President Biden offered various changes to the tax code in his 2024 fiscal year budget. Here is a listing of the most significant proposals that would affect businesses and individuals if enacted by Congress:
Business proposals
- Raise corporate income tax rate from 21% to 28%
- Increase excise tax on repurchases of corporate stock from 1% to 4%
- Tax certain corporate distributions as dividends
- Limit losses on liquidations within a controlled group of corporations
- Prevent basis shifting by related parties in partnerships that make a 754 election
- Expand and make low-income housing tax credits more flexible
Individual proposals
- Tax capital gains on gifts and at death ($5 million lifetime exclusion, portable and indexed)
- Trusts, partnerships, and other non-corporate entities must recognize capital gains if no gains had been recognized in past 90 years (exception for assets use in active trade or business)
- High-income S corporation shareholders and limited partners/LLC members who materially participate in the business would be subject to net investment income tax (NIIT) on business income
- Increase NIIT and Medicare rate by 1.2% to 5% for high-income taxpayers)
- Increase top ordinary income tax rate to 39.6% for married joint filers with taxable income greater than $450,000 (single filers with more than $400,000)
- Increase capital gains and qualified dividends rate to 37% for taxpayers with more than $1 million in taxable income
- Impose minimum tax of 25% on taxpayers’ income plus unrealized capital gains if they have net worth higher than $100 million
- High-income taxpayers with an aggregate vested account balance under tax-favored retirement arrangements that exceeded $10 million as of the last day of the preceding calendar year must distribute a minimum of 50 percent of that excess, subject to caps and limitations
- Make permanent the exclusion for income on forgiven student debt
Estate, Gift and GST Tax proposals
- Eliminate the use of valuation discounts for intrafamily transfers
- Impose income tax on the value of assets transferred to grantor trusts
- Limit the duration of GST tax exempt trusts
- Limit the use of defined value clauses that minimize exposure to gift tax on lifetime transfers
- Treat grantor’s payment of a grantor trust’s income tax as a gift to the trust beneficiaries (revoking a 2004 revenue ruling)
- Tax capital gains on gifts and at death (see above)
- Limit annual gift tax exclusion to $50,000 per donor per year
Close Loopholes and Other Significant Changes
- Tax carried interests at ordinary income rates if taxpayer’s taxable income exceeds $400,000
- Tax gains on like-kind exchanges in excess of $500,000 per year per taxpayer
- Recapture as ordinary income 100% of depreciation deductions claimed on real property claimed after effective date
- Prevent private foundations from making qualifying distributions to a donor advised fund unless DAF distributes assets in next taxable year and certain record-keeping requirements are met
- Apply wash sale rules to digital assets and in certain related party transactions
The full text of the proposals is available online at https://home.treasury.gov/policy-issues/tax-policy/revenue-proposals. Many of these proposals were introduced by the President in his previous budget but were not included in the final versions of House or Senate tax legislation in 2021 or 2022. Accordingly, it is highly uncertain whether any of these provisions will be enacted as legislation in 2023.