Top 5 tax changes for the wealthy

The wealthy will be able to see numerous new tax credits in President Donald Trump’s “Big Beautiful Building,” and according to tax experts, many permanent extensions of the 2017 tax cut.

Taxpayers who have won more than $1 million are expected to see an after-tax income increase of around 3% in the Senate version of Trump’s bill, according to the Tax Policy Center. This is compared to the national average of around 2.5%. According to the Tax Policy Center, billionaires earners, in dollar terms, will see an average after-tax income increase by $75,000 in 2026.

Virtually all core provisions of the 2017 tax cuts are expected to be passed in the House on Thursday and now extended to the final bill heading to Trump’s desk. It also adds several new tax credits or benefits added to the bill that further lowers the lower tax bill for top-level people, especially for small business investors.

This shows the five most important changes to the bill that affects high-income and wealthy people.

Surprisingly, the Senate bill follows the House state version and local taxes, or increased salt caps. The existing $10,000 limit for salt deductions will rise to $40,000 for people under $500,000, with the income threshold increasing by 1% per year. Initially, the Senate was opposed to changes that would primarily benefit Blue State top winners. However, after a threat from the House, the Senate agreed to a $40,000 level.

Unlike the original house version of Salt, however, the Senate bill retains a popular loophole to avoid the cap. Dozens of states have allowed workarounds called Passthrough Entity Tax (PTET), which encourage passthrough owners and partners to avoid caps at the state level. It benefits everyone, from car dealers and dentists to accounting and legal partners, but not employees of those companies.

According to Kyle Pomerleau of the American Enterprise Institute, the first house version of the bill eliminated the loopholes benefits for most white-collar companies, including the service industry and accountants, lawyers and doctors. However, the Senate did not follow the changes to the house.

“The Senate version has no limits on workaround,” Pomerlot said.

Small business entrepreneurs and investors support the change in qualified SME stocks, or QSBs. Created during the Clinton administration and expanded under President Barack Obama, the program is designed to encourage small businesses to invest and create. Under current law, qualifying company C investors or owners will earn capital gains tax reductions at the time of sale for more than five years. Qualified companies are defined as “Small and Medium Enterprises” if their total assets are less than $50 million. Once a company is sold, the owner or investor is exempt from capital gains tax up to $10 million, or 10 times the original basis of the investment.

The Senate bill raises the threshold to qualify for $50-$75 million as a “small business.” It also increases exclusions from $10 million to $15 million, creating a new tiered system to allow tax cuts to those who want to sell five years ago.

Justin Miller, partner and national director of Wells Planning at Evercore, said the new rules allow investors to invest $74.9 million in small businesses, and that a maximum of $749 million exemption from capital gains if sold at more than 10 times the original base.

“It encourages wealthy investors in qualified small and medium-sized businesses with great potential,” Miller said.

Like the House proposed version, the Senate bill makes real estate taxes permanent. In Washington, this means that no expiration date is included. The exemption will increase to $15 million per property and $30 million for couples, while the exemption will be indexed due to inflation.

For the ultra-rich people, real estate tax is the most important of all major tax regulations. Therefore, having some degree of stability, at least until the next election, will create a more gentle real estate plan and gift.

The Senate bill includes limits on the value of itemized deductions that were also included in the former House bill. The standard deduction is $15,000 for a single filer and $30,000 for a joint filer, so only about 10% of still-rich people itemize their taxes. Under both the House and Senate versions, top bracket taxpayers must subtract 2/37th from the value of each dollar deducted at the threshold. The net effect is that top taxpayers will only earn 35 cents deductible profit per dollar, not 37 cents.

Depending on your income level, there are good and bad news about charitable contributions. For low- and middle-income earners, the Senate bill includes provisions to encourage more charitable contributions by 90% of Americans that are no longer itemized. The 2017 tax cut doubled the standard deduction, eliminating the incentive for the majority of taxpayers to itemize and charge charitable deductions. The Senate bill allows taxpayers to obtain standard deductions and claim a charitable deduction of up to $1,000 for single filers and $2,000 for married joint filers.

But for the wealthy donors who now account for the majority of charitable contributions, the Senate bill is clearly not fraudulent. It reduces the value of the charitable deduction for high-income taxpayers by closing the itemized deduction and sets a new floor of 0.5% of total income adjusted for the itemized charitable deduction.

Therefore, those with an adjusted gross income of $1 million will not receive a tax cut on their initial $5,000 contribution.