Biden’s Capital Gains Plan: Proposed Changes May Affect Your Current and Planned Investments

Biden’s Proposed Tax Plan Includes Significant Capital Gains Changes

The Biden administration has recently released its proposed budget (aka “Green Book”) for the 2022 fiscal year. The U.S. Treasury indicates the $6 trillion budget aims to improve infrastructure, clean energy, research & development, and among its many provisions are a host of proposed tax changes affecting individuals and corporations – including potential retroactive capital gains policies.

One of the tax and revenue proposals, entitled the American Families Plan, would raise taxes on high-income individuals, make permanent many of the various recent tax credit expansions, increase limits on like-kind exchanges, and address several tax administration issues, including regulation of paid tax return preparers with a new online system.

Other proposals bundled under the American Jobs Plan include a variety of corporate tax changes, including: raising the corporate tax rate; imposing a minimum tax on corporations; tax incentives to support housing and infrastructure and various clean energy incentives.

 

American Families Plan

The proposed budget would make the following changes to the taxation of high-income individuals:
  • Taxing capital gains of high-income individuals (with adjusted gross income over $1 million) at a 37% rate;
  • Increasing the top marginal income tax rate for high earners from 37% to 39.6% for taxpayers with taxable income over $509,300 for married taxpayers filing jointly and over $452,700 for single filers;
  • Imposing capital gain tax on property transferred by gift and on property owned at death; and
  • Rationalizing the net investment income and Self-Employment Contributions Act (SECA) taxes so that all pass-through business income of high-income individuals is subject to either the net investment income tax or SECA tax.

Additional proposed changes include:

  • Permanently extending the expansion of the earned income tax credit (EITC) for workers without qualifying children;
  • Making permanent ARPA’s changes to the child and dependent care tax credit;
  • Permanent expansion of the American Rescue Plan Act (ARPA), P.L. 117-2, of premium assistance tax credits;
  • Extending ARPA’s child tax credit increase through 2025 and making permanent its full refundability;
  • Increasing the employer-provided child care tax credit for businesses to 50% of the first $1 million of qualified care expenses;
  • Taxing carried interests as ordinary income for partners with taxable income over $400,000;
  • Limiting the deferral of gain from like-kind exchanges to $500,000 per taxpayer ($1 million for married taxpayers filing jointly) per year;
  • Permanently extending the Sec. 461(l) excess business loss limitation for noncorporate taxpayers.

 

The Biden Administration’s proposed budget aims to improve compliance and tax administration, with the following changes:

  • Begin comprehensive financial account reporting, which would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts above a $600 threshold;
  • Enabling the IRS a multiyear appropriation to help manage tax evasion;
  • Enhancing accuracy of tax information by expanding Treasury’s authority to require e-filing and improving information reporting;
  • Crypto assets- expanding broker information reporting;
  • Addressing taxpayer noncompliance with listed transactions by extending the statute of limitation and imposing liability on shareholders to collect unpaid corporate income taxes;
  • Increasing oversight on return preparers by providing Treasury with explicit authority to regulate paid preparers of federal tax returns, including establishing minimum competency standards;
  • Changing various tax administration rules; and
  • Authorizing limited sharing of business tax return information to measure the economy more accurately.

The American Jobs Plan

The proposed budget asks for the following corporate tax changes:

  • Raising the corporate income tax rate to 28% from its current 21%;
  • Revising the global minimum tax regime, disallowing deductions attributable to exempt income, and limiting inversions;
  • Imposing a 15% minimum tax on book earnings of large corporations; 
  • Providing a 10% tax credit as an incentive for locating jobs and business activity in the United States and removing tax deductions for expenses incurred in connection with moving jobs overseas;
  • Repealing the global intangible low-taxed income (GILTI) exemption for foreign oil and gas extraction income;
  • Repealing the deduction for foreign-derived intangible income (FDII);
  • Replacing the Sec. 59A base-erosion and anti-abuse tax (BEAT) with a new “stopping harmful inversions and ending low-tax developments” (SHIELD) rule;
  • Limiting foreign tax credits from sales of hybrid entities; and
  • Restricting deductions of excessive interest of members of financial reporting groups for disproportionate borrowing in the United States.

To help support housing and infrastructure needs, the budget proposes:

  • Expanding the low-income housing tax credit;
  • Providing a new neighborhood homes investment tax credit;
  • Providing federally subsidized state and local bonds for infrastructure; 
  • Making permanent the Sec. 45D new markets tax credit.

Regarding clean energy changes, the proposed budget includes:

  • Establishing tax credits for heavy- and medium-duty zero emissions vehicles;
  • Extending and enhancing the electric vehicle charging station credit;
  • Providing tax incentives for sustainable aviation fuel;
  • Extending and improving various renewable and alternative energy incentives;
  • Providing a tax credit for electricity transmission investments;
  • Providing an allocated credit for electricity generation from existing nuclear power facilities;
  • Establishing new tax credits for qualifying advanced energy manufacturing;
  • Providing a production tax credit for low-carbon hydrogen;
  • Extending and enhancing various energy efficiency and electrification incentives;
  • Eliminating various fossil fuel tax preferences;
  • Reinstating superfund excise taxes and modifying oil spill liability trust fund financing;
  • Providing a disaster mitigation tax credit; and
  • Expanding and enhancing the carbon sequestration credit.

We’re Here to Help You with the Tax Planning Process

Millan & Company’s comprehensive approach allows our unique clients to confidently navigate the complexities of taxation and documentation as new laws are implemented into the tax code. 
We focus on client satisfaction, delivering high-quality services at fair rates. Contact us to learn how the proposed changes may apply to your situation.

Millan & Co
Personalized Financial and Accounting Services
Peer Reviewed by Texas State
Board of Public Accountancy
812 San Antonio Street
Suite L17
Austin,TX 78701
Phone: 512-479-6819

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