Many of you have inquired about the tax implications of a potential Biden presidency. While this is not an exhaustive list of every aspect of the Biden Tax Plan, below are some key components that may have the most widespread impact:
- Increase the top individual rate from 37% to 39.6%.
- Cap the impact of itemized deductions at 28% for taxpayers whose income exceeds $400,000.
- Restore the Pease limitation [phase out] on itemized deductions.
- Establish up to $15,000 advanceable credit for first time homebuyers.
- Eliminate long-term capital gains treatment for individuals with taxable income over $1 million.
- Eliminate Qualified Business Income Deduction (Section 199A) for individuals with income over $400,000.
- Tax credit of 20% for 401(k) contributions.
- Increasing the Child and Dependent Care Tax Credit from $3,000 to $8,000 ($16K for more than one dependent).
- Reduce the Estate Tax Exemption from $11.58 million to $3.5 million and eliminate the step-up in basis at death.
- Increase the corporate income tax rate from 21% to 28%. (There is a 25% rate in most other countries.) Also establish a 15% minimum tax on book income of companies reporting net income > $100 mil. and no income tax.
- Establish a Manufacturing Communities Tax Credit, which would offset costs from “revitalizing, renovating, and modernizing existing — or recently closed down — facilities.”
- Eliminate 1031 Exchanges (currently limited to Real Estate only).
- Increase FICA (6.2%) taxes on wages over $400,000, which would create a “donut hole” of untaxed wages between $137,700 and $400,000.
The ability of a potential Biden administration to enact tax law changes is wholly dependent on having a Congress that will go along with them. While the Democrats retained control of the House, the control of the Senate is dependent on the results of the two runoff elections in Georgia in early January. Should the Democrats win both of those races, then they would assume control of the Senate and would most likely move to make changes to the tax code retroactive to January 1, 2021. The more likely result at this point seems to be a split, which would mean that the Republicans would retain control of the Senate, in which case, it is very unlikely that a Biden White House would be able to get any tax legislation passed in the next two years. If the Republicans retain control of the Senate the tax provisions enacted in the Tax Cuts and Jobs Act (TCJA) passed in December 2017 will, for now, remain the tax law in effect.