The Biden administration and the U.S. Treasury have recently announced several tax proposals1, with policy debate now underway in both houses of Congress. Clarifications and details will emerge over the coming months as some proposals are amended or eliminated and new provisions considered. Any final legislation will likely differ from its current form. We are sharing our preliminary perspectives in this communication.
From our research, here is what we know thus far:
Based on the White House’s recent proposals, the following is a list of taxpayers who are most likely to be directly impacted:
Those with “high income”, over $452,700 of taxable income annually (additional details below). Impacts may be more substantial for those with income over $1M+ annually.
Individuals with potential liquidity events (i.e. full or partial sale of business ownership) or individuals with significant deferred or other compensation income to be realized within the next few years.
Those with a large amount of low basis assets or highly appreciated securities.
Those considering a like-kind exchange of real estate.
For taxpayers who anticipate being affected, the following are some additional details surrounding the key proposed changes that were highlighted:
Increase the top income tax rate to 39.6% for married individuals filing jointly and unmarried individuals with taxable income over $509,300 and $452,700 respectively.
Tax income from long-term capital gains and certain dividends at the highest ordinary rates for taxpayers with adjusted gross income of more than $1 million, but only to the extent that taxable income exceeds $1 million.
Limit like-kind exchange rules for gains on real property to an aggregate amount of $500,000 (or $1 million for individuals filing jointly) each year.
Subject trade or business income of high-income taxpayers to the 3.8% Medicare tax.
Treat transfers of appreciated property by gift, or on death, as gain realization events. The proposal would allow a $1 million lifetime per person exclusion of unrealized gains on property transferred by gift or held at death.
Additional tax considerations not listed in the Biden administration’s proposals which could be a part of final legislation, include:
Adjustments to estate tax or transfer taxes (estate, gift, and generation-skipping transfer taxes).
Potential repeal of SALT (state and local tax) cap for itemized deductions.
Potential cap on the value of itemized deductions for upper-income taxpayers, reinstating the “PEP” (personal exception phase-out) and “Pease” limitations on itemized deductions.
Elimination of the 20 percent QBI (qualified business income) deduction for pass-through income.
What Action Should One Take?
At this time, no action is needed for many individuals. While certain proposals could be applied retroactively, Congress still needs to approve the details of the plan and the effective dates.
We will keep you apprised of additional updates that may impact you. Additionally, we can work with you and your other professionals, such as your tax preparer and/or estate attorney, to evaluate any opportunities you may have to mitigate the potential impacts of these legislative changes.
In the meantime, please do not hesitate to contact your wealth management team if you have questions.
Modera Wealth Management, LLC (“Modera”) is an SEC registered investment adviser. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. For information pertaining to Modera’s registration status, its fees and services please contact Modera or refer to the Investment Adviser Public Disclosure Web site (www.adviserinfo.sec.gov) for a copy of our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money.
This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.
Investing in the markets involves gains and losses and may not be suitable for all investors. Information herein is subject to change without notice and should not be considered a solicitation to buy or sell any security or to engage in a particular investment or financial planning strategy. Individual client asset allocations and investment strategies differ based on varying degrees of diversification and other factors. Diversification does not guarantee a profit or guarantee against a loss.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.