Proposed Tax Increases

The current Administration has proposed in its FY 2025 budget a sweeping set of tax increases. 

Of course, they first have to go through Congress before making it to the President’s desk, but you need to be aware of the possible changes.

The administration’s plan would nearly double the top capital gains rate from the current 20% to 39.6% for individuals that earn more than $1 million per year.

The top marginal tax rate would increase from 37% to 39.6% for individuals earning more than $400,000 per year. 

The corporate income tax rate would increase from 21% to 28%. 

The current administration’s budget eliminates the step-up in basis as of date of death. 

This would penalize middle-class families especially when leaving the family home to the kids. 

For example, let’s say the basis in the home is $50,000. 

The market value as of date of death is $1 million. 

The home is sold right away for $1 million. 

Currently, there is no taxable gain because the cost basis stepped up to $1 million, the market value as of date of death. 

However, under the current administration’s plan there would be a gain of $950,000 that would be subject to a maximum long-term capital gains tax of 39.6%.

For California purposes the gain would be taxed as ordinary income at a maximum 12.3%. 

Total tax rate would be 55.7% which includes the 3.8% Net Investment Income Tax.