New Obama Administration Tax Proposals Put the Wealthy on Notice

It is clear that President Obama is committed to not being considered a “lame duck” during his last two years in office.  The Commander-in-Chief recently introduced some aggressive tax proposals that are specifically targeting the wealthiest of Americans—and what’s more is that these tax proposals, if they are passed, have the ability to impact estate planning and the assets that are traditionally passed from one generation to the next.

The tax proposal that is most worrisome to members of the one percent is Obama’s desire to eliminate stepped up basis.  Also known as “the single largest capital gains tax loophole,” stepped up basis allows the heirs of an estate to use the date of death value of capital assets rather than the decedent’s actual basis for capital gains purposes.  This loophole has ultimately allowed hundreds of billions of dollars to escape being taxed and the wealthy have largely benefited through the ability to pass appreciated assets onto their heirs via their estate planning documents—all on a tax-free basis.

If the new tax proposal passes, Living Trust Attorney Max Alavi from Alavi & Broyles in Orange County, California, notes that middle income earners do not have to worry—President Obama does have the interests of the Regular Joe at heart.  There would be some significant exemptions and no capital gains tax would be due for married couples until the death of the second spouse, and even then $200K would be exempt per couple, or $100K per individual. Additionally, $250K per individual for a personal residence would also be exempt.

Small business owners also don’t have to worry about the impact of the tax proposal on their business or how they will pass their business on to a beneficiary.  An inherited business would be exempt from this policy.

Obama also has some plans to raise capital gains and dividend rates for high income earners—and it’s expected that we could soon see an increase to Reagan era levels.  Again, middle of the road earners do not have to fear—tax rates will stay the same so long as a taxpayer makes less than $250K on an individual basis or $500K as a couple.

In closing, these proposed changes could have some members of the one percent placing a call to their estate planning attorney in the near future.  It’s clear that Obama believes it’s time for them to pony up some dough.