Pub. 3 2021 Issue 3

M A Y / J U N E 2 0 2 1 12 nebraska cpas BY JEFF SCHAFFART AND NICHOLAS BJORNSON, KOLEY JESSEN SHOULD TAXPAYERS ACCELERATE CAPITAL GAINS ON ASSETS THEY WILL RETAIN? TAX PLANNING IN ANTICIPATION OF RATE INCREASES C O U N S E L O R ’ S C O R N E R On April 28, 2021, the White House released a tax proposal as part of the American Families Plan which would significantly increase the capital gains tax rate. The capital gains tax rate for households with more than $1 million of income would be increased from 20% to 39.6%, which would, including the 3.8% Net Investment Income Tax, result in a maximum federal rate of 43.4% for long-term capital gains. The highest combined state and federal long-term capital gains rate for residents of Nebraska would be more than 50%. In addition to a proposed increase to the long-term capital gains rate, House Ways and Means Committee member Bill Pascrell, Jr. introducedH.R. 2286, and a Senate proposal, the Sensible Taxation and Equity Promotion (STEP) Act, would tax unrealized capital gains at death. Both bills would tax unrealized capital gains above $1 million at death and would be retroactively effective to Jan. 1, 2021. While it is uncommon for tax legislation to retroactively increase federal tax rates, it has occurred before, most notably with the Tax Reform Act of 1993. It is premature to assume any of the recent proposals will become a part of legislation that is enacted into law, as these proposals will be subject to significant opposition and thus may never be enacted. If they are enacted, they will likely be modified. With these proposals, however, taxpayers with