SBK / 25 Jun 2021

Five Key Things from Biden’s Tax Proposals

On April 28, 2021, President Biden introduced the $1.8 trillion American Families Plan. Included within were several major proposed tax changes that Congress will deliberate between now and the end of the year.

While the timeline for implementation remains unclear and there are logistical hurdles, the most likely scenario is that any agreed upon tax changes would be for tax year 2022 – but they have introduced the idea of some retroactive provisions.

Below are five key tax proposals that we are watching between now and the end of the year:

  1. Increase in the Top Individual Income Tax Rate
  2. Raised Taxes on Certain Long-Term Capital Gains & Qualified Dividends
  3. Effective Repeal to the “Step-up” in Cost Basis
  4. Capital Gains Taxation on Transfers by Gift or at Death
  5. Estate & Gift Tax Exemption (Notably NOT included in the American Families Plan)

 

Increase in the Top Individual Income Tax Rate

  • Restore the top rate to 39.6 percent (pre-Tax Cuts and Jobs Act (TCJA)), from 37 percent currently
  • Would apply to income over $452,700 for single and head of household filers and $509,300 for joint filers (down from $523,600 and $628,300)

 

Raised Taxes on Certain Long-Term Capital Gains & Qualified Dividends

  • The long-term capital gains tax rate would increase from 20 percent to 39.6 percent for “households making over $1 million”
  • Recently released Treasury Green Book cited $1 million threshold relates to Adjusted Gross Income (AGI), with proposed effective date as of the date of announcement….unclear whether April 28 date (American Families Plan) or May 28 (Treasury Green Book)

 

Effective Repeal to the “Step-up” in Cost Basis at Death

  • Repeal stepped-up basis for gains exceeding $1 million (or $2 million per couple)
  • Certain protections for family-owned businesses and farms if heirs continue to operate
  • This change would not impact the existing home sale gain exclusion of $250,000 for single filers or $500,000 for couples
  • No tax for gifts to charity

 

Capital Gains Taxation on Transfers by Gift or at Death

  • Donor or deceased owner would recognize a capital gain at the time of the transfer
  • Proposed to be effective as of 2022
  • This would effectively eliminate the ability to gift securities with the basis carrying over to the gift recipient
  • This provision also would apply a tax on unrealized appreciation for trusts, partnerships, or non-corporate entities that had not had a recognition even within the past 90 years, beginning as of January 1, 1940

 

Estate & Gift Tax Exemption (Notably NOT included in the American Families Plan)

  • A reduction to the estate and gift tax exemption was not included in the tax proposals of the American Families Plan…leaving us to ask, will the exemption amount remain as is?
  • On the campaign trail, then-candidate Biden had cited a goal of returning the estate exemption to “historic norms,” which was assumed to be a range of $3.5 million to $5 million per person, plus inflation adjustments (versus the current $11.7 million exemption), and raising the top estate tax rate to 45 percent (from 40 percent currently)
  • The Tax Cuts and Jobs Act (TCJA) doubled the gift and estate tax exemption base from $5 million to $10 million (plus inflation adjustments); the elevated exemption amount is scheduled to sunset after 2025
  • It bears noting that Senator Bernie Sanders proposed the “For the 99.5 Percent Act” which would make significant changes to estate planning limits