President Biden has proposed tax legislation which could significantly impact many individuals and businesses if enacted. In his April 28, 2021 address, President Biden discussed some of the proposals in his $1.8 trillion American Families Plan (AFP), which would make sweeping changes to some of the tax provisions enacted in the Tax Cuts and Jobs Act (TCJA) signed by President Trump in 2017.
The White House also released an extensive Fact Sheet detailing many of the President’s initiatives which include his proposed tax changes. Here is a summary of the significant tax provisions.
The American Families Plan’s Proposed Tax Changes
- Top tax bracket restored. The AFP would return the top tax rate to 39.6%, which is what is was before the 2017 TCJA.
- Increased tax on capital gains for the wealthy. The tax rate on long term capital gains of 20% would be increased to 39.6% for households making over $1 million.
- Closing the carried interest loophole. In the AFP, President Biden is attempting to close the carried interest loophole.
- Reducing the step-up in basis. For some taxpayers, the AFP would end the practice of “stepping-up” the basis for gains over $1 million for single filers and $2.5 million per couple when combined with existing real estate exemptions at death, and would tax the gains if the property is not donated to charity. Protection would be given to family owned businesses and farms.
- 3.8% tax on Net Investment Income. Changes would be made to those with income over $400,000 in order to have the tax more consistently applied.
- Excess business loss rules made permanent. The TCJA’s Section 461(l) disallowance of excess business losses would be made permanent under the AFP.
- Cut into like-kind exchanges. The AFP would eliminate the Section 1031 like-kind exchange rule for gains greater than $500,000 on real estate exchanges.
Permanent Changes to American Rescue Plan Provisions
The AFP would make the following changes to the Child Tax Credit and Child and Dependent Care Credit that were part of President Biden’s American Rescue Plan signed on March 11, 2021.
- Extension of the Child Tax Credit. As you may recall, the Child Tax Credit was recently increased from up to $2,000 per child under the age of 17 to $3,600 for each child younger than 6, and $3,000 for each child age 6 through 17 for qualifying families for 2021. The AFP would extend the Child Tax Credit increases through 2025.
- Permanent Increase to the Child and Dependent Care Credit. The American Rescue Plan increased the Child and Dependent Care Credit amount for many taxpayers and made the credit refundable. The AFP would also make these changes permanent.
For now, these are proposals and not enacted law. Many of these proposed tax items are expected to be met with opposition. MWE will continue to monitor these tax legislative proposals and communicate any significant changes moving forward. In the meantime, if you have any questions regarding the American Families Plan and how it may impact you and/or your business, please contact your MWE professional or call us at 516-747-2000.