At President Biden’s address to the joint session of Congress on April 28, 2021, he discussed the framework of his plan to fund the “American Families Plan.”  There were a number of proposed tax changes that must still be deliberated, debated, negotiated and agreed to by a majority in each house of Congress before any actual tax changes will take effect. However, knowing what could be changed allows time for the necessary modifications to maximize the benefits of your estate and wealth enhancement planning.

Estate Tax Proposals

• Surprisingly, no changes to existing exemptions or tax rates
• Elimination of “step-up in basis” at death
  • Unclear, until release of Green Book details, as to whether gains are taxed at death as if assets are sold or whether heirs will be given a carryover basis
  • Allows an exemption for first $1 million of gains per individual along with the personal residence exemption of $500,000 for a married couple

Individual Income Tax Proposals

• Income tax bracket rates
  • Increases top rate from 37% to 39.6% for taxpayers with incomes above $400,000
• Creates a phase-out of the Qualified Business Income Deduction under Section 199A for tax filers whose taxable income exceeds $400,000
• Long-term capital gains rate changes
  • Adds a top rate of 39.6% for capital gains and qualified dividends for households when taxable income exceeds $1 million
  • This rate may be negotiated lower to 28% but may apply to sales occurring after the bill’s enactment date, which could be in the last quarter of 2021

Corporate Income Tax Proposals

• Increase rate from 21% to 28%
  • Is likely to be negotiated to no more than 25%
• Creating an alternative minimum tax on corporations with profits of $100 million or higher
  • The profits level may be negotiated to a higher dollar amount

Miscellaneous proposals

• Elimination of Section 1031 like-kind exchange treatment for gains greater than $500,000
• Application of 3.8% medicare tax to income from trades or business that are not passive activities due to the taxpayer’s material participation

Next Steps

The tax law changes highlighted in President Biden’s address to Congress will have additional details released when the Treasury Department publishes its Green Book later this spring. In addition, President Biden’s proposal, along with other tax legislation proposed by numerous Senators and Representatives, must still proceed through the legislative process.

As such, clients should continue to proactively work with their Oxford advisors as well as tax and legal counsel to prepare for these potential tax law changes.

Oxford Financial Group, Ltd. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Oxford Financial Group’s investment advisory services can be found in its Form ADV Part 2, which is available upon request. The information in this presentation is for educational and illustrative purposes only and does not constitute tax, legal or investment advice. Tax and legal counsel should be engaged before taking any action. OFG-2104-58