Personal Income Tax
- The Biden administration plans to generate tax revenue in the coming years that will total $2 billion to $3 billion. Part of this revenue will be generated by changing the tax rate for the wealthiest earners.
- The proposed change involves changing the tax rate from 37% to 39.6% for people earning more than $400,000 annually.
- Another proposed change involves changing the structure of capital gains tax for the top 1% of earners. The change would be that if one’s personal income exceeds $1M, any gains they receive would be taxed as personal income.
- This means that gains would go from 23.8% to 39.6% for high income earners.
- The current law allows for an estate under $11.58M to be tax exempt, and any assets inherited above this threshold would be taxed at a rate of 40%.
- Biden’s change would change this threshold to $3.5M and the tax would be 45%.
- The 1031 exchange is used by many property investors to transfer their tax base from one property to another. The Biden administration proposed to eliminate the 1031 exchange because they view it as a tax loophole.
- This means that if any property is sold, there would no longer be an option to complete a tax deferred exchange.