Vice President Kamala Harris recently called for a higher capital gains tax rate, specifically proposing a 28% tax on long-term capital gains for households making more than $1 million annually. This marks a significant increase from the current rate of 20% for top earners. Harris justified this proposal by stating that it would “reward investment in America’s innovators, founders, and small businesses.”
While Harris’ tax policy aligns with President Joe Biden’s overall tax proposals, her proposed capital gains rate of 28% is lower than the 39.6% rate suggested in Biden’s fiscal year 2025 budget. It is worth noting that both Biden’s and Harris’ tax plans would necessitate congressional approval, highlighting the uncertainty surrounding the future tax landscape.
The proposed increase in the capital gains tax rate could have significant implications for investors, particularly high earners. Currently, investors pay either 0%, 15%, or 20% for long-term capital gains, depending on their income level. Additionally, an extra 3.8% net investment income tax applies once modified adjusted gross income surpasses certain thresholds.
Financial advisors are closely monitoring these proposed changes, with many opting to wait for concrete legal changes before implementing any alterations. There is a concern about knee-jerk reactions to potential tax reforms, emphasizing the importance of a cautious approach.
While the focus is often on high earners, lower earners could also be affected by the proposed capital gains tax increase. For individuals planning to sell assets like rental properties, strategic tax planning may become essential to minimize the impact of higher tax rates. Timing the sale of assets and considering other sources of income could play a crucial role in tax liability.
To mitigate the impact of higher capital gains taxes, investors should explore various tax planning strategies. This includes utilizing capital losses carried over from previous years, which can help reduce yearly income and potentially lower one’s tax obligations. Additionally, taking advantage of tax-loss harvesting opportunities in individual assets can further optimize tax efficiency.
The proposed increase in the capital gains tax rate by Vice President Kamala Harris has sparked discussions about the potential impact on investors, especially high earners. While these proposed changes signal a shift in tax policy, it is crucial for individuals to stay informed and seek advice from financial professionals to navigate the evolving tax landscape effectively. By understanding the implications of these tax reforms and implementing strategic tax planning, investors can better position themselves to adapt to the changing tax environment.