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Is Biden’s Green Book a Red Light For Tax Breaks?

In late May, President Biden and the US Treasury released the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals—more commonly known as the Green Book. The 114-page proposal is not law, but suggestions approved by the White House for allocating the government’s FY 2022 budget.

The Green Book is comprised of two sections, the American Jobs Plan and the American Families Plan (AFP). The latter is committed to providing low-to-mid-income households with tax credits and breaks, while closing loopholes and tax evasion schemes for high net worth individuals.

Proposals

The Green Book’s main implications for high net worth (HNW) individuals relate to new proposals for capital gains and estate taxes.

1. Tax Capital Income for HNW at Ordinary Rates

Current: Long-term capital gains are taxed at 0%, 15%, and 20% — depending on income – and are not taxed like regular income.
Proposed: Taxpayers with adjusted gross income over $1 million would have their capital gains taxed at ordinary income rates, with the highest being 37%.

2. Realize Capital Gains Upon Any Transfer of Assets

Current: Dynasty trusts allow families to pass wealth through generations without being taxed on the transfer of assets.
Proposed: Any transfer of assets through trusts to heirs would incur a capital gains tax.

3. Remove the Step-Up In Basis

Current: Only tax the capital gains accrued upon inheriting an asset.
Proposed: Tax the full amount of capital gains accrued since the original purchase of an asset.

4. Tax Unrealized Gains Every 90 Years

Current: Dynasty trusts can exist for years and even decades at a time without incurring taxes.
Proposed: Enforce a tax on long-term appreciated assets every 90 years starting 12/30/2030.

Implications

Since nothing is set in stone, the concern amongst taxpayers is the unknown. The fear for tax law attorneys is that these proposed provisions will—like the majority of the US tax code—hastily make their way into law without properly addressing specifics or closing possible loopholes, and will eventually create confusion across the board for taxpayers and preparers.

What has been described as a “whole new tax regime” will certainly require skilled and knowledgeable tax preparation for those looking to hold onto their money as long and tightly as possible.

DSJCPA is here to navigate these waves of change within the tax law with our clients. Call us at 516-541-6549 and visit our website to stay up to date!

 
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