Vice President Kamala Harris is advocating for an increase in the capital gains tax rate. Her proposal involves a 28% tax on long-term capital gains for households earning more than $1 million annually. This marks a significant rise from the current rate of 20% for top earners. Harris frames this move as a means to reward investment in American innovators, founders, and small businesses.
Comparison with Biden’s Proposal
While Harris’s tax policy generally aligns with President Joe Biden’s, her proposed capital gains rate is lower than the 39.6% rate that Biden has put forth in his budget for 2025. This significant difference in tax rates could have far-reaching implications for high-income individuals and investors.
Impact on Investors
Currently, investors are taxed at varying rates of 0%, 15%, or 20% for long-term capital gains. Harris’s plan also includes an increase in the net investment income tax (NIIT) from 3.8% to 5%. Additionally, assets owned for less than a year are taxed at regular income tax rates, which are set to increase post-2025 without Congressional intervention.
Financial Advisors’ Perspective
Financial advisors are closely tracking both Biden’s and Harris’s tax proposals, but many are hesitant to make immediate changes without concrete legislation in place. Certified financial planner Louis Barajas emphasizes the importance of avoiding knee-jerk reactions to proposed tax policies. The uncertainty surrounding control of the Senate and House adds another layer of complexity for investors.
Experts predict an uptick in tax planning efforts, especially among older individuals who own rental properties and are considering selling them. Timing the sale of assets can significantly impact the overall tax liability. Biden’s higher capital gains tax rate would solely apply to earnings surpassing the $1 million threshold, providing opportunities for strategic tax planning to reduce taxable income.
Financial experts recommend various strategies to mitigate tax exposure, including utilizing capital losses carried forward from prior years. By leveraging these losses strategically and exploring tax-loss harvesting opportunities, investors can potentially minimize the impact of higher capital gains taxes.
Overall, the potential increase in the capital gains tax rate proposed by Kamala Harris could have significant implications for high-income earners and investors. It underscores the importance of proactive tax planning and strategic decision-making to navigate the evolving tax landscape effectively.
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