|Current Law||Biden Proposal|
|Ordinary Income Tax Rates (e.g., wages, short-term gains)|
|Ordinary Income: 37% top rate for single and joint returns earning $523,600 and $628,300, respectively||39.6% for single and joint returns earning $452,700 and $509,300, respectively|
|Long-Term Capital Gains & Qualified Dividends: 20% top rate||39.6% top rate for single and joint returns with income exceeding $500,000 and $1 million, respectively|
|Interest, Non-Qualified Dividends: 37%||39.6% top rate for single and joint returns earning $452,700 and $509,300, respectively|
|0% capital gain tax on assets held until death (i.e., stepped-up basis), with limited exception for primary residences||Capital gains tax applies for gain in excess of $1 million per estate|
|Built-In Gain for Trusts and Partnerships: Indefinite deferral||Gain triggered after 90 years|
Biden also proposed $80 billion to expand IRS audit activity, primarily for those earning in excess of $400,000.
Specialized vehicles exist in which investment income tax can be deferred or eliminated. They do not necessarily require a change in investment manager or strategy. Any individual with $100,000 or more in taxable investment income should explore this option. The following tables compare a fully taxable account to an alternative strategy
Basic Strategy under Biden Proposal: The Power of Deferral
Enhanced Strategy under Biden Proposal: Power of Deferral “plus” Step-Up to Heirs
This document is based on generalized and for informational purposes. No one is entitled to rely upon.
The proposed strategies provide a benefit under current law even if Biden’s proposal do not pass as proposed. As a result, these strategies should be considered regardless of legislative action.
Basic Strategy under Current Law
Enhanced Strategy under Current Law