This version of the article first appeared on CNBC’s Inside Wealth Newsletter. This is Robert Frank, our weekly guide to Net-Worth Investor and Consumer. Sign up to receive future editions directly in your inbox. Experts say high-income earners will receive a series of tax cuts in the latest House settlement plan, but many may also be subject to modest tax increases that could limit charitable contributions and other deductions. The language The House Ways and Means Committee was released this week to extend the 2017 tax cuts for high-income people, including a low 37% tax rate. For now, at least, there will be a rate extended to President Donald Trump’s proposal to raise the highest rates for those making more than $2.5 million. High-income and wealthy families also received some new and expanded benefits. The House text includes a permanent increase in pass-through income deductions from 20% to 23%. The rise means that the pass-through’s effective maximum tax rate will be around 28.5% compared to the highest personal tax of 37%. The ever-growing, ultra-rich taxpayers earn a lot of money from pass-throughs, sole owners, S-Government and other partnerships. The salt change has less impact on those at the top. The House proposal calls for the state and local tax credit limit to be raised from $10,000 to $30,000, but only for people with adjusted gross incomes of less than $400,000. For people over $400,000, the $30,000 cap will begin to phase out as it returns to $10,000. The most important tax change for the wealthy people in the House proposal is the real estate tax. Currently, properties worth up to $13.99 million (or couples with estates up to $27.98 million) are exempt from real estate tax. The House Committee has proposed raising the exemption to $15 million, meaning it will continue to increase over time as it is permanently indexing its inflation. Tax advisors for wealthy people make taxes and exemptions permanent helps eliminate some of the recent uncertainty regarding tax planning. “All that offers certainty, I’m all for it,” said David Handler, partner at Kirkland & Ellis LLP’s Trusts and Estates Practice Group. “Please tell me what the rules are and don’t let it expire.” One group that may not be satisfied with the new real estate tax is the heirs of wealthy families. The threat of expiration at the end of this year has led many families to give millions of dollars to their children to take advantage of the exemption (also applicable to gift tax). Now, lawyers say that wealthy parents know that their families are suspended and new exemptions are difficult to change. “We’re committed to providing a great opportunity to help you,” said Laura Zwicker, chairman of Greenberg Glusker LLP’s Private Client Services Group. “And for those over $100 million, they already had to fully use the exemption.” In addition to tax savings, House Language also includes effective tax increases for high-income earners who receive many itemized deductions. The standard deduction is $15,000 for a single filer and $30,000 for co-applicants, only about 10% (mostly wealthy) of Americans as they rise again under the House proposal. Many high-income earners still itemize deductions for charities, mortgage interest and other expenses. The House proposal limits the benefits of these deductions through complex formulas. Kyle Pomerleau, a tax expert and senior fellow at the American Enterprise Institute, said top bracket taxpayers (an individual currently above $600,000) should subtract 2/37th from the value of each dollar deducted from the threshold. The net effect is that top taxpayers will only earn 35 cents deductible profit per dollar, not 37 cents. “The direct impact is raising taxes on these households to reduce the value of itemized deductions,” Pomerlot said. Some say that large donors to charities are less likely to reduce tax benefits from gifts, so at least they can reduce the change. “We expect it to have some effect as it will be more expensive to give to charities,” Pomerlot said. It also limits the profits of mortgage deductions, which he said could affect property purchases by wealthy people, but most would pay cash without a mortgage. Other potential tax increases for the wealthy, at least indirectly, are proposed taxes on private foundations. The House proposal includes a 5% tax on the foundation’s investments. Assets range from $250 million to $1 billion, with 2.8% between $50 million and $250 million. From huge foundations like the Gates Foundation to small family foundations set up to guide family charity, taxes significantly reduce investment returns after tax, and thus cut down on funds to go to charities, says tax advisors and nonprofits. While wealthy donors are increasing through donor-advocated funds rather than foundations, the foundation still plays an important role in philanthropy. “There’s hope that the government will cut funds and that the private sector will pick it up,” Handler said. “But you’re basically cutting your legs out from under the private foundation department.”
Jason Smith (R-MO), chairman of the Houseways and Means Committee, will hold a press conference on May 13, 2025, before a markup hearing at the Longworth House Building in Capitol Hill in Washington, DC.
Chip somodevilla | Getty Images News | Getty Images
This version of the article first appeared on CNBC’s Inside Wealth Newsletter. This is Robert Frank, our weekly guide to Net-Worth Investor and Consumer. Sign up to receive future editions directly in your inbox.
Experts say high-income earners will receive a series of tax cuts in the latest House settlement plan, but many may also be subject to modest tax increases that could limit charitable contributions and other deductions.
