• Steven Roy

Two views of the Biden Capital Gains Proposal

Updated: May 15, 2021

Two views of the Biden Capital Gains Proposal -- both arguably correct:

  • The majority of investors could find it relatively easy to avoid the $1 Million tax threshold using already common planning approaches.

  • The extremely rich (those who habitually come in well above the $1 million threshold) will find it more difficult: maybe - unless they find clever new avoidance techniques.

Source: Tax Policy Center (TPC) at Urban-Brookings Institute Will it be easy for the wealthy to avoid Biden’s capital gains tax increases? PWBM says yes. The Penn Wharton Budget Model says the wealthy will find ways to avoid 90 percent of Biden’s proposals to raise capital gains tax rates for households making $1 million or more and to tax gains at death for some wealthy decedents. The study estimates that legal tax planning would sharply reduce the expected revenue from Biden’s proposals. Wealthy Americans might avoid selling assets, realize gains in years when they can use other investment losses to lower taxable net gains, or sell investments slowly over time to minimize the amount of tax owed in any one year. But TPC’s McClelland concludes that many wealthy investors may dodge the tax increase, but the bulk of their gains may not. Rob McClelland writes that while many very high income investors have income barely above the $1 million level and thus could find ways to time asset sales to avoid Biden’s tax rate hike, many of the gains themselves are received by those making far more than the threshold. In addition, by taxing unrealized gains at death, Biden would remove much of the benefit from delaying realizations . He concludes “For the super-rich, smart advisors and attorneys will look for ways their clients can avoid the new capital gains taxes…. But carefully writing the new law will help to limit the effectiveness of these strategies, so the details are going to matter. A lot.”

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