Breaking Down the New 2021 Federal Tax Proposals

September 2021 Federal Tax Proposals

John streamed live to break down and discuss the proposed new federal tax measures being put forth in the House of Representatives. These measures are part of the House plan to fund the massive infrastructure bill and related Build Back Better Bill items proposed by President Biden.

It’s a sprawling set of tax proposals, so I’m planning to walk through the main points, translate it into lay terms, and help you understand what provisions might affect you, your business, and your family.

You can follow along with the proposal outline document here.

What we’re covering here

Below are a few sections that John focuses on in particular. These are the provisions that are likely to have real impact individual taxpayers.

Sec. 138201. Increase in Top Marginal Individual Income Tax Rate.

This is a rollback to the previous rate of 39.6% for married incomes over $450,000 and unmarried individuals over $400,000.

Sec. 138202. Increase in Capital Gains Rate for Certain High Income Individuals

This increases the top capital gains tax rate to 25%.

Sec. 138203. Application of Net Investment Income Tax to Trade or Business Income of Certain High Income Individuals

This expands the net investment income tax to cover net investment income derived in the ordinary course of a trade or business for high-income taxpayers.

Sec. 138206. Surcharge on High Income Individuals, Trusts, and Estates

This imposes a 3% tax on modified adjusted gross income in excess of $5,000,000.

Sec. 138207. Termination of Temporary Increase in Unified Credit

This reverts the credit to its 2010 level of $5,000,000 per individual, indexed for inflation.

Sec. 138208. Increase in Limitation of Estate Tax Valuation Reduction for Certain Real Property Used in Farming or Other Trades or Businesses

This reduction allows decedents who own real property used in a farm or business to value the property for estate tax purposes based on its actual use rather than fair market value. This provision increases the allowable reduction from $750,000 to $11,700,000.

Sec. 138209. Certain Tax Rules Applicable to Grantor Trusts

This is a big change for how we employ grantor trusts, pulling grantor trusts into a decedent’s taxable estate when the decedent is the deemed owner of the trusts.

Sec. 138210. Valuation Rules for Certain Transfers of Nonbusiness Assets

This alters the valuation of nonbusiness assets and eliminates a valuation discount for transfer tax purposes.

Sec. 138301. Contribution Limit for Individual Retirement Plans of High-Income Taxpayers with Large Account Balances.

This creates new rules for taxpayers with very large IRA and retirement account balances. Specifically, it prohibits further contributions to a Roth or traditional IRA for a taxable year if the total value of an individual’s IRA and retirement accounts generally exceed $10 million as of the end of the prior taxable year.

Sec. 138302. Increase in Minimum Required Distributions for High-Income Taxpayers with Large Retirement Account Balances.

Related to the previous item, this requires a minimum distribution of 50 percent of the amount by which the individual’s prior year aggregate traditional IRA, Roth IRA and defined contribution account balance exceeds the $10 million limit.

Sec. 138311. Tax Treatment of Rollovers to Roth IRAs and Accounts.

This closes the so-called “back-door” Roth IRA strategies, the bill eliminates Roth conversions for both IRAs and employer-sponsored plans for high-income taxpayers.