Possible Tax Law Changes After the Election (Part 1)
Taxes are always a topic of conversation during elections, especially presidential elections. This one is no different. At the same time, our clients have begun to ask us about certain changes they have read about and what they should do now. Our answer at this point is that any talk about changes is speculative. It is impossible to know what will happen so as a result there is nothing to do at the moment. Nevertheless, this week we will take a look at what has been and what has not been said so far.
While DonaldTrump has not said anything specific about what tax revisions he might make in a second term, he did pass a tax law in 2017 that reduced income taxes for most Americans. Wealthy Americans particularly benefited as did corporations when the corporate tax rate was reduced from 28% to 21%.
Joe Biden put forth a tax plan during the Democratic primary and made some statements about it during the first Presidential debate which were reiterated by his running mate, Kamela Harris. Much of his plan is a reaction to Trump’s 2017 tax law changes. He has said that he would look to repeal much of it. Specifically, Biden has said that he would increase the top individual tax rate from 37% to 39.6% and move the corporate rate back to 28%.
He also, said, however, that he would not increase taxes on anyone earning less than $400,000. Instead, he would look to increase taxes for those making more than $1,000,000 by taxing investment income at the same rate as wages.
Of particular interest in the area of estate planning are 2 possible changes. One would cut in half the estate tax exemption – the amount that can be passed free of federal estate tax. Right now it is at $11.58 million. The second would eliminate the step up in basis for assets that appreciate in value such as real estate and stocks. If you hold onto these assets when you die, your heirs get a step up in basis to the value at the date of your death wiping out tax on unrealized gain. In many cases, clients hold these assets for years and the unrealized gain and the potential tax can be substantial.
That’s what has been said so far. But, as we have seen, the reality can be very different. Next week, I’ll discuss what these changes might mean and some possible outcomes.