• The top marginal income tax rate would increase to 39.6% and apply to adjusted gross income in excess of $450,000 (joint filers), $425,000 (head of household), $400,000 (single filer), and $225,000 (married filing separately).
• The capital gains rate would increase to 25%. This tax rate would apply to capital gains after the date of introduction of the bill (September 13, 2021). The current 20% rate would apply to capital gains realized after the date of introduction, provided the agreement to sell the capital asset was entered into before the date of introduction. So, if you are “under contract” prior to the “date of introduction” the lower tax rate applies.
• The 3.8% net investment income tax will apply to business income to taxpayers with income over $500,000 (joint filers) or $400,000 (single filer). The NII Tax currently only applies to passive income over $250,000.  This change will affect clients who own pass through businesses (S-corporations and LLCs).
• The 199A deduction for qualified business income would be limited to $500,000 (married filing jointly), $400,000 (single filer), $250,000 (married filing separate).
• The estate and gift tax exemption would go back to $5,000,000 adjusted for inflation from 2010 (likely about $5,600,000).
• Roth IRA conversions would not be allowed for taxpayers with income over $500,000 (married filing jointly), $400,000 (single filer), $250,000 (married filing separate).
• Assets held in grantor trusts will be considered part of the grantor’s taxable estate. This amendment applies to any trust created or transfer made after the date of enactment of the new law (so after September 13, 2021 but with a yet to be known cutoff date this year).

Notably, the memo does not address the current $10,000 cap on deductions for state and local taxes, which negatively impacts taxpayers with higher incomes and/or more expensive homes in high tax jurisdictions. This limit is opposed by members of the House and Senate who represent high tax jurisdictions, such as California, New York, New Jersey, and Connecticut. Therefore, it will remain to be seen if this limit continues in its current form (the Ways and Means Committee did release a subsequent statement providing that the Committee will work to “undo the short-sided capping” of the tax deduction that is “essential” to “middle class communities”).

Also, the memo did not address the repeal of the “basis step up” that occurs at death. Certain members of the Senate Finance Committee seem particularly focused on this issue.

It is important to stress that the memo issued by the Ways and Means Committee is one step in the budget reconciliation process. The House needs buy-in from its members and needs to find common ground with the Senate.