Will the 2024 Presidential Election Change How Your Capital Gains Are Taxed?
Between the 24/7 news cycle and the two-year election cycle of our government system, I'm sure I'm not the only one who feels like our country is in a permanent state of campaigning. And that means some folks who do follow politics and their investments closely are often hearing our leaders talk about tax policy every time they turn on the news.
However, it's very important to distinguish between what candidates propose on the campaign trail, what's being debated in Congress, and what actually has a chance of becoming law.
On today's show, we separate the facts and the fiction from sound bites on capital gains taxes that you might have heard in recent weeks -- and that you're likely to hear a lot more as we head into the final month of the 2024 campaign.
1. Understanding cost basis.
Let's say you paid $450,000 for your house. $450,000 is the cost basis of that investment. If you were to sell your house for $500,000, you'd have a capital gain of $50,000. If you sold for $400,000, you'd have a capital loss of $50,000.
Capital gains tax applies to any investment outside of a retirement account. So, all the investments in companies that are bundled together in your IRA and 401(k) accounts are exempt from this particular formula. The IRS will only tax you when money comes out of those accounts, with the exception of the tax-free Roth IRA.
As for your brokerage accounts, mutual funds, and ETFs, the cost basis for those investments is locked in on the day the investment is made. You will incur short-term capital gains or losses on those investments if you sell them within a year of purchase, or long-term gains or losses after holding for a year or more. So, if you buy a stock for $100 and sell it a year later for $200, you have a long-term capital gain of $100 that is subject to capital gains taxes, which are different from your ordinary income tax bracket.
In 2024, single filers earning less than or equal to $44,625 and married couples filing jointly earning less than or equal to $89,250 pay 0% capital gains tax.
Single filers earning more than $44,625 but less than or equal to $492,300, and married couples filing jointly earning more than $89,250 but less than or equal to $553,850, pay 15% capital gains tax.
Single filers and married couples filing jointly whose taxable income exceeds those thresholds have their capital gains taxed at 20% and may be subject to additional surcharges, including a 3.8% net investment income tax.
Most states also have their own rules around taxing capital gains.
2. What are the candidates proposing?
Former President Trump has not offered any specific proposals on capital gains taxes, which could mean he thinks the rates are fine where they are.
Vice President Harris has proposed increasing the long-term capital gains rate on folks who earn $1 million or more of taxable income to 28%. She has also proposed boosting the net investment income tax to 5% for income above $400,000.
This is, of course, fairly common campaign rhetoric no matter who the candidates are. You're probably never going to hear a proposal to tax your typical middle-class worker, while the question of how much high earners should be paying in taxes is a source of constant debate.
3. What will actually happen?
Our politics may seem like they're in a constant state of flux these days, but tax policy, once it's passed into law, tends to stick around. George W. Bush's 2002 tax cuts still govern how dividends are taxed. The net investment income tax was part of the 2010 Affordable Care Act. And parts of the 2017 Tax Cuts and Jobs Act won't expire until next year.
No matter who wins the White House in November, it's likely the president will be working with a deeply divided Congress whose attention will be pulled in several different directions: inflation, employment, education at home, Ukraine, the Middle East, and China abroad, just to name a few. Capital gains and other tax policies might take a back seat to some of these issues. And even if the president does put taxes on his or her legislative agenda, it might be extremely difficult to get enough of our legislators on the same page to pass any new laws.
In the run-up to any election, no matter how you feel about the candidates and their prospects for winning, please don't vote with your money. Instead, now is a great time to schedule your year-end financial review with Keen Wealth. We can help you stay focused on what you need to do before the end of the year so that you’re in the best position position next April.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.
The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.
The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019 and the second edition under Financial Risk Management on October 26, 2022. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities.
The Steve Sanduski Advisor Network, Belay Advisor, LLC and other third-party contributors to our blogs and podcasts are not affiliated with Keen Wealth Advisors.
For additional details on Keen Wealth Advisors, please visit https://www.keenwealthadvisors.com/important-disclosures.
20240925-3885623-12325639