The American Families Plan presented by President Biden on April 28, 2021, includes several revenue raising tax increases for wealthy taxpayers. While the plan is currently a proposal, we will be watching it closely as it moves through Congress. Some of the tax increases in the plan will:
- Increase the top tax bracket for ordinary income to 39.6% from 37%;
- Tax all capital gains at ordinary income rates for taxpayers with income over $1,000,000. This would raise the tax rate for long term gains for these taxpayers from 20% to 39.6%. The top tax rate would be 43.4% including Net Investment Income Tax (NIIT);
- Remove the ability to step-up the basis of assets at death for unrealized gains in excess of $1,000,000;
- Remove the ability to perform a like kind exchange on the sale of real estate if the gain is in excess of $500,000;
- Increase the applicability of the NIIT (3.8%) to all income over $400,000; and
- Completely close the carried interest provisions. Under the Tax Cuts and Jobs Act of 2017, Congress put a three-year holding period to achieve long-term treatment. The American Families Plan will remove the potential for long term tax treatment completely.
While there are many tax increases in the plan, there are a few increases that have previously been mentioned by the administration that appear not to have made it into the proposal including reducing the current estate tax exemption and a repeal of the Qualified Business Income deduction.
If you have questions about how this plan will affect you and your business, please contact your Warren Averett advisor directly.