The U.S Treasury Department recently released the 2021“Green Book”. This is a 114-page explanation of the tax proposals in the Biden Administration’s FY 2022 budget. Although there are still many unknowns, below is a summary of the notable topics for individual tax proposals.
1.) Capital Gains Tax Increase
- Increase capital gains tax to ordinary rates for taxpayers with adjusted gross income (AGI) over $1 million.
- 39.6% + 3.8% = 43.4% (37% + 3.8% = 40.8% in 2020)
- Retroactive date to Date of "Announcement” – April 28, 2021.
- Example from Green Book:
- Wages of $900,000, Capital Gains of $200,000.
- $100,000 taxed at 20%.
- $100,000 taxed at ordinary rates (amount OVER $1 million AGI).
2.) Ordinary Income Tax Rate increase
- Rates to increase from 37% to 39.6% for taxpayers with taxable income over:
- Single: $452,700
- Married Filing Jointly: $509,300
- Proposal date after 12/31/2021.
3.) Tax on Unrealized Gains upon Gift or at Death
- Treat transfers of an appreciated asset, either at death or by gift during life, as an income realization event.
- Exemptions apply:
- $1 million exemption per taxpayer.
- $250,000 exemption for all residences per taxpayer.
- Transfers to U.S. spouse or charity.
- Qualified small business stock exemptions apply.
- Family-owned businesses – payment of tax on appreciation would not be due until the interest in the business is sold or the business ceases to be family-owned.
- Exemptions apply:
4.) Other Important Topics
- Eliminating 1031 like-kind exchanges with gains in excess of $500,000 ($1,000,000 married filing jointly).
- Expand the Net Investment Income Tax and Self-Employment Contributions Act taxes for pass-through entity owners
- Pass-through business income of high-income taxpayers to be subject to either Net Investment Income Tax or Self-Employment tax.
- Taxpayers with AGI over $400,000.
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