On October 26, 2020, the Internal Revenue Service (IRS) released tax inflation adjustments for the 2021 tax year. This adjustment covers a number of real estate-related tax provisions, including:
- ordinary income rates;
- capital gains rates; and
- alternative minimum tax (AMT) thresholds.
The IRS adjusts these rates annually to keep up with inflation.
Ordinary income tax rates for 2021 are as follows:
- 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly);
- 35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
- 32% for incomes over $164,925 ($329,850 for married couples filing jointly);
- 24% for incomes over $86,375 ($172,750 for married couples filing jointly);
- 22% for incomes over $40,525 ($81,050 for married couples filing jointly);
- 12% for incomes over $9,950 ($19,900 for married couples filing jointly); and
- 10% for incomes of $9,950 or less ($19,900 for married couples filing jointly).
The AMT exemption amount has increased from $72,900 to $73,600 ($113,400 to $114,600 for married couples filing jointly). The phaseout threshold beyond which taxpayers are no longer eligible for the AMT exemption has increased to $523,600 ($1,047,200 for married couples filing jointly).
The AMT is a supplemental income tax targeting high-income earners who have a high ratio of standard income tax (SIT) deductions.
Long-term capital gains rates have also increased for the tax year 2021. Unlike ordinary income rates, capital gains are taxed at a single rate of 0%, 15% or 20%, depending on the individual’s total taxable income.
Long-term capital gains rates for tax year 2021 are as follows:
- For individuals:
- $40,400 and below at 0%;
- Between $40,400 and 445,850 at 15%; and
- Above 445,850 at 20%.
- For married couples filing jointly:
- $80,800 and below at 0%;
- Between $80,800 and $501,600 at 15%; and
- Above $501,600 at 20%.
Additionally, the standard deduction has increased to $12,500 ($25,100 for married couples filing jointly).
It remains to be seen whether the federal tax code changes enacted in 2018 will weather the next administration, but inflation marches on.
