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U.S. TRUST WB Bank of America Private Wealth Management TAX ALERT 2016-5 DECEMBER 2016 The 2016 Election: Tax Changes Expected INTRODUCTION The election of Donald Trump as President is expected to lead to significant tax law changes. The tax changes may come in two parts: (1) from the repeal of the Affordable Care Act (ObamaCare) and its related taxes and (2) from comprehensive tax reform. Since Republicans will also have majorities! in both the House and Senate, it is anticipated that such changes could be undertaken without the need for bipartisan support. It is likely that the Affordable Care Act, and its taxes, could be repealed in early 2017 and result in an immediate tax cut for dividends, capital gains and high-income earners. It is more time consuming to enact comprehensive tax reform and such efforts may not result in a tax bill until mid- c tlaw* T PI House GOP summer or the fall, which could push the urrenew ramp ran Plan effective date of broad-based tax changes into individual 10, 15, 25, 28, 12, 25, 33% 12, 25, 33% 2018. Although it is not yet known exactly — ax Rates 33, 35, 39.6% what the changes will be or when they would Top capital 20% 20% 16.5% be effective, we are issuing this Tax Alert to | Gains/Dividend (plus 3.8% ‘ 2 Tax Rate surtax inform you of changes that are anticipated, ) based on proposals made during the campaign Itemized 3% of itemized Limited to Eliminates . Deductions deductions are $200,000 except for by both President-elect Trump and the House last whem: (couples charitable and Republicans. We also discuss how these gross income $100,000 (likely capped . . exceeds (singles) and modified) changes may impact your planning, both $313,800 mortgage currently and in the future. When we have ($261,500 if interest more specifics, we expect to issue another Tax single) Alert. AMT Parallel tax Eliminates Eliminates calculation INCOME TAX Investment 3.8% Eliminates Eliminates Current law. Ordinary income can be subject _Surtax to rates as high as 39.6%, and capital gain can Estate Tax 40% rate, Eliminates Eliminates : : $5,490,000 (capital gain at fe) , , be subject to rates as high as 20%. In both exemption deathsublect-to cases, an additional 3.8% surtax might apply. $10 million exemption) Certain itemized deductions are “phased out” : - *Inflation adjusted amounts for 2017 under the so-called “Pease limitation” when adjusted gross income reaches certain thresholds. The Alternative Minimum Tax can result in additional tax liability. The income from so-called “carried interests” is taxed as capital gain. 1 In the House of Representatives, a simple majority is sufficient to pass legislation. It is more complicated in the Senate, where 60 votes (a super majority) are required to avoid a filibuster. Republicans have a simple majority, but not a super majority, in the Senate. However, there is a budget procedure known as Reconciliation, which allows certain legislation to be passed without filibuster. Accordingly, it would appear that Republicans could pass tax legislation in the Senate with just a simple majority. HOUSE_OVERSIGHT_014518