Proposed changes to tax legislation | McNees Wallace & Nurick LLC
A note prepared by the House Ways and Means Committee outlining the proposed changes to the tax laws has been released. The note is accompanied by the actual bills submitted to the House. The note describes a variety of proposed changes to corporate and personal tax law. It is important to note that the proposals may not become law. However, estate planning clients are interested in:
- The top marginal tax rate would increase to 39.6% and apply to adjusted gross income over $ 450,000 (joint filers), $ 425,000 (head of household), $ 400,000 (single filer) and $ 225,000 (married declaring separately).
- The capital gains rate would rise to 25%. This tax rate would apply to capital gains subsequent to the date of introduction of the bill (September 13, 2021). The current rate of 20% would apply to capital gains realized after the date of introduction, provided that the agreement to sell the asset was concluded before the date of introduction. Thus, if you are “under contract” before the “date of introduction”, the lower tax rate applies.
- The 3.8% net investment income tax will apply to the business income of taxpayers with income over $ 500,000 (joint filers) or $ 400,000 (single filer). The NII tax currently only applies to passive income over $ 250,000. This change will affect customers who own transit businesses (S-corporations and LLC).
- The 199A deduction for qualifying business income would be limited to $ 500,000 (married declaring jointly), $ 400,000 (single declaring), $ 250,000 (married declaring separately).
- The inheritance and gift tax exemption would amount to $ 5,000,000 adjusted for inflation as of 2010 (probably around $ 5,600,000).
- Roth IRA conversions would not be allowed for taxpayers with income greater than $ 500,000 (married filing jointly), $ 400,000 (single filer), $ 250,000 (married filing separate).
- Assets held in the grantor’s trusts will be considered part of the grantor’s taxable estate. This amendment applies to any trust created or transferred after the date of entry into force of the new law (therefore after September 13, 2021 but with a deadline still unknown this year).
Notably, the memo does not address the current $ 10,000 cap on deductions for state and local taxes, which negatively impacts taxpayers with higher incomes and / or more expensive homes in high-income jurisdictions. taxation. This limit is opposed by members of the House and Senate who represent high tax jurisdictions, such as California, New York, New Jersey and Connecticut. Therefore, it will remain to be seen whether this limit is maintained in its current form (the Ways and Means Committee issued a subsequent statement that the committee will work to “undo the short-term cap” on the tax deduction which is “essential. “to” middle class communities “).
In addition, the memo did not address the repeal of the “basic adjustment” that occurs on death. Some members of the Senate Finance Committee seem particularly focused on this issue.
It is important to stress that the note issued by the Ways and Means Committee is a step in the budget reconciliation process. The House needs the buy-in of its members and must find common ground with the Senate.