Thread by @baldridgecpa

A lot more clarity today around the American Families Plan, releasing details of the 2021 tax reform.

These changes will impact individuals (cap gain and ordinary rates), corporations, estate and gift tax, along with international taxes as well.

See a summary🧵 below ⬇️

Timing - The plan is part of a budget reconciliation that will be created in the coming months and go through the House and the Senate in the fall. Even with the filibuster in place, a budget only needs 51 votes to pass.

The effective date of the provisions will most likely be Jan 1, 2022. Certain provisions may take place on the date the law is passed and others will be phased in over time.

There may be a good chance to plan in the current year, or before the law takes effect.

The Big Ones -

The one that everyone is talking about is the increase in cap gains/dividends rates for high income individuals (AGI higher than 1MM, although it could be lowered to $400k)

This rate could be as high as 43.4% - (new 39.6% tax rate plus 3.8% medicare rate)

Real estate gets hit -

Carried interest to be taxed at ordinary income rates

Section 1031 repealed for gains greater than $500k

The Laundry List -

-Repealing bonus depreciation (including 100% bonus)

-Provisioning some of the scheduled provisions from the Tax Cuts Jobs Act to expire sooner than originally anticipated.

-S-Corp income subject to medicare tax for families making over $400k

-The proposal pushes corporate tax rates to 28%, although it is expected that this will actually be negotiated down to no more than 25%

-QBI (section 199A) deductions may phase out for taxpayers making over $400k

-NOL Carrybacks prohibited going forward

-15% minimum tax on corps w/ $2 Billion + book income

-Several provisions to penalize moving jobs and assets overseas, and incent bringing jobs to the US, including a "Made in USA" tax credit for call center jobs.

-Providing tax credits for renewables, taxing "fossil fuels"

Individuals rate jump -

For families earning more than 650k, the top marginal rate will go to 39.6% - some question of whether the brackets are squeezed down to families earning 400k taxable income.

Estate tax -

-Reduce estate exemptions to Pre - TCJA levels (5.3MM per person)
-Increase the estate tax rate to 45% from 40%
-Eliminate the step up in basis for gains in excess of $1MM (2.5MM for couples with certain real estate exemptions)

Provisions will be made for families passing businesses to heirs.

Portability of exemption between spouses should continue, but valuation discounts that are commonly used will be targeted.

Retirement account changes -

-RMD age to be increased to 75

-Increased 401k contributions for those over 60

-Student loan pay down and matching in lieu of 401k contributions

The SALT cap will be lifted, and taxpayers will be able to deduct more than $10,000 - this could be limited to a certain % of AGI for high income earners over $400k..

These provisions are still subject to change, and it is also up for debate as to what exactly can pass through budget reconciliation and what might need its own separate legislation.

Suffice it to say, as these changes go through, planning will become more and more valuable..

Here is the original fact sheet for reference..

whitehouse.gov/briefing-room/…

The salt cap lift is certainly up in the air

cnbc.com/2021/04/27/cal…