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Five Ways President Biden’s Tax Plan Could Impact Your Finances

Posted by Julianna Malis | Mar 21, 2021 | 0 Comments

Although President Biden outlined his tax plan during the presidential campaign, conventional wisdom held that Republicans in the Senate would block the implementation of his agenda. Now that Democrats control both the House and the Senate (if you factor in the vote of Vice President Kamala Harris), it's worth revisiting some of Biden's proposals.

In general, Biden would like to increase taxes on people earning more than $400,000 per year and repeal a number of provisions in the Tax Cuts and Job Act of 2017. Here are some of the details.

  1. An increase in the top individual income tax rate from 37% to 39.6%.
  2. Elimination of “step-up in basis” at death. Currently, the step-up in basis allows families to pass capital gains tax-free to their heirs. This is accomplished by “stepping up” the value of an asset from its original purchase price to its value when inherited, which results in less gain and therefore less tax paid. The step-up in basis significantly reduces capital gains taxes on assets with substantial appreciation, such as personal residences. The Biden plan would eliminate this tax-saving provision.
  3. A reduction in exemptions for estate and gift taxes. These exemptions are currently set at $11.7 million per person and $23.4 per married couple. Biden has proposed restoring estate and gift tax exemptions to their 2009 level: $3.5 million per person for the estate tax and $1 million for the gift tax.
  4. Capital gains treated as normal income. For individuals with income over $1 million, long-term capital gains and “qualified dividends” would be treated as normal income and taxed at 39.6%. This is significantly higher than the current rate of 15% to 20%.
  5. Limiting the tax benefit of itemized deductions to 28% for upper-income individuals.

Of course, President Biden's tax proposals require congressional approval before they become law. Such approval is by no means a certainty. If these proposals do become law, wealthy Americans will have to reevaluate and likely adjust their financial and estate plans.

About the Author

Julianna Malis

Julianna Malis, Attorney at Law, LL.M (Taxation-Estate Planning) Julianna helps families stop worrying about the ‘what ifs’ in life, and instead prepare for life events through proper estate planning. As the founder of Santa Barbara Estate Planning Law Group, she brings a family-centered approach to planning, with a focus on practical solutions for families and high net worth individuals...

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