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September 14, 2021

House Releases Details of Tax Proposal with Impacts on Corporations and High-Income Individuals

On Monday, September 13th, House Democrats released details of their eagerly-awaited tax increase proposal. The House Ways and Means Committee plans to vote this week on the proposals which would raise trillions of dollars from corporations, estates and gifts and high-income earners. Below are the highlights of the proposal.

Main Provisions of the House’s Tax Plan

  • Raising the top marginal tax rate to 39.6% starting in 2022 for individuals with taxable income of $400,000 and $450,000 for married couples
  • Increasing the top long-term capital gain and qualified dividend rate to 25%, generally effective as of 9/13/2021, along with a binding commitment exception
  • Adding a 3-percentage-point surtax on taxpayers with modified adjusted gross income more than $5 million
  • Subjecting active business profits of pass-through businesses to 3.8% surtax
  • Sunsetting the increase in the estate/gift/GST tax exemption as of December 31, 2021; reverting back to $5,000,000 indexed for inflation
  • Forcing distributions from “MEGA IRAs” as well as limiting contributions once the account exceeds certain thresholds
  • Eliminating Roth conversions for married taxpayers earning over $450,000
  • Eliminating valuation discounts for lack of control for passive assets, with a carveout for family farms and businesses
  • New limits on note sales to grantor trusts as well as changes to grantor trust taxation
    • Changes to valuation adjustments effective 1-1-2022
    • Elimination of IDGT sales effective 1-1-2022
    • Grandfather rules for existing grantor trusts
    • Increases in the farm exemption from $750,000 to $11,700,000
    • Inclusion of grantor trusts in a taxable estate
    • Taxation of sales to grantor trusts just like arms-length sales
  • Changes to the IRC Section 1202 QSB stock once AGI equals or exceeds $400,000;
  • Application of the wash sale rules to cryptocurrency
  • Capping the Qualified Business Income Deduction (199A) for individuals at $400,000 and married couples at $500,000
  • Implementing a graduated corporate tax rate structure and raising the top corporate tax rate to 26.5% from 21% – lower than the 28% proposed by the Biden administration
  • Limiting business interest deductions and taxing foreign income at higher rates
  • Increasing the holding period for carried interest from 3 to 5 years
  • Limiting deductions for conservation easements retroactive to 2016

What is Not Included in the House’s Tax Plan

Items noticeably absent from the proposal include:

  • Taxing unrealized gains at death
  • Changes to the $10,000 cap on State and Local Tax deduction

Our advisors are closely following the tax law proposals and legislation changes and will continue to publish insights to keep you informed. To discuss how we can best assist you and the associated fees, contact an Anders advisor below.

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