Biden tax plan series
WHAT are capital assets, capital gains and long-term capital gains?
When you sell a capital asset for more than you paid for it, you realize a capital gain. Capital assets include stocks, bonds, and real estate. The tax you’ll pay on the capital gain depends on how long you held the asset before selling it: long term if you held asset for more than one year; short term if one year or less.
Current tax law
- Capital gains are currently taxed at a low maximum rate of 20%.
- Qualifying dividends also enjoy this low rate of 20%.
- Individuals pay a federal income tax rate ranging from 0 to 20% in taxes on realized capital gains when selling an asset that is held longer than 12 months.
- Taxpayers over certain thresholds pay an additional 3.8% Net Investment Income Tax. Ouch!
Proposed tax changes
- New law would raise capital gains tax rate to the proposed highest marginal ordinary income tax rate of 39.6% for those with AGI of $1 million or greater.
- New law would also tax qualified dividends to the proposed highest marginal income tax rate, 39.6% for those with AGI of $1 million or greater.
- The Net Investment Income Tax of 3.8% would also apply to all income exceeding $400,000.
- Combined rates would result in a total tax of 43.4% on long-term capital gains for those with AGI of more than $1 million per year. Ouch!
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation.
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He retired after 50 years of defending taxpayers audited by the IRS, EDD, BOE and other governmental agencies. He published a book on “How to Avoid or Survive IRS Audits” that’s available at Amazon. Readers may email tax questions to firstname.lastname@example.org.