by ACM Wealth
ACM Wealth Administrator
Tax Rates
There are currently seven tax brackets, ranging from 10 percent to 37 percent. This rate structure was established under the Tax Cuts and Jobs Act (TCJA) and is set to expire January 1, 2026.
Trump’s Plan: Maintain the current rate structure under the TCJA and therefore extend TCJA tax rate provisions past 2025. He is also considering a 10 percent middle class tax cut.
Biden’s Plan: Maintain the current seven brackets but modify the top bracket back to the pre-TCJA rate of 39.6 percent. This would largely affect taxpayers with income of $400,000 or more.
Capital Gains Tax Rates
Under current law, the capital gains tax rate varies based on income with a zero percent rate ($0 to $40,000), a 15 percent rate ($40,001 to $441,450) and a top rate of 20 percent for individuals with income above $441,451 (not including the 3.8 percent net investment income tax).
Trump’s Plan: No change has been announced regarding capital gains treatment, but we can assume that the president wishes to make the TCJA’s current rate and income structure permanent. Additionally, President Trump has expressed interest in indexing capital gains tax rules for inflation adjustments and potentially cutting the maximum capital gains rate to 15 percent.
Biden’s Plan: Eliminate tax preferred capital gains rates for taxpayers with taxable income over $1 million. For taxpayers with income over $1 million, capital gains would be subject to the ordinary income tax rates. This rate would be 39.6 percent, if Biden also were able to increase that rate from 37 percent. Biden’s plan would also implement major reforms to opportunity zones.
Itemized Deductions
Currently, the TCJA is the law of the land when it comes to itemized deductions until 2025, when it will expire. This notably includes:
- The suspension of the Pease limitation on itemized deduction;
- The mortgage interest limitation of acquisition indebtedness of $750,000 (instead of $1 million);
- No interest deduction for home equity loans where the proceeds were not used to buy, build or substantially improve the residence;
- $10,000 cap on the state and local tax deduction;
- Suspension of miscellaneous deductions subject to the 2 percent floor; and
- Charitable contributions limitation increased to 60 percent of AGI (was previously 50 percent of AGI under pre-TCJA).
Trump’s Plan: Maintain TCJA provisions, preventing expiration in 2025.
Biden’s Plan: Proposes implementing a new cap, essentially a restoration of the Pease limitation, on itemized deduction of 28 percent for taxpayers with incomes over $400,000 and ending the SALT cap of $10,000.
Child Credits
Currently under the TCJA, individuals can claim a $2,000 credit for each qualifying child and a $500 credit for other dependents, with each credit subject to income phaseouts.
Trump’s Plan: Maintain the child credit structure, preventing expiration in 2025.
Biden’s Plan: There has been no insight into the $2,000 child tax credit or the $500 other dependent credit. If he seeks to completely remove the TCJA, then these credits may be reduced to their pre-TCJA amounts. Rather, Biden’s plan focuses more on expanding the dependent care credit and to include a higher threshold of qualified expenses from $3,000 for one child to $8,000 for one child or $16,000 for two or more children. The dependent care credit would also allow a 50 percent reimbursement of expenses for income of $125,000 or less and a partial credit for income below $400,000.
Carried Interest
Carried interest is income that flows through to general partners of private equity funds. Under current law, carried interest is taxed at preferential long-term capital gains rates, provided a three-year holding period requirement is met.
Trump’s Plan: Maintains taxation at preferential long-term capital gains rates, provided the three-year holding period is met.
Biden’s Plan: Seeks to tax carried interest at higher ordinary income rates.
Corporate Tax Rate
The corporate tax rate is currently 21 percent under the TCJA. The Corporate Alternative Minimum Tax was repealed with the TCJA.
Trump’s Plan: No change as the current tax rate is already permanent and not expected to sunset like other provisions of the TCJA.
Biden’s Plan: Seeks to implement a 28 percent corporate tax rate and add a 15 percent corporate minimum tax on book income in excess of $100 million.
1031 Exchanges (aka Like-Kind Exchanges)
Capital gains can be deferred by exchanging property for like-kind property. The basis in the replacement property will be the same basis in the relinquished property in a straight asset-for-asset exchange.
Trump’s Plan: No change.
Biden’s Plan: Proposes ending the use of like-kind exchange capital deferral as a means to pay for enhanced child care benefits.
Basis Step-up
Basis of assets passed on to beneficiaries at death is increased to the fair market value of the asset as of the death of the deceased.
Trump’s Plan: Likely to continue with same treatment.
Biden’s Plan: Would eliminate the basis step-up rule and capital gains would be subject to tax at death.
Estate, Gift and Generation-Skipping Tax Exemption
Exemption currently sits at $11.58 million via TCJA.
Trump’s Plan: Maintain the changes implemented by TCJA.
Biden’s Plan: Reduce the estate and GST exemption to $3.5 million and gift tax exemption to $1 million.
Taxable Estates
Currently taxed on a graduated rate basis from 18 percent on estate values up to $10,000 to a maximum of 40 percent plus $345,800 for estates over $1 million.
Trump’s Plan: Maintain current law.
Biden’s Plan: Impose top tax at rates on taxable estates ranging between 40 percent and 80 percent.
Source: Duane Morris LLP