As this article is being written, we don’t know for sure what the final result of the “Build Back Better” bill that Congress is working on will be. We do have some indication. As of mid-November, we know where things stand as of November 3rd. This is the date that the most revised bill was released for review, but it is still subject to “mark-up” and changes before becoming “final.”
For us, as an estate planning firm, we are always concerned about what might happen for what are often called “transfer taxes,” which are the estate and gift taxation laws. We saw early on this year a bill presented by President Biden that would reduce the threshold for estate taxes from the $11,700,000 level that is the 2021 threshold, back to the 2009 level of $3,500,000 per individual. Presently that amount is unified for both estate and gift transfers at the higher level. In 2009 it was not unified, and the estate tax threshold was $3,500,000 and the amount that could be given as a lifetime transfer before being subject to tax was $1,000,000. As of November 3rd, the draft of the bill that was released showed no reduction in estate or gift taxation and the level would move up to $12,060,000 in 2022 as the threshold before tax for an individual.
It appears that the intent of this Congress is to address taxation of the extremely wealthy. However, the November 3rd draft of the bill shows that for business income, including rents being paid by farm operations to the farm owners will continue to be subject to the 3.8% net investment income tax if the owners have income over $400,000. There are presently no changes to the Section 1031 exchange rules. There are surtax provisions for those with income at the extremely high levels of $10 million (5%) and $25 million (8%).
In the bill as it stands now, the trust and estate income tax brackets remain much more than brackets for individuals and married couples. However, this is for retained income. If there is retained income in a trust or estate in excess of $200,000, a surtax begins and increases if there is retained income over $500,000. At this time, there are no increases for the top individual income tax rate, capital gains tax, or corporate income tax. We will have to wait and see what happens.
The good news is that it appears that for most Americans, the “sky is not falling.” Kansas repealed Inheritance Tax in 1997 and phased out the Kansas Estate Tax at the end of 2009. There is no death tax at the state level in Kansas. It appears that Federal Estate and Gift Tax will remain at a level that will not affect most Americans. It also appears that there will continue to be a “step-up” in basis for transfers of property that occur “at or after death,” and no recognition or payment of capital gains tax at the death of an owner.
We hope you have a very Merry Christmas and a happy holiday season. If we can be of any assistance in untangling the tax provisions we look forward to visiting with you. Give us a call at 316-729-0100.
We care. We listen. We counsel.