President Biden recently addressed new tax policy proposals with Congress. While there is much to review, some of the proposed changes in tax law are generating conversations with our investor-minded friends. (Please note that these are proposals only and not yet law. Because any change to the tax code triggers complex consequences, they will likely be the subject of much negotiation in Congress.)

Below are the implications of five significant proposals, which may be offset through thoughtful planning and employing tax-advantaged gift vehicles:

• Ordinary Income: Restoration of the top income tax rate to 39.6% for those with income greater than $400,000. It is expected that the top income tax bracket could apply to income above $452,700 a year for individuals. For married couples, the 39.6% rate could start at $509,300.
• Capital Gains: Doubling the tax rate to 43.4% on capital gains and raising it to 39.6% on dividends for households making more than $1 million.
• Step-Up in Basis: Elimination of the stepped-up basis deduction at death with exemptions for gains below $1 million (or $2.5 million per couple) and some farms when combined with real estate exemptions. The estate tax exemption limits have not yet been addressed, which means the current $11.7 million exemption enacted in 2017 will revert to $5 million (inflation-adjusted) as planned in 2025. If the stepped-up basis is eliminated as proposed, Congress may be motivated to overhaul the estate and gift tax structure.
• Real Estate: Elimination of like-kind exchanges, which allows the deferral of capital gains tax on real estate exchanges for gains in excess of $500,000.
• Carried Interest: Removal of the carried interest preferential tax rate used by investment partnerships, private equity partners and hedge funds. This will cause realized partnership interests to be taxed as ordinary income rather than at capital gains tax rates. 

Note that these proposed changes are not yet law and will be the subject of much negotiation and debate in Congress. Because any change to the tax code triggers complex consequences, it is unlikely that any of these proposals will proceed without many considerations of the implications on individuals, families and business. Likely, the execution of the proposals will be woven within the current structure and come with substantial exemptions, exceptions and deductions.

Whatever the outcome, you may find a strategy that will be beneficial in your personal and charitable concerns with thoughtful planning alongside your advisors. The Legacy and Gift Planning Team is available to support your planning through gift modeling and illustrations. Please visit childrenslegacy.org to learn more or contact Nicola Lawrence, Director of Legacy and Gift Planning, at nicola.lawrence@childrens.com.

This information is not intended as tax, legal or financial advice. Gift results may vary. Consult your personal financial advisor for information specific to your situation.

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