As a follow up to last week’s proposed infrastructure bill, below are some of the items that have been discussed this week by the House Ways and Means Committee during their markup hearings. 

  • Increasing the highest individual tax rate from 37% to 39.6% beginning in 2022.
  • Increasing the top capital gains rate from 20% to 25%. With the 3.8% surtax on net investment income and a possible 3% additional surtax on individuals with taxable income over $5 million, the highest federal rate for capital gains could be 31.8%. The new rate is proposed to apply to gains realized after September 13, 2021. For 2021, this would apply to single filers with taxable income over $445,850 and married couples with taxable income over $501,600. Beginning in 2022, the tax rate would impact single filers with taxable income over $400,000 and married couples with taxable income over $450,000.
  • Net investment income tax (3.8%) is now expanded to cover income derived in an active trade or businesses of a pass-through entity which is not subject to FICA tax. This is proposed to apply to taxpayers with modified adjusted gross income exceeding $500,000 (Married Filing Joint), $250,000 (married filing separate), and $400,000 (all other taxpayers). This would be effective for tax years after December 31, 2021.
  • Starting in 2022, setting a maximum qualified business income deduction at $500,000 for married taxpayers and $400,000 for individual taxpayers.
  • Imposing a 3% surtax on individuals with modified adjusted gross income exceeding $5 million for married taxpayers starting in 2022.
  • Reducing the estate to exemption to $5 million from the current $11.7 million. Effective date is January 1, 2022
  • Starting in 2022, individuals with retirement accounts exceeding $10 million would be prohibited from contributing extra savings and would also have a new required minimum distribution each year.
  • Eliminate Roth Conversations “Back Door Conversions” for married taxpayers with taxable income over $450,000 and $400,000 for single taxpayers. This is effective for tax years beginning after December 31, 2021.
  • Eliminate the 100% and 75% qualified small business stock exclusions (the 50% exclusion can still apply) for taxpayers with AGIs of $400,000 or more effective for dispositions of Qualified Small Business Stock after September 13, 2021.
  • Increasing the highest corporate tax rate to 26.5%, effective in tax years beginning after December 31, 2021. Tax rates would be a graduate rate structure except for personal service corporations and for corporations making more than $10 million. The graduate rate structure is as follows:
  • 18% for first $400,000 of income
  • 21% on income up to $5 million and
  • 5% on income above $5 million.


Changes to grantor trust rules – inclusion of grantor trusts in the estate for post enactment transfers

  • If selling or transferring assets to a grantor trust, these transfers must be transferred before date of enactment
  • This would include Spousal Lifetime Access Trust (SLAT) planning.


Modification to the estate tax valuation rules will be effective on date of enactment. This will take away minority and marketability discounts for sales and gifts of passive assets.

  • If you want to gift or sell passive assets and utilize a minority and/or marketability discounts you must complete the gift or sale prior to the date of enactment.


With this potential change in the law and related effective date, it might be prudent for taxpayers who were planning to sell investments to free up cash or for rebalancing their portfolio, to complete these transactions in the next several days. There is indication that if a taxpayer meets a binding commitment test to sell an asset before the effective date of this bill they would be allowed to use the current long term capital gains tax rate of 20%. If action is not taken quickly, this bill could mean the tax rate could be as high as 39.6% on any future transactions.

If you are in a planning process with your advisors or have unrealized gains that you intended to capture before the expected tax increases in 2022, please reach out to your Somerset Advisor or contact us at 317.472.2200 or to discuss how these potential changes could impact your planning.