What You Should Know About the American Families Plan
On April 28, 2021, President Joe Biden made his first joint address to Congress. In this address, President Biden laid out some of the tax proposals that are part of his $1.8 trillion American Families Plan (AFP).
This plan contains several proposals that will make transformative changes to tax provisions enacted in former President Donald Trump's 2017 tax reform law known as the Tax Cuts and Jobs Act (TCJA), as well as, extending or making permanent some of the provisions contained in the recently enacted American Rescue Plan Act (ARPA) that was signed into law by President Biden just the past March.
The White House later released a comprehensive "Fact Sheet" detailing many of the initiatives and proposed tax changes the President hopes to accomplish. Among these changes are:
AFP Proposed Tax Changes:
- Restoration of the Top Tax Bracket - AFP would restore the top tax rate to 39.6%, the same top rate it before the 2017 TCJA.
- Increased Capital Gains Tax on Wealthier Individuals - The maximum long term capital gains tax rate of 20% would almost double to 39.6% for households making over $1 million.
- Closing the "Carried Interest Loophole" – The carried interest loophole allows profits earned from funds owned by real estate investors and managers of private equity and venture capital firms to be taxed as capital gains instead of as regular income. The President has expressed support for closing this so-called loophole.
- Changes to the Step-up in Basis at Death Rules - For certain wealthier taxpayers, the AFP would end the practice of "stepping-up" the tax basis of assets at death for gains over $1 million for single filers and $2.5 million per couple when combined with existing real estate exemptions, and would tax the gains if the property is not donated to charity. Protection purportedly would be given to family-owned businesses and farms.
- Net Investment Income Tax Changes - Changes would be made to those with income over $400,000 in order to make more consistent the way tax is applied. • Excess business loss rules - The TCJA's Section 461(l) disallowance of excess business losses would be made permanent under the AFP.
- More Limits on Like-kind Exchanges - The AFP would eliminate the Section 1031 like-kind exchange rule for gains greater than $500,000 on real estate exchanges. Previous legislation had already eliminated such exchanges on personal property exchanges.
Extension of ARPA Provisions:
In addition to the above, the AFP would make the following changes to the Child Tax Credit and Child and Dependent Care Credit that were part of the recently enacted ARPA.
- Extension of the Child Tax Credit - the Child Tax Credit was increased under ARPA from up to $2,000 per child under the age of 17 to $3,600 for each child younger than 6, and $3,000 for each child age 6 through 17 for qualifying families, but only for 2021. The AFP would extend the Child Tax Credit increases through 2025.
- Permanent Increase to the Child and Dependent Care Credit - The ARPA increased the Child and Dependent Care Credit amount for many taxpayers and made the credit refundable. The AFP would also make these changes permanent.
Of course, these are just proposals, and they are not without opposition. However, as quickly as things have been moving in Washington of late, you could see action on these soon.
