Exceptions have been discussed for a transfer to a spouse, a revocable trust, charity, and for small businesses and family farms however, we don’t know the details of these yet. To be clear, the gift-giver or the estate of the deceased would owe the tax, not the person who received the appreciated asset. The proposal would trigger capital gain tax purely because the asset has been transferred by gift or at death. Traditionally you only pay capital gains tax when you sell an appreciated asset. Tax capital gains when assets are gifted or transferred to people at death.This change would mean that investors could no longer defer taxes on gain from the sale of real estate by rolling profits into their next purchased property except for an annual $500,000 exclusion per taxpayer (married couples would have a $1 million exclusion). Repeal Section 1031 like-kind exchange rules for real estate.Tax carried interests (private equity and hedge funds) as ordinary income instead of capital gains.However, there is speculation that this new capital gains rate will end up closer to 28% rather than 39.6%. Raise long-term capital gains and dividend taxes from the current 20% to the ordinary income tax rate of 39.6% for taxpayers in years when their annual adjusted gross income is above $1 million.It also proposes to lower the threshold of taxable income needed to hit this new rate to $509,300 for married couples and $452,700 for singles. Restore the top marginal rate to 39.6% (up from today’s 37%) for households with incomes above $400,000.The American Families Plan along with the proposed Budget and Green Book look to: What changes to personal taxes are proposed? However, it’s wise to be prepared for this possibility, just in case. Retroactive tax increases actually are quite unusual. 1, 2022, except for a new capital gains and qualified dividend tax rate which might apply retroactively to April 28, 2021. If any legislation is passed, it’s very likely that all proposed changes will take effect Jan. When will new tax changes take effect if they are passed? To the extent you do any planning, you may need extra time to implement before the end of 2021, particularly since the professionals who implement these plans (attorneys, CPAs and appraisers) are very busy helping many clients with these possible upcoming changes. Your Wealth Management team can also be part of the conversation. Consider contacting your tax and legal professionals and discuss these possible tax changes and see how they might affect you.
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