Time to panic? No. Time to be concerned? Yes

There are so many potential tax law changes (impacting individuals, income tax, gift tax, estate tax, capital gains, stock transfers, trusts, GRATs, CRTs, step-up in basis and more) – I can’t fathom dealing with the fallout if all of these go through.

Is it time to panic?  No.  Time to be concerned? Yes.

I just gave my latest webinar version of “2021 Tax Reform: The Most Sweeping and Far-Reaching Tax Changes in Generations” yesterday – and in updating my PowerPoint, I finally noticed that apparently the Presidential Budget (the Pres’ wish list) includes three new earth shattering (from a tax planner’s perspective) wishes:

  • Capital gains on all transfers – Under the budget proposal, the donor or deceased owner of an appreciated asset would realize a capital gain at the time of the transfer.  The provision appears to provide no exclusion for gift transfers to spouses and charities.

(Hello????? – this on its face spells the end to all planning with appreciated stock, including Charitable Remainder Trusts and perhaps simple gifts of stock to charity!!!!!  There are those that think this was actually a typographical error but I think the simple meaning is clear – someone (or persons) in the administration wants to take away the advantages of using appreciated assets in any type of planning – charitable or not!!)

  • Good-bye step-up in basis – I can’t really believe this is on the table like this!  The STEP act was already proposing only a $1 million exemption for capital gains in estates, and $100,000 exemption for living individual transfers – but the budget proposal is going all the way – no mention of exemptions  (which could really screw everyday folks, by the way).  Hi folks – twice in the last 50+ years did we lose the Step-up in basis (1976 and 2010) – both times were such a disaster that they were retroactively undone/fixed. The STEP act is a bad idea; the version in the budget proposal is a downright disaster.
  • Limits on 1031 exchanges – This is a technique for real estate investors to sell real property, place the sale proceeds into a 1031 escrow account, and then purchase a like-kind property with no realization of capital gains. This helps real estate investors to keep investing!!!  They want to cap the capital gains delay in 1031 exchanges to $500,000 per investor per year.

Hello – do you want to destroy the real estate investment world?  Do you think serious investors will just pay their new really high capital gains taxes (also in the budget) every time they want to sell and reinvest in new properties?  They will just take their winnings and go home. I don’t that is very good for the economy which always could use investors.

OK, now that I have may have frightened you, here is why we can calm down a bit:

One commentator that I look to said that the 18 compromising Republican Senators had opened the door to push through the later the full blown “infrastructure package – lots of $trillions which would need big tax increases to offset.  But, then I saw a more liberal source complain that the Republicans (including the 18 compromisers) were still not letting the government make the rich pay for all of this.

So, while I am not an expert at all on how things get done in DC, it still seems like those compromising Republicans will still not let the extreme tax proposals through – with help from one or two Democratic Senators.

In other words, none of these ideas may go anywhere.

Or, as I am concerned, they finally compromise on the really big infrastructure deal and let some in of these ideas (not realizing how terrible some of them are).

Or, perhaps all 50 Democratic Senators get on the same page and pass it all through budget reconciliation (not likely but a possibility) – see picture above for what I think this would do to the estate and financial planning world.

Anyway, I have been following Presidential Budget proposals for over 20 years – and they just don’t get done (certainly not in their entirety).

But, those in the planning world need to be on notice – big changes could slip through and we need to be ready, and perhaps we need to get our donors ready, too!

Look out for my upcoming presentation the Great Wealth Transfer! (is it finally here?)


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