by Doug Gibson, Financial Advisor
Capital Gains Tax on UNREALIZED “gains” is back on the table again.
President Biden recently released his proposed budget and included in the proposal is an annual 20% tax on unrealized capital gains from appreciated assets such as equities and real estate. If this were to pass, the tax would have a profound impact on the tax landscape. Now, I am not big on predictions, but I think this proposal, or a revised version of it, could actually find its way in to law.
My rationale for this is rooted in the Inflation Reduction Act (although there is really nothing in this bill that indicates it will reduce inflation, but that is a topic for another day) that was passed in August of last year. Part of the law allocated 80 billion dollars to the IRS earmarked, among other things, for the hiring of 87,000 new IRS agents.
So what does this have to do with the new Capital Gains tax proposal????
I am glad you asked!
In order for the IRS to be able to levy a tax on unrealized capital gains, they would need to be given the authority to assess and value assets, something they do not have the ability to do currently. And since the tax would even apply to assets like art, wine, and collectibles, the IRS would need to hire a slew of new agents with those skillsets, none of whom are employed with the agency currently. You can probably see where I am beginning to connect the dots.
When building a house, the first step is to lay the foundation. In this case, a possible foundation was laid last year with the passing on the Inflation Reduction Act. Since the IRS already has the funding mechanism in place to add the resources necessary to support their ability to build out this program, I think there is a chance it could find its way in to law.
Securities and investment advisory services offered through World Equity Group, Inc. Member FINRA and SIPC, a Registered Investment Adviser. Exponent Prosperity Accelerator Advisors, LLC & SMART Group Houston is not owned or controlled by World Equity Group, Inc.