Capital gains tax after election (out of main)

[llirk]

Considering how fast the senate confirmed the most recent Supreme Court nominee, about 10 days after inauguration if the new administration makes it that high of a priority (given your assumptions).

Amazing how fast government can move given motivation.


I doubt this particular issue will achieve anything like this level of focused attention though. Later in 2021 (summer or fall) is my guess at the very soonest (no particular background or study of the situation - this really is a guess). With an election in 2022, if the Dems think this is an issue that will get them votes, then I would count on 2021 or earlyish 2022. Heck - if there is concern this will lose them votes and it's important to them, then same timeline (get it done before the next elections change the ability to get it done).

Attempting to make it retroactive is a non-starter (MHO). Besides the lawsuits, forcing people to go back and restate taxes won't play well among any constituencies, about any constituencies.

If Biden wins and immediately makes good on his plans to raise cap gains on those making over 400k and gets this passed in 2021, that would impact your cap gains taken in 2021 for the April 2022 tax filing. This would mean people would sell by end of this year to avoid that increase in taxes. Wouldn't this be the quickest scenario?

 

[Singuy]

If Biden wins and immediately makes good on his plans to raise cap gains on those making over 400k and gets this passed in 2021, that would impact your cap gains taken in 2021 for the April 2022 tax filing. This would mean people would sell by end of this year to avoid that increase in taxes. Wouldn't this be the quickest scenario?

Doesn't capital gains tax become ordinary income for those earning 1 million or up, not 400k?

"Taxing capital gains at ordinary income tax rates—up from a top rate of 23.8 percent today—for those earning over $1 million. Biden would also eliminate step-up in basis for inherited assets with capital gains, instead taxing those gains at death."

 

[adiggs]

If Biden wins and immediately makes good on his plans to raise cap gains on those making over 400k and gets this passed in 2021, that would impact your cap gains taken in 2021 for the April 2022 tax filing. This would mean people would sell by end of this year to avoid that increase in taxes. Wouldn't this be the quickest scenario?

That's the fastest I can imagine, though I also expect that the administration will need to expend a lot of incremental political capital (and likely fail) to make the cap gains change affect 2021.

More likely, again MHO, is pass something in 2021 that starts with the 2022 tax year. Getting agreement to lower taxes starting in the current tax year (or more down than up) is pretty easy. Getting agreement to change the tax laws in this big of a fashion and have it affect the current tax year (inconveniencing, at best, people that were relying on the then-current tax laws in effect for their tax planning) is a bigger lift. Any bets on a flurry of lawsuits to stop a 2021 implementation as well?


Getting a tax increase passed that will affect the tax year in which it's passed sounds to me like a really tough incremental lift. Specifically because planning and action for that change would have to happen right now when there isn't even a real proposal on the table - only a campaign slogan / promise.

Even more likely, again MHO, would be something passed in 2021 that phases in part way with the 2022 tax year and phases the rest of the way in with the 2023 tax year (i.e. - going the other direction).


Real answer is I dunno - I'm just guessing and spitballing. But the optics of trying to change the 2021 tax year by raising cap gains tax rates - that's just too easy for naysayers to take the idea to the woodshed over an implementation detail and have a reasonable shot at scotching the whole thing for the implementation detail. That sounds like bad strategy to me.

I do agree with your observation about how quickly this could happen though as well as your conclusion given the likelihood that somebody assigns to the possibility.

 

[llirk]

That's the fastest I can imagine, though I also expect that the administration will need to expend a lot of incremental political capital (and likely fail) to make the cap gains change affect 2021.

More likely, again MHO, is pass something in 2021 that starts with the 2022 tax year. Getting agreement to lower taxes starting in the current tax year (or more down than up) is pretty easy. Getting agreement to change the tax laws in this big of a fashion and have it affect the current tax year (inconveniencing, at best, people that were relying on the then-current tax laws in effect for their tax planning) is a bigger lift. Any bets on a flurry of lawsuits to stop a 2021 implementation as well?


Getting a tax increase passed that will affect the tax year in which it's passed sounds to me like a really tough incremental lift. Specifically because planning and action for that change would have to happen right now when there isn't even a real proposal on the table - only a campaign slogan / promise.

Even more likely, again MHO, would be something passed in 2021 that phases in part way with the 2022 tax year and phases the rest of the way in with the 2023 tax year (i.e. - going the other direction).


Real answer is I dunno - I'm just guessing and spitballing. But the optics of trying to change the 2021 tax year by raising cap gains tax rates - that's just too easy for naysayers to take the idea to the woodshed over an implementation detail and have a reasonable shot at scotching the whole thing for the implementation detail. That sounds like bad strategy to me.

I do agree with your observation about how quickly this could happen though as well as your conclusion given the likelihood that somebody assigns to the possibility.

I agree with the points you have made above. While this is the quickest something could happen, it is very unlikely as it would not give people the appropriate time to take action.

 

[BigPeePee]

ROFL. I have plenty of places besides the stock market to park my money and legally tax shelter it.

All taxation like this will do is cause a stock sell off as those with the means to do so will put their money to work elsewhere.

If these imaginary places generated more returns than the stock market, then the wealthy would have never invested in the stock market. Even if tax rates climb, the wealthy won't pull out, because there is no other place to invest. Getting slightly less free money is still better than getting no free money.

 

[MP3Mike]

All taxation like this will do is cause a stock sell off as those with the means to do so will put their money to work elsewhere.

I would guess that it is more likely they they just sell/re-purchase their stocks that have large gains to reset the cost basis going forward, while getting the current tax treatment.

 

[bkp_duke]

I would guess that it is more likely they they just sell/re-purchase their stocks that have large gains to reset the cost basis going forward, while getting the current tax treatment.

In the short term, yes, that strategy works. But long term, if returns are going to diminish due to higher taxation, they will look for alternatives.

 

[BigPeePee]

I would guess that it is more likely they they just sell/re-purchase their stocks that have large gains to reset the cost basis going forward, while getting the current tax treatment.

I agree. We'll have a minor dip in the short-run, but the market will keep chugging along. Free money is still free money regardless whether the tax rate is 25% or 35%. The wealthy will moan about it, but they'll still keep plowing money into the stock market.

In the short term, yes, that strategy works. But long term, if returns are going to diminish due to higher taxation, they will look for alternatives.

What alternatives are there? Any return they make with their capital will still be taxed at the same rate.

 

[bkp_duke]

I agree. We'll have a minor dip in the short-run, but the market will keep chugging along. Free money is still free money regardless whether the tax rate is 25% or 35%. The wealthy will moan about it, but they'll still keep plowing money into the stock market.



What alternatives are there? Any return they make with their capital will still be taxed at the same rate.

The tax code heavily favors real estate. There are so many more deductions for that (depreciation being the big one) than there are for stocks.

 

[bkp_duke]

If these imaginary places generated more returns than the stock market, then the wealthy would have never invested in the stock market. Even if tax rates climb, the wealthy won't pull out, because there is no other place to invest. Getting slightly less free money is still better than getting no free money.

They don't NOW generate more than the stock market. But effectively doubling taxes on stock gains for high earners will make them far more attractive.

 

[BigPeePee]

One of the mains reasons that capital gains taxes are lower than income taxes is to incentivize people to risk their money. This was necessary in the pre-internet days, where most people were incredibly afraid of losing all their money in the stock market.

Today, the stock market is super easy to make money in and everyone knows it. Just buy and hold index funds if you want steady returns. Buy stocks like TSLA if you're more aggressive. There is no need to incentivize people to invest. People will still buy stocks even if capital gains taxes are treated as income taxes.

Today's retail investors couldn't give 2 shits about financial statements or market crashes. They've been taught to buy every single dip no matter how bad the economy is. They have the internet and financial gurus on youtube teaching them about index funds and compound growth. Low capital gains taxes are not needed anymore.

 

[JRP3]

The tax code heavily favors real estate. There are so many more deductions for that (depreciation being the big one) than there are for stocks.

What's the return on real estate vs stocks in say the last 10 years?

 

[BigPeePee]

They don't NOW generate more than the stock market. But effectively doubling taxes on stock gains for high earners will make them far more attractive.

And they'll still be taxed at the same rate.

 

[bkp_duke]

What's the return on real estate vs stocks in say the last 10 years?

Depends on which stocks.

Let me put is this way, my wife's father is a very good CPA, and we've followed his advice since we've been married.

We own properties in multiple states that we rent out, and have for 10+ years. I've made a healthy 6-figure income on that, and NEVER ONCE paid a single penny in taxes (state or federal), besides property taxes (which are 100% deductible against the income from the property).

I've invested more in the stock market, because it's far more liquid than real estate. But my gains have been just as high in real estate.


Don't believe me? Go ask your CPA. (and anyone in this thread not using a CPA is bonkers - they pay for themselves many fold over)

 

[bkp_duke]

And they'll still be taxed at the same rate.

Nope. You clearly show you don't know the US tax code at ALL.

Real estate gains can be written off against "depreciation" on the asset. I'm not speaking from a point of theory here, this is from experience.

 

[JRP3]

Depends on which stocks.

Let's say TSLA

 

[bkp_duke]

Let's say TSLA

Cherry picking a bit?

 

[BigPeePee]

Nope. You clearly show you don't know the US tax code at ALL.

Real estate gains can be written off against "depreciation" on the asset. I'm not speaking from a point of theory here, this is from experience.

Do you really think wealthy people would switch out of stocks to an asset that will probably appreciate 1-2% annually going forward with the headache of dealing with tenants?

 

[bkp_duke]

Do you really think wealthy people would switch out of stocks to an asset that will probably appreciate 1-2% annually going forward with the headache of dealing with tenants?

ROFL. I make a lot more than 10% on my real estate investments. Anyone good at real estate investment does double-digit annual returns.

And the people with more money than I have, know the system even better. 1-2% gains are what they can get with a million+ in CDs/bank accounts. No one with that level money deals with that kind of chump change.




Here is my big point, and take away, because people are wanting to try to nit-pick:
The wealthy have shown that in the 200+ years in our country they can move their money to higher-yielding investments MUCH faster than the government can tax it. This will always be the case. Anyone that thinks otherwise needs to go back and do their homework.

 

[EVortex]

Do you really think wealthy people would switch out of stocks to an asset that will probably appreciate 1-2% annually going forward with the headache of dealing with tenants?

It's a retirement income play since no dividends on TSLA. I have rental property and TSLA - and that's all I need except my remote control, and that's all I need.