There are a lot of questions about President Biden’s Build Back Better plan and potential tax law changes, including an adjustment to capital gains taxes.
One of the proposals Congress is considering sets the top rate for taxing capital gains at 25%, up from 20% under current law. Another would raise the capital gains tax rate to 39.6% for taxpayers earning $1 million or more. Still another would make the change to capital gains tax retroactive, with a start date of April 2021 or September 13th.1,2
At this point, many ideas are being considered as legislators look for ways to raise revenue to help pay for the overly ambitious Build Back Better plan. Corporate tax rates, individual tax rates, estate tax rules also are on the negotiating table.
As difficult as it may be, the best approach is to wait and see. It would be hasty to make any portfolio changes based on current discussions. An investor would have to guess what policies will be in the final bill, estimate the financial impact, and determine any needed portfolio changes and their costs. That’s a tall order as the proposal is already showing lack of support from Republicans and within the Democratic party as well. The radical small groups within the narrow Democratic majority have a considerable influence but compromise has already started, and further compromise will be necessary within the Democratic party to reach consensus.
This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and financial professionals before modifying your capital gains tax strategy.