cal-
endar year 2017’ for ‘calendar year 2016’ 
in clause (ii) thereof.’’. 
(c) APPLICATION OF SECTION 15.— 
(1) IN GENERAL.—Subsection (a) of section 15 
is amended by striking ‘‘by this chapter’’ and insert-
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ing ‘‘by section 11 (or by reference to any such 
rates)’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 15 is amended by striking sub-
sections (d) and (f) and by redesignating sub-
section (e) as subsection (d). 
(B) Section 15(d), as redesignated by sub-
paragraph (A), is amended by striking ‘‘section 
1 or 11(b)’’ and inserting ‘‘section 11(b)’’. 
(C) Section 6013(c) is amended by striking 
‘‘sections 15, 443, and 7851(a)(1)(A)’’ and in-
serting ‘‘sections 443 and 7851(a)(1)(A)’’. 
(3) APPLICATION TO THIS ACT.—Section 15 of 
the Internal Revenue Code of 1986 shall not apply 
to any change in a rate of tax imposed by chapter 
1 of such Code which occurs by reason of any 
amendment made by this Act (other than the 
amendments made by section 3001). 
(d) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2017. 
(2) SUBSECTION (c).—The amendments made 
by subsection (c) shall take effect on the date of the 
enactment of this Act. 
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SEC. 1002. ENHANCEMENT OF STANDARD DEDUCTION. 
(a) INCREASE IN STANDARD DEDUCTION.—Section 
63(c) is amended to read as follows: 
‘‘(c) STANDARD DEDUCTION.—For purposes of this 
subtitle— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘standard deduc-
tion’ means— 
‘‘(A) $24,400, in the case of a joint return 
(or a surviving spouse (as defined in section 
2(a)), 
‘‘(B) three-quarters of the amount in effect 
under subparagraph (A) for the taxable year, in 
the case of the head of a household (as defined 
in section 2(b)), and 
‘‘(C) one-half of the amount in effect 
under subparagraph (A) for the taxable year, in 
any other case. 
‘‘(2) LIMITATION ON STANDARD DEDUCTION IN 
THE CASE OF CERTAIN DEPENDENTS.—In the case 
of an individual who is a dependent of another tax-
payer for a taxable year beginning in the calendar 
year in which the individual’s taxable year begins, 
the standard deduction applicable to such individual 
for such individual’s taxable year shall not exceed 
the greater of— 
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‘‘(A) $500, or 
‘‘(B) the sum of $250 and such individ-
ual’s earned income (within the means of sec-
tion 32). 
‘‘(3) CERTAIN INDIVIDUALS, ETC., NOT ELIGI-
BLE FOR STANDARD DEDUCTION.—In the case of— 
‘‘(A) a married individual filing a separate 
return where either spouse itemizes deductions, 
‘‘(B) a nonresident alien individual, 
‘‘(C) an individual making a return under 
section 443(a)(1) for a period of less than 12 
months on account of a change in his annual 
accounting period, or 
‘‘(D) an estate or trust, common trust 
fund, or partnership, 
the standard deduction shall be zero. 
‘‘(4) UNMARRIED
INDIVIDUAL.—For purposes 
of this section, the term ‘unmarried individual’ 
means any individual who— 
‘‘(A) is not married as of the close of the 
taxable year (as determined by applying section 
7703), 
‘‘(B) is not a surviving spouse (as defined 
in section 2(a)) for the taxable year, and 
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‘‘(C) is not a dependent of another tax-
payer for a taxable year beginning in the cal-
endar year in which the individual’s taxable 
year begins. 
‘‘(5) INFLATION ADJUSTMENTS.— 
‘‘(A) STANDARD DEDUCTION AMOUNT.—In 
the case of any taxable year beginning after 
2019, the dollar amount in paragraph (1)(A) 
shall be increased by an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(c)(2)(A) for the 
calendar year in which the taxable year be-
gins, determined by substituting ‘calendar 
year 2018’ for ‘calendar year 2016’ in 
clause (ii) thereof. 
‘‘(B) LIMITATION
AMOUNT
IN
CASE
OF 
CERTAIN
DEPENDENTS.—In the case of any 
taxable year beginning after 2017, each of the 
dollar amounts in paragraph (2) shall be in-
creased by an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii)(I) in the case of the dollar 
amount in paragraph (2)(A), under section 
1(c)(2)(A) for the calendar year in which 
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the taxable year begins determined by sub-
stituting ‘calendar year 1987’ for ‘calendar 
year 2016’ in clause (ii) thereof, and 
‘‘(II) in the case of the dollar amount 
in 
paragraph 
(2)(B), 
under 
section 
1(c)(2)(A) for the calendar year in which 
the taxable year begins determined by sub-
stituting ‘calendar year 1997’ for ‘calendar 
year 2016’ in clause (ii) thereof. 
If any increase determined under this paragraph is 
not a multiple of $100, such increase shall be round-
ed to the next lowest multiple of $100.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 63(b) is amended by striking ‘‘, 
minus—’’ and all that follows and inserting ‘‘minus 
the standard deduction’’. 
(2) Section 63 is amended by striking sub-
sections (f) and (g). 
(3) Section 1398(c) is amended— 
(A) by striking ‘‘BASIC’’ in the heading 
thereof, 
(B) by striking ‘‘BASIC STANDARD’’ in the 
heading 
of 
paragraph 
(3) 
and 
inserting 
‘‘STANDARD’’, and 
(C) by striking ‘‘basic’’ in paragraph (3). 
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(4) Section 3402(m)(3) is amended by striking 
‘‘(including the additional standard deduction under 
section 63(c)(3) for the aged and blind)’’. 
(5) Section 6014(b)(4) is amended by striking 
‘‘section 63(c)(5)’’ and inserting ‘‘section 63(c)(2)’’. 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2017. 
SEC. 1003. REPEAL OF DEDUCTION FOR PERSONAL EXEMP-
TIONS. 
(a) IN GENERAL.—Part V of subchapter B of chapter 
1 is hereby repealed. 
(b) DEFINITION OF DEPENDENT RETAINED.—Sec-
tion 152, prior to repeal by subsection (a), is hereby redes-
ignated as section 7706 and moved to the end of chapter 
79. 
(c) APPLICATION TO ESTATES AND TRUSTS.—Sub-
section (b) of section 642 is amended— 
(1) by striking paragraph (2)(C), 
(2) by striking paragraph (3), and 
(3) by striking ‘‘DEDUCTION FOR PERSONAL 
EXEMPTION’’ in the heading thereof and inserting 
‘‘BASIC DEDUCTION’’. 
(d) APPLICATION TO NONRESIDENT ALIENS.—Sec-
tion 873(b) is amended by striking paragraph (3). 
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(e) 
MODIFICATION
OF
WAGE
WITHHOLDING 
RULES.— 
(1) IN GENERAL.—Section 3402(a) is amended 
by striking paragraph (2). 
(2) 
CONFORMING
AMENDMENT.—Section 
3402(a) is amended— 
(A) by redesignating subparagraphs (A) 
and (B) of paragraph (1) as paragraphs (1) 
and (2) and moving such redesignated para-
graphs 2 ems to the left, and 
(B) by striking all that precedes ‘‘other-
wise provided in this section’’ and inserting the 
following: 
‘‘(a) REQUIREMENT OF WITHHOLDING.—Except as’’. 
(3) 
NUMBER
OF
EXEMPTIONS.—Section 
3402(f)(1) is amended— 
(A) in subparagraph (A), by striking ‘‘an 
individual described in section 151(d)(2)’’ and 
inserting ‘‘a dependent of any other taxpayer’’, 
and 
(B) in subparagraph (C), by striking ‘‘with 
respect to whom, on the basis of facts existing 
at the beginning of such day, there may reason-
ably be expected to be allowable an exemption 
under section 151(c)’’ and inserting ‘‘who, on 
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the basis of facts existing at the beginning of 
such day, is reasonably expected to be a de-
pendent of the employee’’. 
(f) MODIFICATION OF RETURN REQUIREMENT.— 
(1) IN
GENERAL.—Paragraph (1) of section 
6012(a) is amended to read as follows: 
‘‘(1) Every individual who has gross income for 
the taxable year, except that a return shall not be 
required of— 
‘‘(A) an individual who is not married (de-
termined by applying section 7703) and who 
has gross income for the taxable year which 
does not exceed the standard deduction applica-
ble to such individual for such taxable year 
under section 63, or 
‘‘(B) an individual entitled to make a joint 
return if— 
‘‘(i) the gross income of such indi-
vidual, when combined with the gross in-
come of such individual’s spouse, for the 
taxable year does not exceed the standard 
deduction which would be applicable to the 
taxpayer for such taxable year under sec-
tion 63 if such individual and such individ-
ual’s spouse made a joint return, 
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‘‘(ii) such individual and such individ-
ual’s spouse have the same household as 
their home at the close of the taxable year, 
‘‘(iii) such individual’s spouse does not 
make a separate return, and 
‘‘(iv) neither such individual nor such 
individual’s spouse is an individual de-
scribed in section 63(c)(2) who has income 
(other than earned income) in excess of the 
amount 
in 
effect 
under 
section 
63(c)(2)(A).’’. 
(2) BANKRUPTCY ESTATES.—Paragraph (8) of 
section 6012(a) is amended by striking ‘‘the sum of 
the exemption amount plus the basic standard de-
duction under section 63(c)(2)(D)’’ and inserting 
‘‘the standard deduction in effect under section 
63(c)(1)(B)’’. 
(g) CONFORMING AMENDMENTS.— 
(1) Section 2(a)(1)(B) is amended by striking 
‘‘a dependent’’ and all that follows through ‘‘section 
151’’ and inserting ‘‘a dependent who (within the 
meaning of section 7706, determined without regard 
to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) 
is a son, stepson, daughter, or stepdaughter of the 
taxpayer’’. 
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(2) Section 36B(b)(2)(A) is amended by strik-
ing ‘‘section 152’’ and inserting ‘‘section 7706’’. 
(3) Section 36B(b)(3)(B) is amended by strik-
ing ‘‘unless a deduction is allowed under section 151 
for the taxable year with respect to a dependent’’ in 
the flush matter at the end and inserting ‘‘unless 
the taxpayer has a dependent for the taxable year’’. 
(4) Section 36B(c)(1)(D) is amended by strik-
ing ‘‘with respect to whom a deduction under section 
151 is allowable to another taxpayer’’ and inserting 
‘‘who is a dependent of another taxpayer’’. 
(5) Section 36B(d)(1) is amended by striking 
‘‘equal to the number of individuals for whom the 
taxpayer is allowed a deduction under section 151 
(relating to allowance of deduction for personal ex-
emptions) for the taxable year’’ and inserting ‘‘the 
sum of 1 (2 in the case of a joint return) plus the 
number of the taxpayer’s dependents for the taxable 
year’’. 
(6) Section 36B(e)(1) is amended by striking 
‘‘1 or more individuals for whom a taxpayer is al-
lowed a deduction under section 151 (relating to al-
lowance of deduction for personal exemptions) for 
the taxable year (including the taxpayer or his 
spouse)’’ and inserting ‘‘1 or more of the taxpayer, 
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the taxpayer’s spouse, or any dependent of the tax-
payer’’. 
(7) Section 42(i)(3)(D)(ii)(I) is amended— 
(A) by striking ‘‘section 152’’ and insert-
ing ‘‘section 7706’’, and 
(B) by striking the period at the end and 
inserting a comma. 
(8) Section 72(t)(2)(D)(i)(III) is amended by 
striking ‘‘section 152’’ and inserting ‘‘section 7706’’. 
(9) Section 72(t)(7)(A)(iii) is amended by strik-
ing ‘‘section 152(f)(1)’’ and inserting ‘‘section 
7706(f)(1)’’. 
(10) Section 105(b) is amended— 
(A) by striking ‘‘as defined in section 152’’ 
and inserting ‘‘as defined in section 7706’’, 
(B) by striking ‘‘section 152(f)(1)’’ and in-
serting ‘‘section 7706(f)(1)’’ and 
(C) by striking ‘‘section 152(e)’’ and in-
serting ‘‘section 7706(e)’’. 
(11) Section 105(c)(1) is amended by striking 
‘‘section 152’’ and inserting ‘‘section 7706’’. 
(12) Section 125(e)(1)(D) is amended by strik-
ing ‘‘section 152’’ and inserting ‘‘section 7706’’. 
(13) Section 132(h)(2)(B) is amended— 
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(A) by striking ‘‘section 152(f)(1)’’ and in-
serting ‘‘section 7706(f)(1)’’, and 
(B) by striking ‘‘section 152(e)’’ and in-
serting ‘‘section 7706(e)’’. 
(14) Section 139D(c)(5) is amended by striking 
‘‘section 152’’ and inserting ‘‘section 7706’’. 
(15) Section 162(l)(1)(D) is amended by strik-
ing ‘‘section 152(f)(1)’’ and inserting ‘‘section 
7706(f)(1)’’. 
(16) Section 170(g)(1) is amended by striking 
‘‘section 152’’ and inserting ‘‘section 7706’’. 
(17) Section 170(g)(3) is amended by striking 
‘‘section 
152(d)(2)’’ 
and 
inserting 
‘‘section 
7706(d)(2)’’. 
(18) Section 172(d) is amended by striking 
paragraph (3). 
(19) Section 220(b)(6) is amended by striking 
‘‘with respect to whom a deduction under section 
151 is allowable to’’ and inserting ‘‘who is a depend-
ent of’’. 
(20) Section 220(d)(2)(A) is amended by strik-
ing ‘‘section 152’’ and inserting ‘‘section 7706’’. 
(21) Section 223(b)(6) is amended by striking 
‘‘with respect to whom a deduction under section 
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(30) Section 891 is amended by striking ‘‘under 
section 151 and’’. 
(31) Section 904(b) is amended by striking 
paragraph (1). 
(32) Section 931(b)(1) is amended by striking 
‘‘(other than the deduction under section 151, relat-
ing to personal exemptions)’’. 
(33) Section 933 is amended— 
(A) by striking ‘‘(other than the deduction 
under section 151, relating to personal exemp-
tions)’’ in paragraph (1), and 
(B) by striking ‘‘(other than the deduction 
for personal exemptions under section 151)’’ in 
paragraph (2). 
(34) Section 1212(b)(2)(B)(ii) is amended to 
read as follows: 
‘‘(ii) in the case of an estate or trust, 
the deduction allowed for such year under 
section 642(b).’’. 
(35) Section 1361(c)(1)(C) is amended by strik-
ing ‘‘section 152(f)(1)(C)’’ and inserting ‘‘section 
7706(f)(1)(C)’’. 
(36) Section 1402(a) is amended by striking 
paragraph (7). 
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(37) Section 2032A(c)(7)(D) is amended by 
striking ‘‘section 152(f)(2)’’ and inserting ‘‘section 
7706(f)(2)’’. 
(38) Section 3402(m)(1) is amended by striking 
‘‘other than the deductions referred to in section 
151 and’’. 
(39) Section 3402(r)(2) is amended by striking 
‘‘the sum of—’’ and all that follows and inserting 
‘‘the standard deduction in effect under section 
63(c)(1)(B).’’. 
(40) Section 5000A(b)(3)(A) is amended by 
striking ‘‘section 152’’ and inserting ‘‘section 7706’’. 
(41) Section 5000A(c)(4)(A) is amended by 
striking ‘‘the number of individuals for whom the 
taxpayer is allowed a deduction under section 151 
(relating to allowance of deduction for personal ex-
emptions) for the taxable year’’ and inserting ‘‘the 
sum of 1 (2 in the case of a joint return) plus the 
number of the taxpayer’s dependents for the taxable 
year’’. 
(42) Section 6013(b)(3)(A) is amended— 
(A) by striking ‘‘had less than the exemp-
tion amount of gross income’’ in clause (ii) and 
inserting ‘‘had no gross income’’, 
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(B) by striking ‘‘had gross income of the 
exemption amount or more’’ in clause (iii) and 
inserting ‘‘had any gross income’’, and 
(C) by striking the flush language fol-
lowing clause (iii). 
(43) Section 6103(l)(21)(A)(iii) is amended to 
read as follows: 
‘‘(iii) the number of the taxpayer’s de-
pendents,’’. 
(44) Section 6213(g)(2) is amended by striking 
subparagraph (H). 
(45) Section 6334(d)(2) is amended to read as 
follows: 
‘‘(2) EXEMPT AMOUNT.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘exempt amount’ means an 
amount equal to— 
‘‘(i) the standard deduction, divided 
by 
‘‘(ii) 52. 
‘‘(B) VERIFIED STATEMENT.—Unless the 
taxpayer submits to the Secretary a written and 
properly verified statement specifying the facts 
necessary to determine the proper amount 
under subparagraph (A), subparagraph (A) 
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shall be applied as if the taxpayer were a mar-
ried individual filing a separate return with no 
dependents.’’. 
(46) Section 7702B(f)(2)(C)(iii) is amended by 
striking ‘‘section 152(d)(2)’’ and inserting ‘‘section 
7706(d)(2)’’. 
(47) Section 7703(a) is amended by striking 
‘‘part V of subchapter B of chapter 1 and’’. 
(48) Section 7703(b)(1) is amended by striking 
‘‘section 152(f)(1)’’ and all that follows and insert-
ing ‘‘section 7706(f)(1),’’. 
(49) Section 7706(a), as redesignated by this 
section, is amended by striking ‘‘this subtitle’’ and 
inserting ‘‘subtitle A’’. 
(50)(A) Section 7706(d)(1)(B), as redesignated 
by this section, is amended by striking ‘‘the exemp-
tion amount (as defined in section 151(d))’’ and in-
serting ‘‘$4,150’’. 
(B) Section 7706(d), as redesignated by this 
section, is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(6) INFLATION ADJUSTMENT.—In the case of 
any calendar year beginning after 2018, the $4,150 
amount in paragraph (1)(B) shall be increased by an 
amount equal to— 
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‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(c)(2)(A) for such cal-
endar year, determined by substituting ‘cal-
endar year 2017’ for ‘calendar year 2016’ in 
clause (ii) thereof. 
If any increase determined under the preceding sen-
tence is not a multiple of $100, such increase shall 
be rounded to the next lowest multiple of $100.’’. 
(51) The table of sections for chapter 79 is 
amended by adding at the end the following new 
item: 
‘‘Sec. 7706. Dependent defined.’’. 
(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2017. 
SEC. 1004. MAXIMUM RATE ON BUSINESS INCOME OF INDI-
VIDUALS. 
(a) IN GENERAL.—Part I of subchapter A of chapter 
1 is amended by inserting after section 3 the following 
new section: 
‘‘SEC. 4. 25 PERCENT MAXIMUM RATE ON BUSINESS IN-
COME OF INDIVIDUALS. 
‘‘(a) REDUCTION IN TAX TO ACHIEVE 25 PERCENT 
MAXIMUM RATE.—The tax imposed by section 1 shall be 
reduced by the sum of— 
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‘‘(1) 10 percent of the lesser of— 
‘‘(A) qualified business income, or 
‘‘(B) the excess (if any) of— 
‘‘(i) taxable income reduced by net 
capital 
gain 
(as 
defined 
in 
section 
1(h)(11)(A)), over 
‘‘(ii) the maximum dollar amount for 
the 25-percent rate bracket which applies 
to the taxpayer under section 1 for the 
taxable year, and 
‘‘(2) 4.6 percent of the excess (if any) of— 
‘‘(A) the lesser of— 
‘‘(i) qualified business income, or 
‘‘(ii) the excess (if any) determined 
under paragraph (1)(B), over 
‘‘(B) the excess of— 
‘‘(i) the maximum dollar amount for 
the 35-percent rate bracket which applies 
to the taxpayer under section 1 for the 
taxable year, over 
‘‘(ii) the maximum dollar amount for 
the 25-percent rate bracket which applies 
to the taxpayer under section 1 for the 
taxable year. 
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‘‘(b) QUALIFIED BUSINESS INCOME.—For purposes 
of this section, the term ‘qualified business income’ means 
the excess (if any) of— 
‘‘(1) the sum of— 
‘‘(A) 100 percent of any net business in-
come derived from any passive business activity, 
plus 
‘‘(B) the capital percentage of any net 
business income derived from any active busi-
ness activity, over 
‘‘(2) the sum of— 
‘‘(A) 100 percent of any net business loss 
derived from any passive business activity, 
‘‘(B) except as provided in subsection 
(e)(3)(A), 30 percent of any net business loss 
derived from any active business activity, plus 
‘‘(C) any carryover business loss deter-
mined for the preceding taxable year. 
‘‘(c) DETERMINATION OF NET BUSINESS INCOME OR 
LOSS.—For purposes of this section— 
‘‘(1) IN GENERAL.—Net business income or loss 
shall be determined with respect to any business ac-
tivity by appropriately netting items of income, gain, 
deduction, and loss with respect to such business ac-
tivity. 
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‘‘(2) WAGES, ETC.—Any wages (as defined in 
section 3401), payments described in subsection (a) 
or (c) of section 707, or directors’ fees received by 
the taxpayer which are properly attributable to any 
business activity shall be taken into account under 
paragraph (1) as an item of income with respect to 
such business activity. 
‘‘(3) EXCEPTION
FOR
CERTAIN
INVESTMENT- 
RELATED ITEMS.—There shall not be taken into ac-
count under paragraph (1)— 
‘‘(A) any item of short-term capital gain, 
short-term capital loss, long-term capital gain, 
or long-term capital loss, 
‘‘(B) any dividend, income equivalent to a 
dividend, or payment in lieu of dividends de-
scribed in section 954(c)(1)(G), 
‘‘(C) any interest income other than inter-
est income which is properly allocable to a trade 
or business, 
‘‘(D) any item of gain or loss described in 
subparagraph (C) or (D) of section 954(c)(1) 
(applied by substituting ‘business activity’ for 
‘controlled foreign corporation’), 
‘‘(E) any item of income, gain, deduction, 
or loss taken into account under section 
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954(c)(1)(F) (determined without regard to 
clause (ii) thereof and other than items attrib-
utable to notional principal contracts entered 
into in transactions qualifying under section 
1221(a)(7)), 
‘‘(F) any amount received from an annuity 
which is not received in connection with the 
trade or business of the business activity, and 
‘‘(G) any item of deduction or loss properly 
allocable to an amount described in any of the 
preceding subparagraphs. 
‘‘(4) APPLICATION OF RESTRICTIONS APPLICA-
BLE TO DETERMINING TAXABLE INCOME.—Net busi-
ness income or loss shall be appropriately adjusted 
so as only to take into account any amount of in-
come, gain, deduction, or loss to the extent such 
amount affects the determination of taxable income 
for the taxable year. 
‘‘(5) CARRYOVER
BUSINESS
LOSS.—For pur-
poses of subsection (b)(2)(C), the carryover business 
loss determined for any taxable year is the excess (if 
any) of the sum described in subsection (b)(2) over 
the sum described in subsection (b)(1) for such tax-
able year. 
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‘‘(d) PASSIVE AND ACTIVE BUSINESS ACTIVITY.— 
For purposes of this section— 
‘‘(1) PASSIVE BUSINESS ACTIVITY.—The term 
‘passive business activity’ means any passive activity 
as defined in section 469(c) determined without re-
gard to paragraphs (3) and (6)(B) thereof. 
‘‘(2) ACTIVE
BUSINESS
ACTIVITY.—The term 
‘active business activity’ means any business activity 
which is not a passive business activity. 
‘‘(3) BUSINESS ACTIVITY.—The term ‘business 
activity’ means any activity (within the meaning of 
section 469) which involves the conduct of any trade 
or business. 
‘‘(e) CAPITAL PERCENTAGE.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the term ‘capital percentage’ 
means 30 percent. 
‘‘(2) INCREASED PERCENTAGE FOR CAPITAL-IN-
TENSIVE BUSINESS ACTIVITIES.—In the case of a 
taxpayer who elects the application of this paragraph 
with respect to any active business activity (other 
than a specified service activity), the capital percent-
age shall be equal to the applicable percentage (as 
defined in subsection (f)) for each taxable year with 
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respect to which such election applies. Any election 
made under this paragraph shall apply to the tax-
able year for which such election is made and each 
of the 4 subsequent taxable years. Such election 
shall be made not later than the due date (including 
extensions) for the return of tax for the taxable year 
for which such election is made, and, once made, 
may not be revoked. 
‘‘(3) TREATMENT OF SPECIFIED SERVICE AC-
TIVITIES.— 
‘‘(A) IN GENERAL.—In the case of any ac-
tive business activity which is a specified service 
activity— 
‘‘(i) the capital percentage shall be 0 
percent, and 
‘‘(ii) subsection (b)(2)(B) shall be ap-
plied by substituting ‘0 percent’ for ‘30 
percent’. 
‘‘(B) EXCEPTION FOR CAPITAL-INTENSIVE 
SPECIFIED SERVICE ACTIVITIES.—If— 
‘‘(i) the taxpayer elects the application 
of this subparagraph with respect to such 
activity for any taxable year, and 
‘‘(ii) the applicable percentage (as de-
fined in subsection (f)) with respect to 
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such activity for such taxable year is at 
least 10 percent, 
then subparagraph (A) shall not apply and the 
capital percentage with respect to such activity 
shall be equal to such applicable percentage. 
‘‘(C) SPECIFIED SERVICE ACTIVITY.—The 
term ‘specified service activity’ means any activ-
ity involving the performance of services de-
scribed in section 1202(e)(3)(A), including in-
vesting, trading, or dealing in securities (as de-
fined in section 475(c)(2)), partnership inter-
ests, or commodities (as defined in section 
475(e)(2)). 
‘‘(4) REDUCTION IN CAPITAL PERCENTAGE IN 
CERTAIN
CASES.—The capital percentage (deter-
mined after the application of paragraphs (2) and 
(3)) with respect to any active business activity shall 
not exceed 1 minus the quotient (not greater than 
1) of— 
‘‘(A) any amounts described in subsection 
(c)(2) which are taken into account in deter-
mining the net business income derived from 
such activity, divided by 
‘‘(B) such net business income. 
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‘‘(f) APPLICABLE PERCENTAGE.—For purposes of 
this section— 
‘‘(1) IN GENERAL.—The term ‘applicable per-
centage’ means, with respect to any active business 
activity for any taxable year, the quotient (not great-
er than 1) of— 
‘‘(A) the specified return on capital with 
respect to such activity for such taxable year, 
divided by 
‘‘(B) the taxpayer’s net business income 
derived from such activity for such taxable year. 
‘‘(2) SPECIFIED
RETURN
ON
CAPITAL.—The 
term ‘specified return on capital’ means, with re-
spect to any active business activity referred to in 
paragraph (1), the excess of— 
‘‘(A) the product of— 
‘‘(i) the deemed rate of return for the 
taxable year, multiplied by 
‘‘(ii) the asset balance with respect to 
such activity for such taxable year, over 
‘‘(B) an amount equal to the interest 
which is paid or accrued, and for which a de-
duction is allowed under this chapter, with re-
spect to such activity for such taxable year. 
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‘‘(3) DEEMED
RATE
OF
RETURN.—The term 
‘deemed rate of return’ means, with respect to any 
taxable year, the Federal short-term rate (deter-
mined under section 1274(d) for the month in which 
or with which such taxable year ends) plus 7 per-
centage points. 
‘‘(4) ASSET BALANCE.— 
‘‘(A) IN
GENERAL.—The asset balance 
with respect to any active business activity re-
ferred to in paragraph (1) for any taxable year 
equals the taxpayer’s adjusted basis of any 
property described in section 1221(a)(2) which 
is used in connection with such activity as of 
the end of the taxable year (determined without 
regard to sections 168(k) and 179). 
‘‘(B) APPLICATION
TO
ACTIVITIES
CAR-
RIED ON THROUGH PARTNERSHIPS AND S COR-
PORATIONS.—In the case of any active business 
activity carried on through a partnership or S 
corporation, the taxpayer shall take into ac-
count such taxpayer’s distributive or pro rata 
share (as the case may be) of the asset balance 
with respect to such activity as determined with 
respect to such partnership or S corporation 
under subparagraph (A) (applied by sub-
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stituting ‘the partnership’s or S corporation’s 
adjusted basis’ for ‘the taxpayer’s adjusted 
basis’). 
‘‘(g) REDUCED RATE FOR SMALL BUSINESSES WITH 
NET ACTIVE BUSINESS INCOME.— 
‘‘(1) IN GENERAL.—The tax imposed by section 
1 shall be reduced by 3 percent of the excess (if any) 
of— 
‘‘(A) the least of— 
‘‘(i) qualified active business income, 
‘‘(ii) taxable income reduced by net 
capital 
gain 
(as 
defined 
in 
section 
1(h)(11)(A)), or 
‘‘(iii) the 9-percent bracket threshold 
amount, over 
‘‘(B) the excess (if any) of taxable income 
over the applicable threshold amount. 
‘‘(2) PHASE-IN OF RATE REDUCTION.—In the 
case of any taxable year beginning before January 1, 
2022, paragraph (1) shall be applied by substituting 
for ‘3 percent’— 
‘‘(A) in the case of any taxable year begin-
ning after December 31, 2017, and before Jan-
uary 1, 2020, ‘1 percent’, and 
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‘‘(B) in the case of any taxable year begin-
ning after December 31, 2019, and before Jan-
uary 1, 2022, ‘2 percent’. 
‘‘(3) QUALIFIED ACTIVE BUSINESS INCOME.— 
For purposes of this subsection, the term ‘qualified 
active business income’ means the excess (if any) 
of— 
‘‘(A) any net business income derived from 
any active business activity, over 
‘‘(B) any net business loss derived from 
any active business activity. 
‘‘(4) 
9-PERCENT
BRACKET
THRESHOLD 
AMOUNT.—For purposes of this subsection, the term 
‘9-percent bracket threshold amount’ means— 
‘‘(A) in the case of a joint return or sur-
viving spouse, $75,000, 
‘‘(B) in the case of an individual who is 
the head of a household (as defined in section 
2(b)), 3⁄4 of the amount in effect for the taxable 
year under subparagraph (A), and 
‘‘(C) in the case of any other individual, 1⁄2 
of the amount in effect for the taxable year 
under subparagraph (A). 
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‘‘(5) APPLICABLE THRESHOLD AMOUNT.—For 
purposes of this subsection, the term ‘applicable 
threshold amount’ means— 
‘‘(A) in the case of a joint return or sur-
viving spouse, $150,000, 
‘‘(B) in the case of an individual who is 
the head of a household (as defined in section 
2(b)), 3⁄4 of the amount in effect for the taxable 
year under subparagraph (A), and 
‘‘(C) in the case of any other individual, 1⁄2 
of the amount in effect for the taxable year 
under subparagraph (A). 
‘‘(6) ESTATES
AND
TRUSTS.—Paragraph (1) 
shall not apply to any estate or trust. 
‘‘(7) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning after 2018, the dollar 
amounts in paragraphs (4)(A) and (5)(A) shall each 
be increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under subsection (c)(2)(A) for the cal-
endar year in which the taxable year begins, de-
termined by substituting ‘calendar year 2017’ 
for ‘calendar year 2016’ in clause (ii) thereof. 
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If any increase determined under the preceding sen-
tence is not a multiple of $100, such increase shall 
be rounded to the next lowest multiple of $100. 
‘‘(h) REGULATIONS.—The Secretary may issue such 
regulations or other guidance as may be necessary or ap-
propriate to carry out the purposes of this section, includ-
ing regulations or other guidance— 
‘‘(1) which ensures that no amount is taken 
into account under subsection (f)(4) with respect to 
more than one activity, and 
‘‘(2) which treats all specified service activities 
of the taxpayer as a single business activity for pur-
poses of this section to the extent that such activi-
ties would be treated as a single employer under 
subsection (a) or (b) of section 52 or subsection (m) 
or (o) of section 414. 
‘‘(i) REFERENCES.—Any reference in this title to sec-
tion 1 shall be treated as including a reference to this sec-
tion unless the context of such reference clearly indicates 
otherwise.’’. 
(b) 25 PERCENT RATE FOR CERTAIN DIVIDENDS OF 
REAL ESTATE INVESTMENT TRUSTS
AND COOPERA-
TIVES.—Section 1(h), as amended by the preceding provi-
sions of this Act, is amended by adding at the end the 
following new paragraph: 
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‘‘(13) 25 PERCENT RATE FOR CERTAIN DIVI-
DENDS OF REAL ESTATE INVESTMENT TRUSTS AND 
COOPERATIVES.— 
‘‘(A) IN GENERAL.—For purposes of this 
subsection, net capital gain (as defined in para-
graph (11)) and unrecaptured section 1250 
gain (as defined in paragraph (6)) shall each be 
increased by specified dividend income. 
‘‘(B) SPECIFIED DIVIDEND INCOME.—For 
purposes of this paragraph, the term ‘specified 
dividend income’ means— 
‘‘(i) in the case of any dividend re-
ceived from a real estate investment trust, 
the portion of such dividend which is nei-
ther— 
‘‘(I) a capital gain dividend (as 
defined in section 852(b)(3)), nor 
‘‘(II) taken into account in deter-
mining qualified dividend income (as 
defined in paragraph (11)), and 
‘‘(ii) any dividend which is includible 
in gross income and which is received from 
an organization or corporation described in 
section 501(c)(12) or 1381(a).’’. 
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(c) CLERICAL AMENDMENT.—The table of sections 
for part I of subchapter A of chapter 1 is amended by 
inserting after the item relating to section 3 the following 
new item: 
‘‘Sec. 4. 25 percent maximum rate on business income of individuals.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2017. 
(e) TRANSITION RULE.—In the case of any taxable 
year which includes December 31, 2017, the amendment 
made by subsection (a) shall apply with respect to such 
taxable year adjusted— 
(1) so as to apply with respect to the rates of 
tax in effect under section 1 of the Internal Revenue 
Code of 1986 with respect to such taxable year (and 
so as to achieve a 25 percent effective rate of tax 
on the business income (determined without regard 
to paragraph (2)) in the same manner as such 
amendment applies to taxable years beginning after 
such date with respect to the rates of tax in effect 
for such years), and 
(2) by reducing the amount of the reduction in 
tax (as otherwise determined under paragraph (1)) 
by the amount which bears the same proportion to 
the amount of such reduction as the number of days 
in the taxable year which are before January 1, 
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2018, bears to the number of days in the entire tax-
able year. 
SEC. 1005. CONFORMING AMENDMENTS RELATED TO SIM-
PLIFICATION OF INDIVIDUAL INCOME TAX 
RATES. 
(a) AMENDMENTS RELATED TO MODIFICATION OF 
INFLATION ADJUSTMENT.— 
(1) Section 32(b)(2)(B)(ii)(II) is amended by 
striking ‘‘section 1(f)(3) for the calendar year in 
which the taxable year begins determined by sub-
stituting ‘calendar year 2008’ for ‘calendar year 
1992’ in subparagraph (B) thereof’’ and inserting 
‘‘section 1(c)(2)(A) for the calendar year in which 
the taxable year begins determined by substituting 
‘calendar year 2008’ for ‘calendar year 2016’ in 
clause (ii) thereof’’. 
(2) Section 32(j)(1)(B) is amended— 
(A) in the matter preceding clause (i), by 
striking ‘‘section 1(f)(3)’’ and inserting ‘‘section 
1(c)(2)(A)’’, 
(B) in clause (i), by striking ‘‘for ‘calendar 
year 1992’ in subparagraph (B) thereof’’ and 
inserting ‘‘for ‘calendar year 2016’ in clause (ii) 
thereof’’, and 
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(C) in clause (ii), by striking ‘‘for ‘calendar 
year 1992’ in subparagraph (B) of such section 
1’’ and inserting ‘‘for ‘calendar year 2016’ in 
clause (ii) thereof’’. 
(3) Section 36B(b)(3)(A)(ii)(II) is amended by 
striking ‘‘consumer price index’’ and inserting ‘‘C- 
CPI-U (as defined in section 1(c))’’. 
(4) Section 41(e)(5)(C) is amended to read as 
follows: 
‘‘(C) COST-OF-LIVING
ADJUSTMENT
DE-
FINED.— 
‘‘(i) IN GENERAL.—The cost-of-living 
adjustment for any calendar year is the 
cost-of-living adjustment for such calendar 
year determined under section 1(c)(2)(A), 
by substituting ‘calendar year 1987’ for 
‘calendar year 2016’ in clause (ii) thereof. 
‘‘(ii) SPECIAL RULE WHERE BASE PE-
RIOD ENDS IN A CALENDAR YEAR OTHER 
THAN 1983 OR 1984.—If the base period of 
any taxpayer does not end in 1983 or 
1984, clause (i) shall be applied by sub-
stituting the calendar year in which such 
base period ends for 1987.’’. 
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(5) Section 42(e)(3)(D)(ii) is amended by strik-
ing ‘‘section 1(f)(3) for such calendar year by sub-
stituting ‘calendar year 2008’ for ‘calendar year 
1992’ in subparagraph (B) thereof’’ and inserting 
‘‘section 1(c)(2)(A) for such calendar year by sub-
stituting ‘calendar year 2008’ for ‘calendar year 
2016’ in clause (ii) thereof’’. 
(6) Section 42(h)(3)(H)(i)(II) is amended by 
striking ‘‘section 1(f)(3) for such calendar year by 
substituting ‘calendar year 2001’ for ‘calendar year 
1992’ in subparagraph (B) thereof’’ and inserting 
‘‘section 1(c)(2)(A) for such calendar year by sub-
stituting ‘calendar year 2001’ for ‘calendar year 
2016’ in clause (ii) thereof’’. 
(7) Section 45R(d)(3)(B)(ii) is amended by 
striking ‘‘section 1(f)(3) for the calendar year, deter-
mined by substituting ‘calendar year 2012’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof’’ and 
inserting ‘‘ ‘section 1(c)(2)(A) for such calendar 
year, determined by substituting ‘‘calendar year 
2012’’ for ‘‘calendar year 2016’’ in clause (ii) there-
of’ ’’. 
(8) Section 125(i)(2) is amended— 
(A) by striking ‘‘section 1(f)(3) for the cal-
endar year in which the taxable year begins by 
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substituting ‘calendar year 2012’ for ‘calendar 
year 1992’ in subparagraph (B) thereof’’ in 
subparagraph 
(B) 
and 
inserting 
‘‘section 
1(c)(2)(A) for the calendar year in which the 
taxable year begins’’, and 
(B) by striking ‘‘$50’’ both places it ap-
pears in the last sentence and inserting 
‘‘$100’’. 
(9) Section 162(o)(3) is amended by inserting 
‘‘as in effect before enactment of the Tax Cuts and 
Jobs Act’’ after ‘‘section 1(f)(5)’’. 
(10) Section 220(g)(2) is amended by striking 
‘‘section 1(f)(3) for the calendar year in which the 
taxable year begins by substituting ‘calendar year 
1997’ for ‘calendar year 1992’ in subparagraph (B) 
thereof’’ and inserting ‘‘section 1(c)(2)(A) for the 
calendar year in which the taxable year begins, de-
termined by substituting ‘calendar year 1997’ for 
‘calendar year 2016’ in clause (ii) thereof’’. 
(11) Section 223(g)(1) is amended by striking 
all that follows subparagraph (A) and inserting the 
following: 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(c)(2)(A) for the calendar 
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year in which the taxable year begins, deter-
mined— 
‘‘(i) by substituting for ‘calendar year 
2016’ in clause (ii) thereof— 
‘‘(I) except as provided in clause 
(ii), ‘calendar year 1997’, and 
‘‘(II) in the case of each dollar 
amount in subsection (c)(2)(A), ‘cal-
endar year 2003’, and 
‘‘(ii) by substituting ‘March 31’ for 
‘August 31’ in paragraphs (5)(B) and 
(6)(B) of section 1(c). 
The Secretary shall publish the dollar amounts 
as adjusted under this subsection for taxable 
years beginning in any calendar year no later 
than June 1 of the preceding calendar year.’’. 
(12) Section 430(c)(7)(D)(vii)(II) is amended 
by striking ‘‘section 1(f)(3) for the calendar year, 
determined by substituting ‘calendar year 2009’ for 
‘calendar year 1992’ in subparagraph (B) thereof’’ 
and inserting ‘‘section 1(c)(2)(A) for the calendar 
year, determined by substituting ‘calendar year 
2009’ for ‘calendar year 2016’ in clause (ii) there-
of’’. 
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‘‘(aa) who is described in 
section 1(b)(1)(B) and who does 
not have any dependents for the 
taxable year,’’. 
(2) Section 486B(b)(1) is amended— 
(A) by striking ‘‘maximum rate in effect’’ 
and inserting ‘‘highest rate specified’’, and 
(B) by striking ‘‘section 1(e)’’ and insert-
ing ‘‘section 1’’. 
(3) Section 511(b)(1) is amended by striking 
‘‘section 1(e)’’ and inserting ‘‘section 1’’. 
(4) Section 641(a) is amended by striking ‘‘sec-
tion 1(e) shall apply to the taxable income’’ and in-
serting ‘‘section 1 shall apply to the taxable in-
come’’. 
(5) Section 641(c)(2)(A) is amended to read as 
follows: 
‘‘(A) Except to the extent provided in sec-
tion 1(h), the rate of tax shall be treated as 
being the highest rate of tax set forth in section 
1(a).’’. 
(6) Section 646(b) is amended to read as fol-
lows: 
‘‘(b) TAXATION OF INCOME OF TRUST.—Except as 
provided in subsection (f)(1)(B)(ii), there is hereby im-
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