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BIDEN CALLS FOR DOUBLING CAPITAL GAINS TAX

President Biden wants to increase the capital gains tax rate and have the
wealthy pay a “fairer” share.

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(Image credit: Getty Images)

By Kelley R. Taylor
last updated 27 April 2024

President Biden’s $7.3 trillion FY 2025 budget released last month, proposes
several tax changes aimed at wealthier taxpayers, including a minimum tax on
billionaires, a near doubling of the capital gains tax rate, and an increased
Medicare tax rate. 



This budget proposal comes as the IRS says it has recently collected (through
ramped-up enforcement) more than $500 million in unpaid taxes from delinquent
millionaires and "wealthy tax cheats." 



The White House says the President's budget, which also contains several tax
breaks for those with lower and middle incomes, including new homebuyer tax
credits, would reduce deficits by nearly $3 trillion over ten years. 


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Here is more of what you need to know.




BIDEN CAPITAL GAINS TAX INCREASE

The capital gains tax rate for long-term capital gains, assets held for more
than one year, is at most 20%. Capital gains are the profits you make from
selling or trading an asset. The tax rates that apply to a particular capital
gain (i.e., capital gains tax rates) depend on the type of asset involved, your
taxable income, and how long you held the property before it was sold.



Biden’s FY25 budget proposal would nearly double that capital gains tax rate to
39.6%. That proposed capital gains rate increase would apply to investors who
make at least one million dollars a year. 


44.6% CAPITAL GAINS PROPOSAL?

You may have heard about a proposed 44.6% capital gains rate in a budget
footnote. That rate is a separate proposal that if ever approved, would apply
only to those with high net investment and taxable income. 

The rate supposes an increase of the net investment income tax rate to 5% above
the $400,000 threshold with an increased top ordinary rate of 39.6%.


'CARRIED INTEREST LOOPHOLE'

The Biden budget proposal also revives the debate over the so-called carried
interest loophole. Currently, asset managers can treat certain compensation they
receive as capital gains, which means that a significant portion of their income
is taxed at a much lower rate than if it were treated as wages. 

Under Biden’s budget proposal, that compensation would be treated as ordinary
income for federal income tax purposes to end the carried interest loophole. 


BIDEN BUDGET STEPPED-UP BASIS

Additionally, the Biden budget proposes to eliminate the practice of “stepping
up” the basis for gains exceeding $5 million per person and $10 million per
married couple. 

 * A stepped-up basis involved raising the cost basis in appreciated inherited
   assets to the fair market value at the time of the decedent’s death. 
 * Since cost basis helps determine tax amount, stepping up the basis minimizes
   the capital gains taxes owed.

Under current tax law, these accumulated gains can generally be passed down
across generations untaxed. The Biden administration says this exacerbates
inequality since the practice tends to benefit the wealthy.

If adopted, these gains would be taxed if the property is not donated to
charity. Additionally, the administration says the change would be designed so
that family-owned businesses and farms are not taxed when giving to heirs who
continue running the business. 


MEDICARE TAX 

President Biden is proposing a tax increase for people making more than $400,000
a year to help shore up the Medicare program. That income threshold would be
based on wages, salary, and capital gains. 

Biden's FY25 budget proposes to increase the Medicare tax rate to 5% from the
current 3.8%.

 * According to federal data, more than 60 million people use Medicare, which
   provides health insurance for people over age 65. 
 * The number of people using Medicare is expected to grow, which has caused
   concern over the long-term viability of Medicare and other programs like
   Social Security.

The White House says that this tax increase would extend the life of the
Medicare Trust Fund by at least 25 years, without cutting benefits. However,
like the capital gains tax proposal, the Medicare tax rate increase is not
likely to find enough support to pass this year, given Congressional divides and
the upcoming election.


INCOME TAX RATE

President Biden wants to increase the top income tax rate for wealthier
taxpayers. 

 * Under Biden’s budget proposal, taxpayers making $400,000 would be taxed at a
   top rate of 39.6%. 
 * The current top tax rate, tied to inflation-adjusted tax brackets, is 37%. 
 * The proposed tax rate change would reverse the so-called Trump tax cuts in
   the Tax Cuts and Jobs Act.

Note: The Biden budget is merely a proposal that given the state of play on the
Hill is not likely to gain Congressional support to pass this year. So, the
seven tax rates you are familiar with i.e., 10%, 12%, 22%, 24%, 32%, 35%, and
37%, apply. (The income tax brackets associated with those rates are adjusted
yearly for inflation.)


BIDEN BUDGET TAX INCREASE FOR BILLIONAIRES

President Biden also wants to impose a minimum tax on billionaires. Some of the
rationale behind this “wealth tax” is that wealthier taxpayers are often able to
shield a good portion of their income from tax. That’s partly because the
wealthy usually grow their wealth through investments, which are taxed at lower
rates than earned income. Earned income (which includes wages and salaries) is
typically the main source of money for taxpayers with lower and middle incomes. 

 * The billionaire tax in Biden’s budget proposal would be a minimum of 25% for
   households with net worth exceeding $100 million. 
 * For comparison, according to the White House, the wealthiest taxpayers in the
   United States reportedly pay an average 8.2% tax rate.


CAPITAL GAINS TAXES ON REAL ESTATE: 1031 LIKE-KIND EXCHANGES

Biden's FY25 budget would also close what the administration calls the
“like-kind exchange” loophole. Under current 1031 like-kind exchange rules, real
estate investors can defer paying tax on gains from certain real estate deals as
they keep investing (reinvesting the proceeds) in that real estate.

The White House says "this amounts to an indefinite interest-free loan from the
government," and that "real estate is the only asset that gets this sweetheart
deal."


RELATED

 * Biden Proposes New Homebuyer Tax Credits
 * Should Billionaires Pay More Taxes? Biden Says Yes
 * Types of Income the IRS Doesn't Tax
 * Will a Controversial Capital Gains Tax Be Repealed in November?



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Kelley R. Taylor
Social Links Navigation
Senior Tax Editor, Kiplinger.com

As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal
and state tax information, news, and developments to help empower readers.
Kelley has over two decades of experience advising on and covering education,
law, finance, and tax as a corporate attorney and business journalist. 



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