Joe Biden’s proposed tax increases
As the election get closer in November, Joe Biden has released possible reform regarding tax increases if he becomes president.
Below is an outline of what he is proposing and the changes that he would like to take effect.
Ordinary Income – he is proposing to increase the ordinary rate from 37% to 39.6%. This will affect you if your AGI is greater than $520,000 / year ($620,000 if you’re married.)
Long-term capital gains – if your AGI is greater than $1 million / year, he is proposing to increase the capital rate from 20% to 39.6%.
Increase to Social Security Tax Wage Base – currently social security is taxed on wages up to approximately $140,000 / year. Under Biden’s plan, any wages above $400,000 would also be included in the Social Security tax.
This creates a strange “donut” situation where temporarily there will be no Social Security taxed on wages between $140K and $400K. However, since the $140K wage based is increase every year due to an inflation index, it would eventually close the gap and one day all wages would be subject to Social Security tax.
1031 Exchange – Biden is considering the repeal of the 1031 exchange. This was something that was actually on the table during Trump’s tax reform back in 2018, however the lobbyists from the real estate industry were able to reach the Trump administration and put a quash on it’s repeal.
Step up in basis on property – currently when someone inherits property from the passing of a loved one (such as stocks or real estate), their basis in the property is the fair market value on the date of passing.
When you sell property you pay tax on difference between your basis and sales price.
Biden would like to change the law so the inherited property has a carryover basis from the original owner.
Example: Your mom owns a house she bought for $100,000 back in 1995. When she dies in 2020, the home is worth $450,000. You decide to sell the home in 2021 for $450,000.
Current tax plan – no tax on sale of home.
Biden’s plan – you will owe tax on $350,000.
CPAs are referring to this as a disguised inheritance tax. CPAs are referring to this as a disguised inheritance tax.