Potential Tax Law Changes from the Biden Administration

Kolleen Schocke |

There has been no shortage of drama to follow for those who enjoy watching events unfold along the Potomac. One story that Californians and Silicon Valley should keep their eye on is potential tax law changes from the Biden administration.

For the time being, Congress has had their hands full with COVID relief, but before long Congress may likely to turn its attention to the Biden tax agenda.

While there are likely to be many changes affecting corporate taxes, retirement savers and investors should be aware of what may be in store from an individual tax standpoint.

A recent article from CPA Practice Advisor noted some of the likely changes.

Individual Tax Rates and Deductions

First, up will likely be a rise in the top income bracket for those making $400,000 a year or more back to the 39.6% marginal rate that was in place before the tax cuts of 2017.

Of particular interest to Californians is a potential elimination of the deduction cap ($10,000) for state and local taxes.

President Biden's campaign proposal also involved increasing payroll taxes on incomes over the $400,000 threshold.

Investment Taxes

Long-term capital gains are likely to lose special tax treatment for incomes above $ 1 million.

Long-term gains are currently taxed at 20% but would be taxed at ordinary income tax rates under the plan.

Qualified dividends would also be taxed at the ordinary rate for these earners.

Real estate investors face the potential elimination of the 1031 "like-kind" exchange, which allows gains from a property sale to be rolled into a new qualifying property on a tax-deferred basis.

Estate Taxes

Another item of note for some Silicon Valley residents and holders of highly appreciated stock is potential changes regarding estate tax exemptions and, perhaps even more importantly, cost basis.

Current exemptions for estate tax purposes stand at over $11 million per individual. The exemption may be reduced to $5 million. In addition, current law also allows the heirs to receive a step-up in cost basis, so any inheritance under the exemption threshold is effectively free of the estate tax and capital gains tax (though an heir is still responsible for taxes on future capital gains).

It is anticipated that the step-up in cost basis will be removed, and heirs would also inherit the original cost basis of assets involved.

What is an Investor to Do?

At this point, none of these plans are set in stone. Even with Democratic control of both chambers of Congress, there will be competing agendas and fights for influence. Legislation must pass an evenly divided Senate, including several Democratic members who may object to the most progressive measures and proposals.

Still, investors should be prepared, and according to the CPA Practice Advisor article, may consider some of the following in response to, or in preparation for these changes:

•         Deferring state and local tax payments until 2022 when possible.

•         Recognizing long-term capital gains on appreciated assets.

•         Completing any anticipated 1031 exchanges in 2021.

•         For those with estates higher than $3.5 million consider a wealth-transfer plan for 2021.

Of course, not all these suggestions are appropriate for everyone, even those directly affected need to carefully consider their options and the cost-benefit of any potential moves.

What investors should be doing, however, is make sure your tax advisor is coordinating strategies with your financial planners to react accordingly.


The above discussion is developed from sources deemed reliable but cannot be guaranteed and is based on current tax law for informational purposes only. Nothing herein should be considered individualized investment advice. C-J Advisory, Inc. is a registered investment adviser located in San Jose, CA. Registration of an investment adviser does not imply any level of skill or training and is not an endorsement of any regulatory agency.  C-J Advisory does not provide tax or legal advice.