Learning Center

Navigating Potential Changes in Capital Gains Tax: What Business Owners and Boomers Need to Know

As a business owner or a baby boomer planning to sell your business or a significant real estate asset, understanding potential changes in capital gains tax is crucial. President Biden's FY 2025 budget proposal includes significant tax reforms aimed at wealthier taxpayers, which could impact your financial planning. While these proposals are not yet law, being informed and prepared can help you navigate potential changes effectively.

Biden's Capital Gains Tax Proposal

Currently, the capital gains tax rate for long-term capital gains—assets held for more than one year—is capped at 20%. However, President Biden's budget proposal aims to nearly double this rate to 39.6% for individuals earning at least one million dollars annually. This proposed increase is part of a broader effort to ensure that wealthier taxpayers contribute a "fairer" share of federal revenues.

Additionally, there is a separate proposal that could push the capital gains tax rate to 44.6% for those with high net investment and taxable income. This rate includes an increase in the net investment income tax rate to 5% above the $400,000 threshold, combined with an increased top ordinary income tax rate of 39.6%.

Implications for Business Owners and Real Estate Investors

If you are planning to sell a business or a large real estate asset, these proposed changes could significantly impact your tax liabilities. Here are some key considerations:

  1. Timing of the Sale: If the proposed tax increases become law, selling your assets before the changes take effect could save you a substantial amount in taxes. However, this requires careful planning and consideration of market conditions.

  2. Estate Planning: The proposal also includes changes to the "stepped-up basis" rule, which currently allows heirs to inherit assets at their fair market value at the time of the decedent's death, minimizing capital gains taxes. Under the new proposal, gains exceeding $5 million per person and $10 million per married couple would be taxed if the property is not donated to charity. This change could affect your estate planning strategies, especially if you intend to pass down significant assets to your heirs.

  3. Carried Interest Loophole: The Biden administration aims to close the carried interest loophole, which allows asset managers to treat certain compensation as capital gains rather than ordinary income. This change would mean higher taxes on this type of income, impacting those in the investment management industry.

  4. Medicare Tax Increase: Another aspect of the proposal is an increase in the Medicare surtax rate from 3.8% to 5% for individuals earning more than $400,000 annually. This increase would apply to wages, salary, and capital gains, further affecting high-income earners.

Planning Approaches

Given the potential for these changes, here are some planning approaches to consider:

  1. Consult with Our Office: Engage with our experts to understand how these proposed changes could impact your specific situation. We can help you develop strategies to minimize your tax liabilities.

  2. Evaluate Timing: Assess the timing of your asset sales. If you are considering selling a business or real estate, doing so before any tax changes take effect could be beneficial.

  3. Review Estate Plans: Revisit your estate planning documents and strategies. Consider the implications of the proposed changes to the stepped-up basis rule and explore options such as charitable donations to mitigate tax impacts.

  4. Stay Informed: Keep abreast of legislative developments. The political landscape can change, and staying informed will help you make timely and informed decisions.

The Future

While President Biden's proposed tax changes are not yet law, they signal a potential shift in the tax landscape that could significantly impact business owners and real estate investors. By understanding these proposals and proactively planning, you can better navigate the uncertainties and position yourself for financial success. Always consult with our office to tailor strategies to your unique circumstances and stay informed about legislative developments that could affect your financial planning.

Share this article...

NEVER MISS A STORY.

Sign up for our newsletters and get our articles delivered right to your inbox.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

Social Media

Rose Tax & Financial

8 Pinon Ave
Cedar Crest, New Mexico 87008
Mon - Fri: 10:00am to 6:00pm
Sat: 10:00am to 2:00pm

Check the background of your financial professional on FINRA's BrokerCheck
Avantax affiliated Financial Professionals may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state. Securities offered through Avantax Investment Services℠, Member FINRA, SIPC, Investment Advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through an Avantax affiliated insurance agency. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. 972-870-6000.
The Avantax family of companies exclusively provide financial products and services through its financial representatives. Although Avantax Wealth Management® does not provide or supervise tax or accounting services, Avantax representatives may offer these services through their independent outside business. Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management® or its subsidiaries. Avantax Wealth Management® is not responsible for and does not control, adopt, or endorse any content contained on any third party website.
This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences.
For Important Information and Form CRS please visit https://www.avantax.com/disclosures.

FAQs Frequently Asked Questions
Type your message here.
Please fill out the form and our team will get back to you shortly The form was sent successfully