House Ways and Means Committee List of Tax Proposals

Take-Away: Today the House Ways and Means Committee released its preliminary list of proposed tax law changes. Several were not a surprise, but a couple were.

House Ways and Means Committee List of Changes to Tax Laws: Again, the Committee’s list is pretty sketchy at this time, but other committees in the House will now begin the process of writing the actual legislation to implement this list of changes, should they become the law.

1. Highest Income Tax Rate: It should come as no surprise that the Committee’s proposal would increase the highest marginal income tax rate from 37% to 39.6%.
2. Highest Capital Gain Tax Rate: The highest capital gain tax rate on long-term capital gains would go from 20% to 25% under the Committee’s proposed list of changes.
3. Net Investment Income: The rules would be changed under the Committee’s proposal to capture income from passive activities and expose it as net investment income taxed to fund increasing Medicare costs.
4. IRC 199A Income Tax Deduction: The rules with regard to the small business qualified income tax deduction (up to 20%) created under the 2017 Tax Act would be changed to impose a limit on those taxpayers whose income exceeds $500,000 for the year. In effect, if the small business owner earns more than $500,000,  he/she will be ineligible to claim any of the IRC 199A qualified income tax deduction.
5. AGI Surtax: An annual surtax of 3%would be imposed on taxpayers whose adjusted gross income (AGI) for the year exceeds $5.0 million.
6. Estate and Gift Tax Exemption: The proposed change would reduce the exemptions to their 2017 levels ($5.0 million per taxpayer) starting on January 1, 2022.
7. Grantor Trusts Restrictions: Many of the multiple restrictions previously covered in earlier missives on the perceived abuses associated with grantor trusts, are more formally proposed by the Committee, e.g. grantor trust assets included in the grantor’s taxable estate at death.
8. Valuation Discounts: Many of the valuation discounts used to reduce federal gift taxes or federal estate taxes in intra-family transactions, e.g. lack of control; lack of marketability exploited with family limited partnerships and family limited liability companies, would be eliminated under the Committee’s proposal.
9. Cryptocurrency Wash-Sale Rules: The ‘wash-sale’ rules would be applied to the sale and purchase of cryptocurrency, which previously has not been the case
10. Conservation Easements: The Committee has proposed rules that would crack-down on syndicated conservation easements, which have become popular in recent years to generate substantial charitable contribution income tax deductions.
11. Mega-IRA RMDs: As was suggested last week, the Committee has formally proposed imposing a required minimum distribution to IRAs that hold over $5.0 million in assets, regardless of the IRA owner’s age.

[Aside: Over the weekend I read that there were over 28,600 IRAs in 2019 where each  held over $5.0 million in the IRA- more than $280 billion, or 3% of the $8.6 trillion now held in IRAs nationwide. According to the report that I read, over 500 people have IRAs with a balance of over $25 million. It is easy to see why this group might become a target for some ‘quick’ revenues, if a lump sum RMD is imposed on the amount in excess of $5.0 million held in the IRA.]