New Tax Laws - Congress

First Look at the U.S. House Tax Proposals

After months of speculation, on Monday, September 13, 2021, the Ways and Means Committee of the House of Representatives released a summary of a number of proposals that would pay for the roughly $3.5 trillion spending bill.  Among the items included in their summary were:

  • Increasing the top ordinary income tax rate to 39.6%.
  • Increasing the top corporate income tax rate to 26.5%.
  • Increasing the top long term capital gains tax rate to 25%.
  • Reduce the gift and estate tax exclusion to $5.85 million, indexed for future inflation.
  • Add a new chapter to the estate and gift tax code that would include assets in an irrevocable grantor trust in the grantor’s estate at the date of the grantor’s death.
  • Add a new provision to the estate and gift tax code that would ignore valuation discounts on the transfer of minority interests in passive liquid assets entities. 
  • Subject profits in business to the 3.8% net investment income tax.
  • Prohibit additions to IRAs with large account balances.
  • Limit the QSBS exclusion for certain taxpayers. 

A few of the changes proposed by the House of Representatives would be effective after September 12, 2021.  One such item would be the sale of capital assets in 2021.  However, most of the changes would not become effective until after December 31, 2021. 

A brief summary of some of the items that are not in the House’s bill:

  • An increase in the cap on state and local taxes (SALT).
  • A cap on the amount of gains that can be preferred in a section 1031 exchange.
  • A limit on the step-up income tax basis that occurs upon the death of a decedent.

These proposals are subject to change and the political path forward is with peril.  However, several of the proposals are much more moderate than what had been previously proposed.  A complete bill will need to be considered by the entire House of Representatives.  And that bill will also need to be considered, potentially modified and approved by the Senate.  We wanted to keep our clients and colleagues advised of these possible changes. We will give you more updates as the tax proposals work their way through Congress. 

Considering the scope of prospective changes, you may want to take advantage of today’s existing income, gift and estate tax law.  For example, some clients may choose to use the existing exemption to move assets out of their estate.  

To the extent any of these changes impact your planning, please feel free to contact us. 

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