Joe Biden’s Big Tax Hikes Are Still Looming?

As we enter the last third of the year, will those big tax hikes discussed a few months ago pass and cut into your savings? The scary proposals have stymied many people this year in part because they are retroactive. That makes what to do tough. Even taxes on death may be radically increased.

For generations, there’s been a big tax break for long-term capital gains, those held over a year. Up until now, the tax rate on long-term capital gain has been zero, 15% or 20%, depending on your income. Add the 3.8% Obamacare tax in some cases, but at worst, your total tax bill is 23.8%. But under one Biden proposal, the 23.8% rate may go to 43.4% in some cases, an 82% increase in the old rate.

The current long-term capital gain tax is graduated. You pay 0% on income up to $40,000, 15% over $40,000 up to $441,450, and 20% on income over $441,451. But those thresholds may change. The 43.4% rate is supposed to hit only those earning $1M or more. But if you bought a house 30 years ago that is now worth over a million, you could be impacted.

It might already be too late to sell. A natural reaction to a looming 82% tax rate hike is to sell quickly before the new law takes effect. But to prevent this, the rate hike impacts sales after April 28, 2021. It might not pass, or it might pass with a different effective date. In the meantime, it is hard to decide what to do. Do you sell now or wait and see?