“By deducting intangible drilling costs and using percentage depletion, you can effectively write off 100% of investment in the first and second year of drilling,” he said.
“Transfers of property into a partnership or a trust other than a grantor trust would be subject to capital gains taxes.
While the proposed changes may favor big corporations, there are still provisions intended to create wealth by encouraging small business, according to Elizabeth Sevilla, a partner at Top 100 Firm Seiler LLP.
The proposals affecting high-net-worth individuals would constitute a full employment act for trust and estate professionals, Sevilla believes.
But it’s important not to have the tax tail wag the planning dog, according to Sevilla.
“The Green Book is primarily a wish list,” said Ed Renn, senior equity partner at Withers.
That would effectively curtail the Section 1031 industry, knowing that you can’t defer bigger gains than half a million,” he pointed out.
If capital gain and dividends are taxed at 39.6%, there’s no longer an economic incentive to carry, but just in case the rates get lowered in the future, the proposal affirmatively makes it a tax preference item again,” he continued.
There were some surprises as to what is not in the proposals, according to Renn: “Biden’s campaign proposed to take the estate tax exemption down to $3.5 million.
If I have a gas station and you are a mechanic and contribute and run the garage, placing the real estate in a partnership would trigger capital gains.
Glenn DiBenedetto, director of tax planning at New England Investment & Retirement Group, believes that the top capital gains rate proposed for those who earn more than $1 million will affect many who would not otherwise be considered to be wealthy.
DiBenedetto suggested a carve out to aid those who wish to reap the benefit of a once-in-a-lifetime transaction such as the sale of a closely held business.
For example, if a property was transferred three times within a family over time as it moves from one family member to another, stepped-up basis allows you to assign value as of a particular date.