One of the CPAs that we work with sent out an update on the new tax proposal that was released last week… There’s a long way to go before any of it becomes law and there is some opposition to it from moderates and Republicans. That being said, there is a good chance that a watered-down version of it will pass through reconciliation!
NOTE: I am not a CPA or tax attorney (nor do I play one on TV), so I would advise that you speak to your professional prior to making any decisions. This is for informational purposes only…
Here are the highlights from what she shared:
- The corporate top tax rate to go up to 26.5%.Tax brackets reinstated, with the lowest rate at 16.5% (I believe the current is 10%)
- Top capital gains rate increase from 20% to 25% effective September 13, 2021 (YES… RETROACTIVELY :-()
- No repeal of the $10,000 capfor individuals on itemized state and local tax deductions (!!!!)
- Passthrough entities (S-corps & partnerships) qualified small business income deduction created in TCJA capped at $400,000 for individual filers and $500,000 married filers. (For those of you who own businesses…)
- New 3.8% tax on active income from pass-through entities, aka profits.
- Estate exclusion limits revert back to pre TCJA levels in 2022…
- RETROACTIVE to December 2016!(Yes, this would affect deals already closed and tax returns filed!). Pretty sure this is a pipe dream and wouldn’t fly!
The bill also includes $80B to the IRS for enforcement. EIGHTY. BILLION. DOLLARS!!! Yikes!
While the capital gains rate proposal is less than the original increases tossed around, the top capital gains rate could still be as high as 31.8% once the NIIT and Surtax are factored in.
So far, I’ve not HEARD of them threatening to remove the $250K/$500K exclusion for personal residence!
I’ve also not heard of the current proposal addressing 1031 Exchanges or self-directed retirement accounts, though I’ve heard rumors in the past!
So what does this all mean for you?
Well, if you’re in the market to buy a primary residence…
… It won’t impact you too much! Other than we *may* see some landlords put their homes on the market and increase the inventory between now and the end of the year. But that’s pure speculation.
That being said, I’d definitely try to get in (and closed) prior to 12/31/2021. With the limits on itemized deductions staying intact, keeping your property tax bill as low as possible is important. Any taxes you pay over and above $10,000 will essentially be lost money 🙁
If you’re looking to sell…
… If your home is a primary residence, and you’ve lived in it for 2 of the past 5 years, than anything above $250K/$500K is going to be at the current capital gains rate.
We may or may not have missed the window for a 20% cap. We’ll have to see if they change that retroactive to this month or give us through the end of the year.
… If you’re looking to sell an investment property, the reduced capital gains window may have passed, but you CAN take advantage of a 1031 exchange. There are some advanced strategies to pull out some cash, but you’ve got to make sure you do it the right way! So if you’re thinking of leveraging your investment (say, cashing in on a single-family home and buying a multi-unit or several single family homes, now might be a good time to look at it!)
Again, I am just relaying information on the new tax proposal, passed along from one the CPAs that we work with! So please consult with your own professional to see how these proposals may impact you (if at all) and to plan accordingly!
Have a great week! And please let me know if there’s anything I can do for you…
Until next time… keep smiling… be kind… and stay safe out there 🙂
