Dems eye pre-emptive capital gains effective date

 

Democratic lawmakers have quietly begun discussing whether to make a proposed increase in the individual capital gains rate effective on the date the proposal is introduced. An immediate effective date would prevent taxpayers from selling assets and engaging in transactions ahead of the rate increase.

President Joe Biden is expected to include a capital gains rate increase along with other individual tax hikes as part of economic and family security legislation to be unveiled as early as this week. The package is meant as a companion piece to the recently released infrastructure proposal, which would raise trillions in revenue by increasing the corporate rate, imposing a minimum tax on book income, and overhauling international tax rules.

Biden is widely expected to propose the 39.6% capital gains rate for income he championed in his campaign platform for income exceeding $1 million, though that will only be the start for negotiations. Many Democrats in Congress support a much shallower increase in the rate. Democrats have been fairly tight-lipped on potential effective dates for all their tax increase proposals. Retroactive increases in tax rates are rare, but not unprecedented. The still fragile economy seems to make them less likely. Treasury Secretary Janet Yellen has signaled a desire to phase in corporate and other tax rate increases prospectively.

The capital gains rate could be an exception. Tying the effective date to the day of introduction would avoid retroactively increasing taxes on transactions that occurred before the change was announced. At the same time, it would prevent taxpayers from immediately engaging in transactions at the current lower rate after learning about the proposal.

The ultimate decision could hinge on how the Joint Committee on Taxation scores the revenue impact of various effective dates, and how well the economy is fairing. Negotiations remain in flux, and proposals should be expected to evolve through the long and contentious legislative process.

 

Contact:

 
 
Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.

 
 

More tax hot topics