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Article Highlights:
– The AFP would extend the expanded ACA health insurance premium tax credits included in the ARPA that lowered health insurance costs by an average of $50 per person per month for nine million people, and it would enable four million uninsured people to gain coverage. In addition to other provisions, individuals would be able to enroll in Medicare at age 60.
TAX INCREASES TO PAY FOR THE BENEFITS
Corporate Tax Rate – The proposal would increase the corporate tax rate from 21% to 28% (the rate was 35% before the 2018 tax reform).
Individual Marginal Tax Rates – The proposal would increase the top marginal tax rate from 37% to 39.6% for taxpayers with taxable income in excess of $400,000. That may be an oversimplification since tax rates take into account a taxpayer’s filing status. According to Jen Psaki, the White House press secretary, the 39.6% rate would apply to families with a taxable income of $509,300 or greater and single individuals with a taxable income of $452,700 or greater. Also, keep in mind that tax rates are adjusted for inflation annually.
Capital Gains Tax – The proposal would end the lower maximum capital gains rates for households making over $1 million (the top 0.3 percent of all households), thus having them pay the same 39.6% rate on all their income and equalizing the rate paid on investment returns and wages.
Basis Step-up – Currently, when assets are inherited, their basis in the hands of the beneficiary is the fair market value of the asset at the date of the decedent’s death. Taxable gain when an asset is sold is the difference between the selling price and the asset’s basis. Thus, under current law, assets can be transferred to beneficiaries without any income tax liability for the beneficiaries.
Under the AFP, any basis step-up would be eliminated for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions), ensuring the gains will be taxed if the property is not donated to charity. The reform would be designed with protections so heirs will not have to pay taxes on family-owned businesses and farms given to them if they continue to run the business.
Carried Interest – Carried interest is a share of a private equity partnership’s or fund’s profits that serves as compensation for fund managers. Because carried interest is considered a return on investment, currently it is taxed at a capital gains rate and not an ordinary income rate. The proposed tax changes would eliminate carried interest, and thus the income would be taxed at ordinary rates.
Like-kind Exchange for Real Estate – Sec 1031 of the Internal Revenue Code allows taxpayers to exchange real estate used in business or for investment for other business or investment real estate and avoid taxation by deferring the gain in the replacement property. The proposed plan would eliminate Section 1031 like-kind exchanges for real estate investors when they exchange property on gains greater than $500,000.
Excess Business Losses - An “excess business loss” is the excess (if any) of the taxpayer’s aggregate deductions for the tax year that are attributable to trades or businesses of the taxpayer (determined without regard to whether or not the deductions are disallowed for that tax year) over the sum of
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