USA: "Green Book" with budget proposals for 2025 published

Increasing the top income tax rate from 37 per cent back to the previous rate of 39.6 per cent for taxable income over USD 450,000 for married individuals filing a joint tax return, USD 400,000 for unmarried individuals, USD 425,000 for heads of household and USD 225,000 for married individuals filing separate tax returns. These thresholds would be indexed to inflation after 2024.

Under Internal Revenue Code (IRC) 1411, a tax on net investment income (NIIT) is imposed on certain individuals, estates or trusts. Generally, the tax for individuals is 3.8% of the lesser of net investment income or excess adjusted gross income (AGI).

The proposal would increase the NIIT tax rate by 1.2 percentage points for taxpayers with income in excess of $400,000 and increase the NIIT threshold rate for capital gains above the threshold to 5%. This threshold would be indexed to inflation.

From an international tax perspective, the net investment income tax (NIIT) poses considerable challenges. This is because the NIIT does not meet the definition of a tax as defined in most double taxation treaties. Consequently, foreign taxes cannot be offset against the NIIT. Implementation of this proposal would therefore increase the double taxation of foreign investment income for US taxpayers.

Taxation of long-term capital gains and qualifying dividends at the individual income tax rate with taxable income in excess of US$1,000,000, but only to the extent that the taxpayer's income exceeds US$1,000,000. For married couples, a threshold of $500,000 for married couples per spouse, indexed for inflation after 2024, would apply to realised gains and dividends paid on or after the effective date of the law.

Under current law, long-term capital gains and qualifying dividends are subject to income tax at 0%, 15% and 20%, with the applicable tax rate based on a taxpayer's taxable income and assessment status. In addition, single taxpayers with modified adjusted gross income in excess of $200,000 ($250,000 for married taxpayers filing jointly) are subject to an additional 3.8% NIIT on their long-term capital gains and qualifying dividends, effectively resulting in a current maximum tax rate of 23.8%.

The government's proposal would increase the tax rate on long-term capital gains and qualifying dividends for high-income taxpayers by taxing this income at ordinary income tax rates for taxpayers with Adjusted Gross Income (AGI) in excess of $1,000,000 (or $500,000 for married taxpayers who are filing separately). However, this only applies to the extent that the taxpayer's taxable income exceeds this threshold.

The proposal provides for the introduction of a minimum tax of 25 per cent on total income (including unrealised capital gains) for all taxpayers with a net worth of more than USD 100 million.

Treatment of carried interest as ordinary income for investors with taxable income (from all sources) in excess of USD 400,000.

The government's budget proposals include a measure to tax carried interests in investment companies as ordinary income subject to taxation as self-employment income for partners whose taxable income (from all sources) exceeds $400,000. The proposal appears to be substantially similar to proposals that were included in several Obama Administration budget proposals. The proposal would repeal the current IRC 1061 for all taxpayers whose taxable income exceeds $400,000. While this language is not explicit, it indicates that the current IRC 1061 would continue to apply to taxpayers whose income does not exceed $400,000.

• Application of the wash sale rules to digital assets
• Provision of information reporting by certain financial institutions and digital asset brokers for exchange of information purposes
• Requirement to report foreign accounts with digital assets for certain taxpayers