Potential Increase in Capital Gains Tax Rates in the United States
Biden's FY25 Budget Proposal
Proposed Increase in Capital Gains Rate
President Joe Biden's proposed Fiscal Year 2025 Budget includes a potentially significant increase in capital gains tax rates. The proposal aims to nearly double the current capital gains tax rate from 20% to 39.6%, applying to investors with an income of $1 million or more.
Implications for Investors
The proposed increase in capital gains tax rates could have substantial implications for investors. Long-term capital gains, typically held for more than a year, are currently taxed at lower rates than ordinary income. Under the proposed changes, this advantage would be reduced, potentially leading to higher tax bills for investors who realize capital gains.
Current Capital Gains Tax Rates
Under the current tax law, long-term capital gains are taxed at the following rates:
- 0% for taxable income up to $41,675 (singles/$83,350 married couples)
- 15% for taxable income between $41,676 and $459,750 ($83,351 and $519,900)
- 20% for taxable income over $459,750 ($519,900)
Proposed Changes to Capital Gains Tax Rates
Biden's proposed budget includes the following changes to capital gains tax rates:
- 39.6% for taxable income over $1 million
- Combined with state taxes, the effective capital gains tax rate could exceed 44.6%
Conclusion
President Biden's proposed increase in capital gains tax rates is a significant development that could impact investors' financial planning. While the proposal is still subject to Congressional approval, it is crucial to be aware of the potential implications and consider how they may affect your investment strategies.
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