Earlier this year, wealthy Americans braced for expected tax increases on personal income, capital gains, dividends and corporations, along with massive decreases in the exclusions for gift and estate taxes.
But as the year closes, it appears that upper-income taxpayers will get an unexpected holiday gift.
The latest tax provisions in the proposed Build Back Better Act passed last month by the U.S. House of Representatives, now before the Senate, leaves unchanged marginal tax brackets, capital gains rates and the estate lifetime exemption. There’s even a taxpayer-friendly change that would raise the limit for state and local tax deductions from $10,000 to $80,000. The $10,000 cap, enacted in 2017, hit hardest taxpayers residing in states with high state income-tax rates.
However, some lumps of coal are also in the proposed Act, including:
- A new surcharge on high-income individuals, estates and trusts. The surcharge is 5% of the amount that an individual’s adjusted gross income exceeds $10 million ($5 million if you’re married and filing separately and $200,000 for an estate or trust). Add another 3% to the surcharge if your income exceeds $25 million ($12.5 million for married filing separately and $500,000 for an estate or trust).
- A tax code amendment to disallow the 75% and 100% exclusion from the sale of qualified small-business stock for taxpayers with adjusted gross incomes over $400,000 or if the taxpayer is a trust or estate.