Tax changes are coming for next year which will impact everyone.
There are currently 2 Republican tax plans circulating (The Camp plan*, the House Republican plan and Trump’s plan). The House Republican Plan and the Trump plan call for abolishing the federal estate tax (which is currently levied on those estates worth more than $5.43 million). All of the plans limit deductions.
The House plan calls for abolishing step-up in basis upon death for heirs. This would have a huge impact on many people. Currently, if you inherit property (stock, a house, etc.) and you later sell the property, you will be taxed on the gain with your basis in the property being the value on the date of the death of the person you inherited from. Without a step-up basis, the basis will be that of the person you inherited from. Here’s an example, your Uncle Fred leaves you his house in his will. He paid $35,000 for the home. At his death, the home was valued at $250,000. You sell the home for $250,000. Under the old plan, you will not have a gain since you sold it for the value at which you inherited it ($250,000 – $250,000 = 0) and will thus have no capital gains tax. Under the House Republican plan, your basis will be $35,000 when you sell for $250,000 and thus your gain is ($250,000 – $35,000) $215,000 and you will pay capital gains taxes on that gain of $215,000.
The Trump plan would only eliminate the step-up in basis for gains over $10 million.
Trump’s plan to simplify the tax plan does so by limiting deductions to $200,000 for married couples and $100,000 for single individuals. The Trump plan would also reduce the number of tax brackets (currently 7) by getting rid of the head of household bracket and reducing the number of brackets to 3. Getting rid of the head of household bracket means that single parent households (divorced parents, widows and widowers with children, for example) will pay a higher rate than last year. (see the tax brackets link below for more on this)
All of the proposals will reduce the maximum income tax rate from 39.6% to 33% for the House Republican and Trump plan and 35% for the Camp plan which results in savings for those at the top income bracket ($190,150 for a single person and $231,450 for married couples). So the higher income brackets will save the most while those at the lower income bracket will pay 2% more as their rate will increase from 10% to 12%.
There are other changes proposed regarding deductions and small businesses as well but too many to cover today in this post. If you want more info see the links below:
Here’s a helpful article on the current tax brackets and rates for 2017 which may be amended by the new administration and, thus, be changed. http://www.forbes.com/sites/kellyphillipserb/2016/10/25/irs-announces-2017-tax-rates-standard-deductions-exemption-amounts-and-more/#368026c9387a
Here’s a detailed analysis of the House Republican Plan http://taxfoundation.org/article/details-and-analysis-2016-house-republican-tax-reform-plan
*The Camp Plan is a tax reform plan from David Camp, former chair of the House Ways and Means Committee https://waysandmeans.house.gov/camp-releases-tax-reform-plan-to-strengthen-the-economy-and-make-the-tax-code-simpler-fairer-and-flatter/