Biden’s Proposed Capital Gains Tax Increase: What You Need to Know

Proposed Increase for High-Income Earners

President Biden’s proposed budget for Fiscal Year 2025 includes a significant increase in the long-term capital gains tax rate for high-income taxpayers. The current rate of 20% could nearly double to 39.6%. This increase would apply to individuals with taxable income exceeding a certain threshold, which is yet to be determined.

Long-Term vs. Short-Term Capital Gains

Long-term capital gains are profits from the sale of assets held for more than one year. These gains are typically taxed at lower rates than ordinary income. In contrast, short-term capital gains, resulting from the sale of assets held for one year or less, are taxed as ordinary income.

Impact of the Proposed Change

The proposed capital gains tax increase would significantly impact high-income taxpayers who have realized substantial gains on investments. For example, an individual who sells a stock for a $100,000 profit would pay $20,000 in capital gains taxes under the current rate. However, under the proposed rate, the tax bill would increase to $39,600.

Other Tax Changes

In addition to the capital gains tax increase, the proposed budget includes other tax changes aimed at generating revenue and addressing perceived inequities. These changes include raising the corporate tax rate, increasing taxes on high-income earners, and expanding the earned income tax credit.

Current Status

As of April 27, 2024, the proposed budget is still under review by Congress. The final version of the budget, including any revisions to the capital gains tax proposal, will likely be subject to negotiation and compromise.