Important Chevy Chase Trust 2021 Tax Information
President Biden laid out his vision for The American Families Plan in his address to Congress. The President’s address and the related Fact Sheet the White House released on April 28 described a number of proposed tax increases that would be used to pay for the Plan’s programs. Some of the noted proposals are highlighted below:
- Increase the top tax rate to the pre-2018 level of 39.6% from 37% today. Currently, the top rate applies to individuals with income above $523,600 and married taxpayers with income above $628,300. It is not clear what the thresholds will be for the 39.6% rate, but the President has said the increases will apply only to those with income above $400,000.
- Apply the top 39.6% rate to all types of income, including capital gains and qualified dividends, for those with income in excess of $1 million.
- End the step-up in basis for inherited assets in excess of $1 million ($2.5 million per couple), with certain exemptions to protect family-owned farms and businesses.
- Change the taxation of carried interest income for hedge fund and private equity partners from capital gains to ordinary income tax rates.
- Eliminate like-kind exchange capital gain deferral for real estate gains in excess of $500,000.
- Broaden the application of the 3.8% Net Investment Income Tax for those earning in excess of $400,000.
These tax proposals are in the earliest stages. We expect the points will be heavily debated and revised prior to becoming law.
While neither the President nor the White House’s Fact Sheet addressed changes to the estate and gift tax laws, on March 25, Senator Bernie Sanders introduced the For the 99.5% Act, which would make sweeping changes to federal estate and gift taxes. In addition to provisions that would impact many popular estate planning strategies, including GRATs, Defective Grantor Trusts and valuation discounts, the legislation would do the following:
- Reduce the current estate tax exemption from $11.7 million to $3.5 million (from $23.4 million to $7 million for a married couple).
- Cap the exemption for lifetime gifts at $1 million.
- Increase the estate and gift tax rate from 40% to 45% on the estate value between $3.5 and $10 million; to 50% on the value between $10 and $50 million; to 55% on the value between $50 million and $1 billion; and to 65% on the value above $1 billion.
- Reduce the annual gift tax exclusion from $15,000 to $10,000 per recipient, and apply a cumulative limit of $20,000 per year for those gifts.
Again, these changes are subject to modification during the legislative process, or may fail to pass entirely. If enacted, the effective date for the changes is January 1, 2022.
We encourage you to discuss these matters with your income and estate tax advisors and reach out to us if we can be of assistance to you.
Chevy Chase Trust does not render legal, tax or accounting advice. Accordingly, you and your attorneys and accountants are ultimately responsible for determining the legal, tax, and accounting consequences of any suggestions offered herein.
Furthermore, all decisions regarding financial, tax, and estate planning will ultimately rest with you and your legal, tax, and accounting advisors.
U.S. Treasury Circular 230 Notice:
Any U.S. federal tax information included in the communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding U.S. federal tax-related penalties or (ii) promoting, marketing or recommending to another party any tax-related matter addressed herein.