Potential Tax Law Changes - Mark Dillon, Carroll Financial
August 26, 2021

Potential Tax Law Changes

Summer 2021 Quarterly Newsletter

Author: Mark Dillon, CFP®

My friend and colleague Marty Moore wrote about the wacky world of taxes for our last newsletter. We thought we would continue this theme by discussing some of the proposed tax law changes, which were designed to help fund the “Build Back Better” program proposed early in the Biden administration. The program focuses on investments in infrastructure, education, family programs and COVID-19 recovery.

What are the tax changes?

The current administration is pushing for changes across the board in the current tax laws. The three main changes are listed below:

  1. An increase in the corporate tax rate from 21% to 28%.
  2. An increase in the individual income tax rate from 37% to 39.6% (affecting Americans earning more than $510,000).
  3. An increase in the capital gains tax rate from 20% to as high as 39.6% for long- term capital gains in excess of $1,000,000.

There are other tax increases in the plan that might be more difficult for Democrats to pass on their own that include:

  • The elimination of the step- up in tax basis on appreciated assets upon death.
  • The reduction of the estate tax exemption amount from $11,700,00 per person to $3,500,00 per person.
  • The limitation of 1031 like- kind exchanges that allow real estate investors to defer taxation when they exchange properties. The deferral would end for capital gains more than $500,000.

It is yet to be determined what all will be passed and what will be modified or not pass. The best that can be said about this is that since the first half of the year has ended, the momentum behind these initiatives seems to have waned.

Who is most affected?

The White House has emphasized that tax increases would only affect the top 1% – 2% of individual taxpayers. The administration has consistently pledged not to raise taxes on households making less than $400,000 per year.

What should I do?

The best thing to do right now is to wait. There is no need to take drastic steps now since tax increases in 2022 are not certain and subject to plenty of changes and compromises. We have seen clients make irrevocable decisions to avoid potential taxes and regret those decisions later when tax laws change again. After the plan has passed and we have the facts, rest assured that we at Carroll Financial will be analyzing how this might impact your planning and if you should do anything in response. Also, remember this great piece of advice from my friend Larry Carroll:

“Never let the tax caboose push the train!”

This article was featured in our Summer 2021 Quarterly Newsletter available here:

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