President Joe Biden is expected to propose doubling the tax rate wealthy Americans pay on investment returns when they sell stocks and other assets.
But investors shouldn’t necessarily rush for the exits, according to financial experts.
Under Biden’s proposal, the federal capital-gains tax rate would be as high as 43.4% (including an existing Medicare surcharge), according to a Bloomberg report.
“Capital gains would be the highest-tax income we have,” according to Leon LaBrecque, an accountant and certified financial planner at Sequoia Financial Group, based in Troy, Michigan.
Capital gains tax
Investors currently pay a 23.8% top rate on long-term capital gains.
That includes a 20% capital-gains tax on assets held in taxable accounts for more than a year. It also includes the 3.8% surtax on net investment income, which was created by the Affordable Care Act to fund Medicare expansion.
Under current law, long-term capital gains are taxed favorably with respect to wages. The wealthy pay a top 37% rate on wage income, for example.
The White House plan would instead tax capital gains as ordinary income, at a top proposed rate of 39.6%. It would apply to those with more than $1 million in annual income, according to Bloomberg.
(Short-term capital gains, or those held a year or less, are already taxed as ordinary income under current law.)
The Biden plan would also keep the Medicare surtax in place — creating a top long-term capital-gains rate of 43.4%, according to Bloomberg.
The top long-term capital-gains rate applies to single taxpayers with more than $445,850 of income this year. (It kicks in above $501,600 for married couples filing a joint tax return.)
The Medicare surtax applies to single filers with over $200,000 of income or married couples with $250,000. (These amounts aren’t indexed for inflation.)
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