Capital Gains Taxes: Squeeze Play On Appreciated Assets

Until April 28, there was no formal tax plan from the Biden administration—only what then-candidate Joe Biden campaigned on. That changed with the release of his American Families Plan and the tax proposals that will fund it.   

While many of the campaign proposals were included, there are new pieces and some notable items excluded. In this blog, I will focus on those topics that are more likely to impact investment portfolios and planning strategies.

What is in the plan?

Biden tax proposal

Turning into law

President Biden cannot implement these changes alone. It seems highly unlikely this plan will receive the support of 10 Republican senators plus all 50 Democratic senators needed for a 60-vote passage. That means it will have to be taken to the budget reconciliation process. This process is not straightforward and will require support from 50 senators (with the tie-breaking vote from Vice President Kamala Harris).Getting 50 votes is not guaranteed. There will undoubtedly be much negotiation and horse trading to secure the necessary votes. It’s likely that whatever package passes will look quite different from this initial plan.

Additionally, clearing the House of Representatives is no sure thing.  Prior to publishing this tax proposal, 20 Democratic House members stated they could not support any tax changes without the repeal of the SALT deductions. Recall these SALT (State and Local Taxes) deductions were part of the 2017 Tax Cuts and Job Act (TCJA), and limited the deductibility of property, income and local taxes. The SALT repeal is not included in the initial proposal.

When?

As the details and negotiations move along this spring and into summer (and fall?), making the effective date retroactive to Jan. 1, 2021, seems unlikely. Tax decreases are more likely to be implemented retroactively while increases have generally been the following year. If the new plan comes into force next year, the window is getting shorter for investors to take possible action in advance of possible increases.

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Disclaimer: Opinions expressed by readers don’t necessarily represent Russell’s views. Links to external web sites may contain information concerning investments other than those offered ...

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