Will Capital Gains Be Changed?

Currently, capital gains rates for the sale of assets held over one year are taxed at 15% (0% to the extent a taxpayer is in the 15% or lower regular tax bracket), compared with a top tax of 35% for ordinary income. Without Congressional action, these rates will increase to 20% (18% for assets held over 5 years) in 2013.

Although there has been some discussion related to extending the 15% rates for another year (2013), to date, Congress has not provided any indication one way or the other. Even without providing guidance for 2013, the House Ways and Means Committee and the Senate Finance Committee are already holding joint meetings to discuss capital gain reform.

Capital gains and related issues make up approximately half of the tax code, in excess of 20,000 pages. In addition, those with the most capital gains are generally the wealthier taxpayers, and lower capital gains rates contribute to the disparity in tax rates between the wealthy and the average working family that we hear so much about in the media. As an example, Billionaire Warren Buffet announced that his tax rate was 14%, which is lower than the rate paid by his secretary.

Some contend that capital gains should be taxed as ordinary income and should even be taxed as the income is earned rather than when the gain is realized.

Still others maintain that doing away with special long-term capital gains rates would discourage investment and would further harm the economy.

It is difficult to predict what lies ahead. But you can count on this firm to stay on top of this issue and to keep you abreast of the ever-changing tax landscape.

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