President Biden’s $7.3 trillion FY 2025 budget released March 11, 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.
'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.
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?
FAQs
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.
Is capital gains tax going up in 2024? ›
New tax threshold on capital gains.
For the 2024 tax year, individual tax filers will not have to pay any capital gains tax if their total taxable income is $47,025 or less. That's an increase from the income threshold of $44,625 in 2023. The capital gains tax rate jumps to 15% if your income is $47,026 to $518,900.
Which country has no capital gains tax? ›
Not all countries impose a capital gains tax, and most have different rates of taxation for individuals compared to corporations. Countries that do not impose a capital gains tax include Bahrain, Barbados, Belize, the Cayman Islands, the Isle of Man, Jamaica, New Zealand, Sri Lanka, Singapore, and others.
Do capital gains get taxed twice? ›
Double taxation occurs when a corporation pays taxes on its profits and then its shareholders pay personal taxes on dividends or capital gains received from the corporation. A financial advisor can answer questions about double taxation and help optimize your financial plan to lower your tax liability.
What is the capital gains tax rate in 2025? ›
The Biden administration is proposing a capital gains tax rate of 44.6% as part of the fiscal year 2025 budget.
Is Biden raising capital gains tax? ›
The Biden Administration proposed two reforms related to capital gains. The first would make the capital gains of taxpayers with income over $1 million taxable as ordinary income, increasing the tax rate from 20 to 37 percent. The second would largely eliminate the stepped-up basis.
At what age do you not pay capital gains? ›
The capital gains tax over 65 is a tax that applies to taxable capital gains realized by individuals over the age of 65. The tax rate starts at 0% for long-term capital gains on assets held for more than one year and 15% for short-term capital gains on assets held for less than one year.
What state has the lowest capital gains? ›
States with No Capital Gains Taxes
If you have a large number of assets there might be a benefit to reside in one of the following states. These include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.
What country has the highest long-term capital gains tax? ›
Denmark levies the highest top capital gains tax of all countries covered, at a rate of 42 percent. Norway levies the second-highest top capital gains tax at 37.8 percent. Finland and France follow at 34 percent each.
How to not pay capital gains tax? ›
A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.
The like-kind (aka "1031") exchange is a popular way to bypass capital gains taxes on investment property sales. With this transaction, you sell an investment property and buy another one of similar value. By doing so, you can defer owing capital gains taxes on the first property.
Why is double taxation bad? ›
Opponents of double taxation on corporate earnings contend that the practice is both unfair and inefficient, since it treats corporate income differently than other forms of income and encourages companies to finance themselves with debt, which is tax deductible, and to retain profits rather than pass them on to ...
Why is social security taxed twice? ›
However, the double-taxation of Social Security benefits can occur at the state level. A grand total of 38 states don't tax Social Security benefits. But if you live in one of the 12 states that do tax Social Security benefits, and earn above the preset income thresholds in those states, double taxation can occur.
What is the 6 year rule for capital gains tax? ›
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.
What is the capital gains tax for people over 65? ›
Capital Gains Tax for People Over 65. For individuals over 65, capital gains tax applies at 0% for long-term gains on assets held over a year and 15% for short-term gains under a year. Despite age, the IRS determines tax based on asset sale profits, with no special breaks for those 65 and older.
What will capital gains tax be in 2026? ›
On January 1, 2026, the rates return to their pre-TCJA amounts of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The income brackets to which those rates are to apply will also be different and are adjusted for inflation each year.
How will tax brackets change in 2024? ›
The IRS increased its tax brackets by about 5.4% for each type of tax filer for 2024, such as those filing separately or as married couples. There are seven federal income tax rates, which were set by the 2017 Tax Cuts and Job Act: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
What will be the tax brackets for 2024? ›
Tax brackets 2024 (taxes due April 2025)
| Tax rate | Single | Married filing jointly |
|---|
| 10% | $0 to $11,600 | $0 to $23,200 |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 |
3 more rowsApr 30, 2024
TAAHP is closely monitoring the progress of The Tax Relief for American Families and Workers Act of 2024 bill, a significant piece of legislation with implications for the industry. The bill aims to provide relief for families and workers across the nation, addressing critical economic challenges.
