How Biden’s Proposed Capital Gains Tax Could Impact Your Investments

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Taxes are a part of life, we all have to pay them. While we all pay taxes on our income, we also pay taxes on earnings and profits from investments.

The amount of tax owed on investments is divided into two categories: short-term and long-term capital gains tax.

According to Investopedia, capital gains tax is defined as a tax imposed on the sale of an asset. The long-term capital gains tax rates for the 2023 and 2024 tax years are 0%, 15%, or 20% of the profit, depending on the income of the filer.

Meanwhile, if you own an asset for one year or less and then sell it for a profit, you’ll be subject to short-term capital gains tax. This is based on your regular income tax bracket. The higher the earner, the higher the short-term capital gains tax.

But now, President Biden’s recent capital gains tax proposal could have a significant impact on your investments–the highest earners could owe even more.

Biden’s Proposal Aims To Increase Taxes on Wealthy Americans

The Tax Foundation explained key elements of Biden’s FY 2025 budget proposal. He wants to tax long-term capital gains and qualified dividends at ordinary income tax rates for taxable income above $1 million. This would mean that the long-term capital gains tax would go up to 39.6% for the wealthiest Americans, which is nearly double the current highest long-term capital gains tax rate of 20%.

In addition, Kiplinger explained one other element of Biden’s proposal. He also wants to eliminate the practice of “stepping up” basis for gains exceeding $5 million per person or $10 million per married couple.

If implemented, this would mean that the cost basis for appreciated inherited assets would not be raised at the time of someone’s death. Those inheriting the assets would have to pay capital gains taxes on the appreciation, which could mean a significant tax liability.

His idea is simple: to help generate more tax revenue and make the wealthiest Americans “pay their fair share.”

These proposals, if implemented, may mean that you get to keep less of your money if you’re in the 1%. However, these changes would not affect most Americans, particularly those who have taxable incomes below $1 million and who aren’t going to inherit millions of dollars.