The Biden administration has proposed several tax changes that would go into effect next year if passed by Congress. In the meantime, you may find it helpful in your own tax and philanthropic planning to review the proposed changes with your advisors.
Income Tax Rate Increase
One proposal increases the top federal income tax rate from 37% to 39.6%. If you are currently in the 37% tax bracket, your bracket would likely go up to 39.6%.
Capital Gains Tax Changes
Several important changes relate to how capital gains would be taxed. For very high-income taxpayers — those with income over $1 million — the tax on capital gains from a sale would increase from 20% to 39.6%.
Importantly, a gift of an appreciated asset to your spouse or to a charity, such as Mass General, would not trigger a capital gains tax.
Another potential change is having to pay capital gains taxes on an asset when you give it to someone else. Currently, this appreciation is taxed only when the person you give it to sells the asset. Similarly, your estate would be taxed on the appreciation in assets you give to your heirs. If your heirs sell the assets, they would owe tax on all appreciation that had accumulated since you acquired the assets.
Under current law, your heirs owe tax only on the appreciation that accumulates between the day they inherit an asset and the day they sell it. The appreciation that occurred while you owned the asset is not taxed.
Some gifts would be exempt from capital gains tax at the time of transfer. The first $1 million in appreciation that you give during your lifetime and through your estate would be exempt ($2 million per couple). Also, the current $250,000 exclusion for appreciation in your home would still apply ($500,000 per couple).
Importantly, a gift of an appreciated asset to your spouse or to a charity, such as Mass General, would not trigger a capital gains tax. Charitable gifts that pay you income, such as a charitable gift annuity or charitable remainder trust, would result in a capital gains tax on a portion of the appreciation in the assets you give to fund them. Currently, these gifts have no capital gains tax, an important tax benefit.
Plan Before the Year is Over
As proposed, all these tax changes would go into effect next year. Consider reviewing your financial plans with your advisors before then so that you can adjust, as needed, while you know today’s tax rules still apply.
For questions about tax-savvy ways to support Mass General, please contact the Office of Planned Giving at email@example.com or 617-643-2220.