Breaking the Code: 2020 Presidential Election - Tax Considerations
By: Rachel Speigle Dunnigan, CPA, MSA, CFP®
With the presidential election approaching this November and economic recovery on many voters’ minds, we wanted to highlight the tax law currently offered by President Donald Trump and tax proposals by the Democratic nominee, former Vice President Joe Biden. While many of these provisions ultimately depend on the control of Congress in the upcoming election, we do not advise using this preliminary information for tax planning purposes at this time.
The existing tax policies in place were enacted through the 2017 Tax Cuts and Jobs Act. While these are the current rules, they will expire on December 31, 2025 and change back to those of the American Taxpayer Relief Act of 2012. Throughout this article, we will provide information based on the current laws, the proposed tax return from Biden, and the future (2026) expected reverted policies once the current law expires (if there are no tax law changes).
Tax Rates
Individual Income
The current highest individual income tax rate is 37%. In 2026, this tax rate will sunset and revert back to the pre-2017 tax reform rate of 39.6%. Under Biden’s tax plan, the highest individual income tax rate would also be 39.6% for individuals with income over $400,000. In all scenarios, tax brackets are subject to change so taxpayers at all levels may be affected.
Long-Term Capital Gain and Qualified Dividends
These two types of income currently receive preferential tax rates (20% for the highest earners, 0% or 15% for lower income earners). There is currently no change on these income types expected for 2026. Under Biden’s tax plan, taxpayers with income exceeding $1 million will have any income from long term capital gains and qualified dividends taxed at ordinary rates (proposed to be 39.6%), subject to change as referenced for Individual Income Tax Rates.
Tax Deductions
While standard deductions were doubled under the current administration, there were also a handful of limitations set on itemized deductions, including home mortgage interest (only allowed on principal amounts less than $750,000), state and local taxes (limited to $10,000), and miscellaneous deductions (suspended). In 2026, these provisions will be rolled back to the following allowances: home mortgage interest (principal amounts less than $1,000,000), state and local taxes (no limitation), and miscellaneous deductions (restored). Under Biden’s tax plan, he plans to reinstate these pre-2017 tax reform policies. Additionally, Biden has proposed capping total itemized deductions at 28% for individuals with income over $400,000.
Estate Tax
The lifetime gift and generation-skipping transfer (GST) tax exemption is currently $11.58 million. In 2026, this will sunset and revert to $5.49 million. There is currently no proposal on this under Biden’s tax plan other than a potentially fast-tracked reversion to the pre-2017 tax reform limitations.
Other Tax Related Concerns
Corporate Taxes: Current corporate tax rate is 21%. Under Biden’s tax plan, this would increase to 28%.
Payroll Taxes: Currently a 15.3% federal payroll tax split between employers and employees with a $137,700 salary cap (for 2020). Under Biden’s tax plan, the payroll tax would continue as it is currently and would increase for individuals earning over $400,000.
1031 Like-Kind Exchanges: Currently allows real estate investors to defer recognition of capital gains with reinvestment. Under Biden’s tax plan, elimination of deferral for investment real estate.
IRA Deduction: Currently allows a $6,000 tax deduction for certain taxpayers for qualifying IRA contributions. Under Biden’s tax plan, proposal of expanded retirement savings initiatives, including a 25% refundable tax credit.
State Taxes: We also want to note that many states have recent tax proposals that should be taken into consideration, particularly for New York and California.
While there is much uncertainty on the upcoming election, we hope this summary of the current and proposed tax policy is helpful when reviewing personal finances and planning for the coming years. If there is a change with the upcoming election (Congress and/or Presidency), any potential tax law changes would likely not be enacted until 2021. We will be planning to reach out for more in-depth information and individual tax planning after the election but before year-end. At this time, we will not be making any recommendations on proposed/potential changes.
Please do not hesitate to reach out to us if you have any immediate questions specific to your situation or would like any additional information.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.