Update on Pending Tax Legislation

• The legislation was passed in the House of Representatives.
• The state and local taxes (SALT) limitation increases from $10,000 to $80,000 from 2021 through 2031.
• Backdoor Roth strategies are being prohibited at all income levels.
• A tax surcharge of 5% on income over $10 million. The surcharge will likely apply to trusts with income above $200,000.
• An additional surcharge of 3% on income over $25 million. The additional surcharge will likely apply to trusts with income above $500,000.
• The qualified small business stock exclusion will be reduced from 100% to 50% for those with income above $400,000. This change MAY be made retroactive to September 2021.
• The 3.8% net investment income tax will apply to S-corporation earnings for single taxpayers with $400,000 of income and married joint taxpayers with $500k of income.

Tax Proposals by President Biden that will likely not happen

• Increases to top ordinary and capital gains tax brackets to as high as 39.6%.
• Reduction of estate exemption from $11.7m to $5m.
• Elimination of step-up in basis at death.

The Senate will now discuss and likely make changes before voting on the bill. If the Senate does make changes, then the House will need to vote again to approve those changes. If the bill does get signed into law this year, then it will likely be in late December.