Please note that this summary is limited to the proposed income and estate tax changes and is not all encompassing. We will continue to monitor these changes as they progress through Congress and will provide updates as they become available.

Proposed Changes

  • At this time, all proposed changes are expected to become effective as of January 1, 2022, without any retroactive impact

  • Ordinary income tax rate for those earning over $452,700 (or $509,300 for joint filers) per year to be increased to 39.6%

    • Other income brackets will remain as they are currently

    • The 3.8% surtax on net investment income will be consistently applied to all earnings over $452,700 per year for individuals and $509,300 for joint filers

  • Increase of long-term capital gain and qualified dividend rates to ordinary income rates for income over $1 million

    • The 3.8% surtax on net investment income will apply

    • This is the only item that is likely to be enacted either as of the date the legislation is passed, or retroactively back to the date of announcement (late April 2021)

  • 1031 Exchanges no longer allowable for properties with gains of over $500,000 in a given year ($1 million for joint filers)

  • Gifts, bequests and transfers in excess of $1 million would create a realization event

    •  Donors would owe taxes on the gain at the time the gift is made

    • Gifts or bequests to a spouse or to charity will be exempt

  • Carried interest income taxed as ordinary income rather than capital gains

  • Gains in excess of $1 million would be subject to income tax at death

    • The $1 million exclusion would be portable between spouses, giving couples a total of $2 million that would be excluded from the tax

    • The $1 million exclusion will be indexed for inflation

    • Any income tax paid would be deductible on the decedent’s estate tax return

    •  Assets left to charity would not be subject to this tax

    • This proposal does not affect the step-up in cost basis laws currently in place

Potential Action Items

  • Depending on the effective date of the capital gains tax increase, consider realizing larger gains in 2021 while the top tax rate is still 20%, or consider spreading out the gains over a longer time period to minimize the tax impact

  • For sales of businesses or properties, consider using installment sales when possible to regulate annual income

  • Consider leaving highly appreciated assets to charity, or gifting them during life

  • Complete 1031 exchanges in 2021, particularly for properties with gains larger than $500,000 (individual filers) or $1 million (joint filers)


IMPORTANT DISCLOSURES
This document contains general information, opinions and market commentary and is only a summary of certain issues and events that we believe might be of interest generally. Nothing in this document is intended to provide, and you should not rely on it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific recommendations regarding any tax or investment or wealth management strategy, and you should not make any decisions based on the information in this document. Recipients should consult their personal tax and legal professionals regarding their own specific situations. While we believe the information in this email is reliable, we do not make any representation or warranty concerning the accuracy of any data in this email and we disclaim any liability arising out of your use of, or reliance on, such information. This document speaks only as of the date indicated. The information and opinions in this document are subject to change without notice, and we do not undertake responsibility to update any information herein or advise you of any change in such information in the future. Portions of this email constitute “forward-looking statements” and are subject to a number of significant risks and uncertainties. Any such forward-looking statements should not be relied upon as predictions of future events or results.