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Biden's 2023 Budget: Proposed Tax Changes for Businesses and Individuals

April 21, 2022

President Biden’s Green Book proposals introduce several changes to corporate, individual and estate and gift tax planning, including increasing the corporate tax rate to 28% and imposing a new tax on those with $100 million or more. Here’s a look at the changes the Administration is advocating.

Though far from certain of being passed, President Biden’s fiscal year 2023 revenue proposals, otherwise known as “The Green Book,” introduces many changes to corporate, individual and estate and gift tax planning. Some of these are familiar from the Administration’s past proposals, but some are new or have been revised. Here are just some highlights of the President’s plan.

What are some of the proposed changes for businesses and investors?

  1. Corporate tax rate increased from 21% to 28%. This would be effective for tax years beginning after 12/31/2022.
  2. Limits to like kind exchange benefits- Gain deferrals on any 1031 or “like-kind” exchange transactions completed in 2023 or later will be limited to $500,000 for each taxpayer ($1,000,000 for joint filers) per tax year.
  3. Post 2022 depreciation on real estate for high earners to be taxed as ordinary income recapture. Taxpayers with adjusted gross income of $400,000 ($200,000 for married filing separate) will be subject to ordinary income treatment. Currently, depreciation on real estate for non corporate taxpayers is treated as unrecaptured Section 1250 gain—maximum 25% tax rate.
  4. Carried interests held by high earners to be taxed as ordinary income. This applies to partners with taxable income exceeding $400,000.

What are the proposed changes for individuals?

  1. Top tax bracket increased to 39.6% beginning in 2023. This applies to individuals with taxable income over $450,000 for joint filers, $400,000 for unmarried filers (not including surviving spouses), and $425,000 for head of household filers.
  2. New 20% minimum tax on those with wealth of $100 million or more. This new tax would apply for 2023 and later years and will be phased in for those with wealth between $100 million and $200 million.
  3. Long term capital gains and qualified dividends to be taxed like ordinary income for those with taxable income greater than $1 million.
  4. Certain transactions to be treated as “deemed sales producing a current gain”. Applicable transactions include gifts and transfers at death. Such transfers of appreciated property would be subject to capital gain treatment at the time of transfer, as if the property was sold at its fair market value. For transfers at death, a maximum of $3,000 in capital losses and carryforwards could be claimed on the decedent’s final income tax return; any capital gains tax realized under this rule would be deductible on the estate tax return.

Are there proposed changes to estate and gift tax planning?

  1. Limits to the duration of the generation-skipping tax trust exemption. The GST would only apply to these transfers:
    Persons no more than two generations below the transferor
    -Trust distributions to such persons
    -Recipients who were living when the trust was created
  2. New rules on Grantor Retained Annuity Trusts.
    GRATS will need to have a minimum term of 10 years and maximum term of life expectancy of the annuitant plus ten years
    -For gift tax purposes, GRATS must have a minimum value equal to the greater of 25% of the value of assets or $500,000
    -Grantors would be prohibited from acquiring an asset held in the trust without first recognizing gain or loss for income tax purposes.
  3. Taxing transactions between certain grantor trusts and deemed owners. For trusts that are not fully revocable by a deemed owner, the Administration proposes to treat any transfer of assets for consideration as potentially taxable, with the seller recognizing gain on any appreciation in the asset.

We will keep you posted if/when things are final. Questions? Wondering how you can start planning for these potential changes? We can help- reach out to us today.

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