Build Back Better Act

Early last month, the House Rule Committee reported out the Build Back Better Act Reconciliation Bill. For those who were worried about estate taxes going up, you may be relieved. There is no reduction of the Estate Tax from $11.7 million to $3.5 million. Moreover, there are no limitations on the use of grantor trusts and the step up in basis at death remains intact.

Although the urgency to act before the end of the year has somewhat dissipated, keep in mind that the current estate tax exemption of $11.7 million will sunset back to around $6 million after inflation adjustments on January 1, 2026. To the extent that your estate exceeds $10 million it still makes sense to proactively plan to reduce estate taxes for your heirs; most wealthy families expect their estates to continue to grow and you never know if estate tax exemptions will be reduced in the future.

Additionally, the proposals to raise the top income tax brackets from 37% to 39.6% was dropped from the bill, as was the proposal to raise capital gains tax rates from 20% to

25%. The bill also includes a nice break for those who own expensive homes. Currently state property tax and state sales taxes are deductible only up to $10,000. However, the bill in its current form is raising that deduction limit to $40,000 for individuals and $80,000 for married couples filing jointly, but, it’s not all good news.

There is an additional 3.8% net investment income tax on business owners who make over $400,000 or $500,000 filing jointly. For individuals who make over $10 million and trusts that have over $200,000 of income there is an additional 5% income tax and an additional 8% tax on those who make over $25 million and trusts that make over $500,000. This is where the bill is currently, stands, but the Senate could make additional changes.

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