The Top Five Most Impactful Tax Considerations in the American Families Plan

During a recent joint session of Congress on April 28, 2021, President Biden unveiled the framework for his American Families Plan, an ambitious $1.8 trillion proposal designed to provide economic security for many middle-class Americans while investing in education, healthcare and childcare for families.
A major component of the proposal includes a tax reform agenda that focuses on reversing many tax laws enacted by the 2017 Tax Cuts and Jobs Act, including $800 billion in tax cuts and $1.5 billion in new taxes over the next ten years.
For many Americans, the tax provisions outlined in the proposal mean tax cuts. For high income Americans, the proposal paints a difference picture. Here are the top five proposed impactful tax considerations of the American Families Plan:
Top tax rate would increase from 37.0% to 39.6%.
Potential expansion of 3.8% Medicare tax on those making over $400,000, therefore making the top effective tax rate 43.4%.
Capital gains rates would be eliminated for taxpayers with income greater than $1M. Current rates for long-term capital gains are 20.0% regardless of total income. This potential elimination of preferred rates would effectively double taxes on long-term capital gains.
Elimination of deferral of gains related to like-kind exchanges (1031 transactions), with gains calculated over $500,000. This will have significant impact on the real estate industry.
Taxation of unrealized gains in excess of $1M at the date of death of a taxpayer. Certain exceptions are noted to apply, including farms and family-owned businesses where the business transfers to their heirs who will continue to run the business.
At this time, the American Families Plan exists only as a proposal. As there are no formal legislative actions or bills in progress, accounting professionals still have many questions:
As with most legislative processes, the plan may take many shapes before it is signed into law. We will continue to monitor developments and provide updates.
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