Potential Estate Tax Changes Due to the 2020 Election

While the date of the 2020 election comes closer, estate planning lawyers are informing clients to anticipate the various changes to estate planning taxes that are likely to occur regardless of which candidate prevails. The following reviews some areas of estate planning that are likely to change following the 2020 Presidential election.

Decreased Estate and Gift Tax Exemptions

Even if it does not change due to a shift in political administrations, the existing estate and gift tax exemption of $11,580,000 will decrease in 2026 to the much lower amount of $5,000,000. This exemption could lower in 2021, however, as part of Democratic tax reforms. Similarly, the current generation-skipping tax exemptions are $11,580,000 and Vice President Biden has suggested that this amount could be lowered to $3,500,000 per individual.

Increased Estate Tax Rates

Since 2013, the estate tax has been 40%. Taxpayers who passed away in 2011 or 2012, however, utilized an estate tax rate of 35%. Not too long ago, in the early 2000s, the estate tax rate was between 45% to 55%. While the Democrat Presidential Nominee is likely to decrease the estate and gift tax exemption, it is also likely that additional tax reforms would increase the estate and gift tax rates.

The Elimination of Like-Kind Exchanges

Like-kind exchanges let taxpayers avoid paying capital gains taxes following the sale of real estate provided that the taxpayer uses the sales proceeds to purchase a replacement property that is valued at either the same or greater value than the original property. The new property must also be purchased within 180 days of the original sale of the property. Before the Tax Cuts and Jobs Act in 2017, like-kind exchanges applied to exchanges of real estate as well as other asset types. The Joe Biden tax regulations identify the removal of like-kind exchange rules as one method of increasing revenue to support elderly and child care plans.

Increased Tax Rates on High-Income Earners’ Capital Gains

Long-term capital gains are taxed at 0% for single filers who have less than $40,000 in annual income. Gains are taxed at 15% for single filers who have between $40,000 and $441,450 of annual income. For single filers with over $441,450 of annual income, gains are taxed at 20%. The Biden tax plan currently calls for a 39.6% on long-term capital gains for people who have more than $1 million of annual income. The plan has also proposed increasing the graduate income tax rates to the levels they were at before 2018. It is also likely that both estates and trusts with high-income levels will see the ordinary rates for long-term capital gains applied to them.

Speak With an Experienced Estate Planning Attorney

To make sure that your estate plan considers all potential changes, it is a good idea to speak with a knowledgeable estate planning lawyer. Contact attorney Jim A Lyon today to schedule a free case evaluation.