Summer 2021 - 3 (Provisions in Biden’s Tax Proposal That May Cost You Money continued from page 2)
as $1 trillion per year. Biden would like to give the IRS an additional $80 billion over ten years to increase IRS enforcement actions. This includes increasing audits, updating outdated technology, and expanding financial reporting requirements for financial institutions. The risk of being audited is expected to increase for taxpayers with taxable income over $400,000. Limitation on deferred gains from Section 1031 like-kind exchanges Currently, taxpayers owning real property such as land and buildings, either used in a trade or business or held for investment, can
exchange the property for another “like-kind” real property and enjoy the benefit of deferring taxable gain (assuming certain conditions are met). The proposal is to limit the amount of deferred gain up to an aggregate maximum of $500,000 for single taxpayers and $1 million for married filing joint taxpayers. Making the limitation of excess business losses permanent The 2017 federal tax reform imposed a limitation on the amount of losses derived from an active trade or business that a taxpayer can use to offset other income such as wages and investment income. The CARES Act repealed this limitation for tax years 2018
through 2020. The limitation goes back into effect for tax year 2021 and is set to expire after tax year 2026. In 2021, excess business losses greater than $524,000 for married filing jointly and $262,000 for all other taxpayers will be suspended and carried forward to the next year. Biden proposes to make this limitation permanent. While these are all just proposed changes and have not yet been made into law, your advisors at Ketel Thorstenson want to make you aware of potential tax law changes that may affect you and your business. Please contact Ketel Thorstenson with any questions or concerns.
POSSIBLE ESTATE TAX CHANGES
Kristal Hamm, CPA, Senior Associate estate returns. Be sure to catch turn around and sell the house Carrie Christensen’s article after inheriting for $900,000 and covering the other provisions in the not pay a single penny in tax. tax plan that may cost you money. The American Families Plan is Currently when someone going to change this. The plan now passes on, they do not have a calls for all inherited property to taxable estate unless their estate be treated as a sale and the tax will is over $11,700,000. In addition, be due upon the decedent’s passing the beneficiaries receive a stepif the decedent has capital gains in up in basis, which means each excess of $1 million ($2 million beneficiary’s cost basis in an per couple). There would also be asset is the fair market value at a $250,000 ($500,000 per couple) the date of death. For example, exclusion of gain on personal if the decedent owned a home residence. There would be no more that was purchased for $500,000 step-up in basis, but the new basis Kristal Hamm, and includes $100,000 in would still be the fair market value CPA, Senior Associate improvements, then the basis is of the asset because the beneficiary President Biden proposed a $600,000 to the decedent. Once had to pay tax on the gain on the new tax plan called the American the decedent passed on, the home transfer or “sale” of the asset. Families Plan. It includes many would receive a step-up in basis provisions and tax consequences. to current fair market value. Let’s The farmers and ranchers are Below outlines the provisions of assume the house is now worth our biggest group of clients that the plan relating specifically to $900,000. The beneficiary can this will affect, due to the land (Possible Estate Tax Changes continued on page 4)
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