Tax Alert: The Changing Calculus

September 16, 2021 – So far this year, prospective tax planning has been working off the Biden Tax Proposals (see our previous Bulletins dated June 3 and 14). We knew the whole while that it is a long way from a politician’s tax proposal to tax laws ultimately enacted by Congress. We saw an example of how things can change on Tuesday, when the House Ways & Means Committee released draft legislation on a tax bill to support the $3.5 trillion spending package now before Congress. We will have more on this going forward, but here are the headlines, especially as they differ from the initial Biden Proposals.

Income Tax
  • A new 3% surtax on individuals with adjusted gross income over $5 million for couple filing jointly/ $2.5m for those filing separately. Effective for years beginning after 12/31/21.
  • An increase in the top capital gains rates to only 25%, versus the threatened 39.6% in the Biden Plan. However, note this is apparently on all capital gains not just those over $1 million of adjusted gross income (AGI) as previously proposed. And importantly, the effective date is 9/13/21….so there is no opportunity here for quick sales to avoid that increase. However, on the other hand, it is not retroactive to a date before the effective date. 
  • Limits the 100%/75% exclusion of gain from sales of Section 1202 Qualified Small Business Stock (QSBS) for taxpayers with AGI of over $400,000. This will negatively impact many entrepreneurs.
  • Ends “back-door” Roth IRAs, for taxpayers with an AGI of over $400,000, by prohibiting Roth conversions of IRAs funded with non-deductible contributions. This would be effective after 12/31/21.
  • Notable in its absence is any change to the current $10,000 SALT deduction limitation. 
Estate & Gift Tax
  • Reduce the estate and gift tax lifetime exemption from its current $11.7 million per person to $5 million. (The actual wording does not mention the Generation Skipping Transfer Tax or GST, but it almost certainly included). Importantly, this change will not take effect until after 12/31/21. So…. there is still a window to take advantage of unutilized lifetime exemptions. 
  • Also, importantly, this draft bill does not include the Biden proposal to eliminate the step-up in basis at death that appreciated assets in a decedent’s estate have traditionally enjoyed. This is a win!
  • Finally, the proposal would effectively eliminate the benefits of grantor trust planning strategies by making them includible in the taxable estate of the grantor. Trusts in existence would be grandfathered.

Of course, this is not the last word, that will come later this fall when the legislative process is complete…but, this is a pretty good indication. As always, stay tuned!


Nicholas Bertha
Director of Wealth and Trust Planning
Fieldpoint Private Securities, LLC


Fieldpoint Private does not provide tax or legal advice. Please consult your personal tax or legal advisor regarding your particular circumstances.


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Nicholas Bertha
Fieldpoint Private Trust, President


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