Individual tax proposals
Republican presidential nominee Donald Trump would make most TCJA individual tax provisions permanent, including retaining the lower top marginal tax rate, the higher standard deduction, the lower top capital gains rate, and the higher estate and gift tax exemption.
Democratic presidential nominee Kamala Harris also would make TCJA provisions permanent, but only to the extent necessary to keep individuals making less than $400,000 a year from having a tax increase. Part of how Harris would pay for these changes would be imposing a 25% wealth tax, increasing the top marginal tax rate to 39.6% and the top capital gains rate to 28%, and eliminating stepped-up basis on transfers of appreciated property at death.
Action steps for high net worth individuals
- Be proactive and open to new approaches to tax planning. Individuals should be proactive and ready to adjust their tax planning strategies in response to potential changes, and they should communicate frequently with their tax advisers if they aren’t already doing so.
- Take advantage of current rates. If income tax rate increases appear likely, potential actions could include accelerating income and deferring deductions – actions that are counterintuitive to normal income tax planning but that might make sense after reviewing the individual’s particular facts and circumstances with a tax adviser.
- Use it or lose it. Taxpayers should review their estate plans with their tax adviser to determine whether now is the time to use the increased estate and gift tax exemption before the Dec. 31, 2025, sunset date, as waiting might result in losing the benefit.
Business tax proposals
Trump has proposed extending most expiring TCJA provisions, including the Section 199A pass-through business deduction. Trump also proposes lowering the corporate tax rate.
By contrast, Harris proposes increasing the corporate tax rate, the corporate alternative minimum tax rate, the stock buyback excise tax rate, international taxes, and taxes on carried interests in partnerships. However, Harris would reduce some of the tax burden on startups and small businesses.
Action steps for businesses
- Accelerate income before rate hikes. If it looks like corporate tax rates will increase, businesses should consider accelerating income and deferring deductions to maximize benefits of the current rates. If instead it appears that tax rates will decrease, implementing the opposite strategies might be appropriate.
- Prepare to work smarter, not harder. Tax teams at many multinational companies will face a higher administrative burden due to more complex calculations for international tax. They should work with tax advisers and internal teams to develop strategies for managing these complexities.
- Be proactive and engaged on regulatory shifts. Taxpayers should stay abreast of regulatory changes and work with tax advisers to quickly adapt to the changes. Companies also should consider providing their views through participation in industry or trade association efforts or by providing comments directly. Recent Supreme Court decisions overruling deference to agency regulations are likely to increase legal challenges to agency guidance.
Real estate and energy tax proposals
Harris proposes down payment assistance and tax credits to first-time homebuyers who meet certain criteria. She also would eliminate like-kind exchange treatment for real estate gains over $500,000, or $1 million for married individuals filing jointly.
Regarding energy, Harris would continue to support the Inflation Reduction Act (IRA) clean energy tax incentives. Harris also would eliminate special treatment for oil and gas company investments, as well as tax preferences for fossil fuels.
On the real estate front, Trump proposes tax incentives to promote homeownership and assist first-time homebuyers. On the energy front, Trump would repeal the clean energy tax incentives enacted by the IRA.
Action steps for taxpayers
- Understand the timing implications of energy projects. If possible, accelerate placed-in-service dates of any planned energy projects eligible for IRA credits to reap the tax benefits before potential changes in the law.
- Move up like-kind exchanges of real estate. For like-kind exchange transactions currently under discussion or in the works, act as quickly as possible to try to close the transaction this year to mitigate the risk of possible changes in the future.
Looking ahead to next year’s postelection environment, it’s impossible to say exactly what will happen in tax. Navigating that uncertainty successfully will require being aware of possible changes ahead – and going through various scenario planning exercises to determine your risks and opportunities.
