Five Ways President Biden’s Tax Plan Could Impact Your Finances
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.
- An increase in the top individual income tax rate from 37% to 39.6%.
- 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.
- 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.
- 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%.
- 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.
Author Bio
Julianna Malis is the Founder and Managing Partner of Santa Barbara Estate Planning & Elder Law, a Santa Barbara estate planning law firm she founded in 2014. With more than 25 years of experience practicing law, she has dedicated her career to representing clients in a wide range of legal matters, including estate planning, elder law, Medicaid and Medicare planning, probate, and other estate planning areas.
Julianna received her Juris Doctor from the University of the Pacific — McGeorge School of Law and is a member of the California State Bar Association.